The UK’s financial watchdog has issued a warning about the gamification of the investment industry and the risk of encouraging gambling-like behaviour among investors.

The Financial Conduct Authority (FCA) has demanded that trading app operators and investment platforms review the design features of their offerings and any “game-like” elements that may lead consumers to invest in products beyond their risk appetite.

"Some product design features could be contributing to problematic, even gambling-like, investor behaviour,” said Sarah Pritchard, executive director of markets at the FCA. “We expect all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products based on these findings.”

The FCA’s warning comes on the back of a report from the CFA Institute, the global association for investment professionals, which calls on regulators to ensure that the increased use of gamified investing apps does not increase risks for retail investors.

The report’s recommendations call for app design that moves away from one-click transactions, more rewards based on long-term outcomes, the use of reputable research sources, transparency around influencer payment disclosures, warning labels, licensing requirements and more investor education materials.

“We support innovation, but without appropriate safeguards and design frameworks, gamification and other behavioural nudges may fuel future bouts of volatility and increase market risks, particularly among inexperienced investors,” said Paul Andrews, managing director for research, advocacy and standards at CFA Institute.

“Young investors have profoundly high levels of trust in digital nudges and have reported greater trading frequency compared to older cohorts. These findings have important implications for market integrity and investor outcomes.” 

© 2022 fundsTech