Recently, the Securities and Exchange Commission (SEC) released a 45-page report about the use of gamification features in stock-trading apps. The SEC believes that these apps encourage more trading and may mislead investors. The report did not provide specific regulatory recommendations, but punted on the issue for now. As SEC regulations are expected to be finalized in the coming months, all eyes will be on the SEC and FINRA.
Some of these apps use artificial intelligence (AI) technologies that make the process of investing more interactive. These tools use supervised, unsupervised, and reinforcement learning processes that study user behavior and adapt to it. The SEC is concerned that these apps may encourage investors to make riskier investments or trade complex securities. This technology should only be used with careful oversight. The SEC has not yet issued a final rule on this issue, but regulators are still investigating gamification trading apps.
The SEC is now seeking public comment on digital engagement practices in investment apps. The commission is asking for information about game-like features, differential marketing, and other design elements of online brokerage applications. The agency is attempting to understand the impact that these practices have on investors. While the SEC is tasked with overseeing deceptive practices, FINRA is likely to take a secondary role in this case.
In addition to gamification trading apps, the ESA also has concerns about introducing game-like elements into non-game contexts. This practice has a long history in other industries, including sports, airlines, and even educational institutions. However, some critics say adding game-like design elements to trading apps may affect investor behavior. There is a risk of losing money and potentially irreparable damage. That is why regulators are investigating gamification trading apps.
The regulators’ concerns about gamification trading apps are not new. One recent incident involved the gamification interface of trading apps. A customer with little investment experience made over twelve thousand trades over six months. Fortunately, the company plans to cooperate with the investigation and settle for $15 million. Further, the California Attorney General’s Office has issued a subpoena for information about the trading app and the company.
One of the most popular gamification trading apps, Robinhood, has accumulated millions of users. The gamification aspect of the app makes trading seem more fun and empowering to the newcomer. The popularity of these apps has prompted regulators to investigate these apps. While the SEC has not issued any definitive statement on the gamification of trading, the European regulators are now poised to introduce regulations that may curb this practice.