Following this announcement, the findings show a growing number of retail customers who currently access financial products and services through the use of desktop and mobile applications. The research paper was entitled ‘Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes’, and it looked at the links between the use of specific features (known as DEPs) and trading outcomes for retail clients with the Consumer Duty in mind.
The Financial Lives 2024 survey also shows that 3% of adults (1.6 million) were using a trading app, with use higher amongst men (5%) than women (1%). In addition, almost half (47%) of trading app users were aged 18 to 34, while just one-sixth (18%) were 55 or older. Following the research, FCA aimed to understand how retail customers were leveraging the trading apps, while also looking at the business models, product offerings, and solutions of 12 trading app firms.
Trading apps have allowed more retail investors to access a wider range of investments more easily, as a way to optimise their overall financial lives. However, some trading applications provide customers and businesses with higher-risk investments, traditionally aimed at wholesale markets. Multiple offers for low or commission-free trading have helped attract new retail clients to the process of trading. This range of products and suite of services that are made available through these apps is also currently increasing. Alongside this initiative, trading apps generate revenue for firms in several ways, including transaction fees on trades, subscription fees, and interest earned from cash balances on customer accounts. With this in mind, companies must identify, prevent, and manage potential conflicts when considering their revenue drivers to deliver good customer outcomes.
In addition, whatever the business model, the regulated firms need to ensure they understand the requirements that apply to manufacturers and distributors as set out in the Handbook. Where affiliates are based overseas, companies are expected to make it clear to customers that their trading agreement is with the overseas entity and whether there is any loss of protection on their assets.
Trading apps allow access to a wide range of products, so firms are expected to ensure they are appropriate for retail clients by using appropriateness tests. These tests are required in order to assess whether a client has the knowledge or experience in the relevant investment field to understand the risks involved. Furthermore, they also help ensure that the services are being distributed to the target market, so it is important for companies to collect relevant information in order to assess appropriateness.
At the same time, this sector is growing at a fast pace. New firms and enterprises have entered the market, while traditional investment brokers have also introduced trading applications. Where companies are diversifying, FCA mentioned that they should do so in a sustainable way, while also supporting development and growth, and helping customers navigate their financial lives securely. In order to manage this process, firms are expected to implement oversight and controls in order to build more trust in the sector.
FCA expects to see a customer investment market where individuals are allowed to make well-informed investment decisions, while also understanding how to meet their needs and the overall risks they are taking.
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