Using phone for finances
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A review of mobile trading apps by the U.K.’s Financial Conduct Authority finds that while most firms use digital engagement responsibly, some must review pricing and client screening to ensure fair value and appropriate risk.

In a new report, the regulator set out the results of its review of the business models, and product and service offerings of firms that provide trading apps — which its research has found are used by about 1.6 million investors in the U.K. These are primarily younger investors (almost half of app users are aged 18 to 34) and largely male (men are about five times more likely to use apps than women).

The proliferation of these apps, also known as “neo-brokers,” has expanded retail investor access to trading by offering low-cost, or free, trading, and has also facilitated access to a wider range of products, the report noted — however, some apps are also exposing investors to riskier, more complex products, it cautioned.

“This could lead to harm where they invest in products with complexity or risk not appropriate for them,” the report said.

Additionally, some firms don’t have robust “appropriateness” tests, it noted. 

“This meant some customers were able to access products or services for which they did not have appropriate knowledge or experience,” it said.

The review also found that clients at certain firms are at risk of “paying fees that are not in line with the value they receive.” 

It noted that trading app firms generate revenues various ways, including commissions, subscription fees, and interest from client cash balances.

“Some firms may need to reassess whether their current pricing structures provide good value for consumers,” the report said. “We expect firms to assess whether a product or service provides fair value. They should also consider whether cross-subsidies between different products and services and different groups of consumers affect this.” 

The FCA called on firms to consider the review’s findings when designing trading apps, and to ensure that they are complying with their regulatory requirements.