Some platforms also use digital engagement practices to influence the “choice architecture” of their products and services,nudging consumers to trade high-risk and speculative investments,such as contracts for difference (CFDs) or cryptocurrencies.
Those are some of the findings from a report released late last year by the Australian Securities and Investments Commission (ASIC),based on its surveillance of online trading platforms during 2022-23.
The regulator has intervened to improve protections for the huge number of retail investors,many of whom started trading during COVID-19 lockdowns.
ASIC commissioner Simone Constant says the regulator has been “disrupting” what she calls “emerging risks and harms” of some online trading platforms.
Brendan Doggett,country manager Australia at online trading platform Sharesies,says he welcomes the regulator’s interventions,as platforms should be long-term investing,not using “short-term tactics like gamification,FOMO trading practices and the lure of free brokerage”.
“The industry has a responsibility to support investors to understand the risks associated with investing,with transparent pricing and products,” Doggett says.
He says some platforms appear to be encouraging a trading behaviour that can induce a “dopamine hit”,but “spinning the wheel and taking a punt” is not what investing is about.
Instead,it is about establishing a regular habit of investing,not day-trading or FOMO-trading,he says.
In its report,ASIC found some trading platforms had been using behavioural science and analytics,including artificial intelligence and machine learning,to better inform them on the behavioural levers they can apply to investors.
Following the COVID-19 surge in investor numbers,the number of new investors has eased,and that could be a factor behind why some platforms are using digital engagement practices to increase activity.
The regulator found examples where “ that mimicked video and arcade games,sports and betting.
ASIC found some platforms were providing social-media style social trading features,such as where their investors could watch other traders or follow financial influencers and their investing stories.
The regulator is concerned that inducements designed to entice consumers to frequently trade,including digital engagement practices which use AI and gamification,may result in frequent trading and short-term losses.
It calls in its report these practices a “potentially harmful ecosystem of stimulant experiences for investors”.
Other concerning practices among some platforms highlighted in ASIC’s report include misleading or deceptive statements,and platforms holding investors’ assets in a way that could put investors’ assets at risk,should the platform go belly up.
The report says:“We identified several providers using ASIC’s name and logo to promote their products or services. We were concerned this may lead consumers to believe that the provider,and their products or services,had been approved or endorsed by ASIC.“
The regulator also found that some of the platforms that advertise free brokerage were charging foreign currency conversion costs when trading US shares,for example,which “generated significant revenue for these providers”.
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