The Securities and Exchange Commission is pondering a crackdown on how broker-dealers and investment advisors use techniques such as behavioural prompts, differential marketing, and gamification.
The regulator is seeking public comment on "digital engagement practices" (DEPs) that are used to engage retail investors by trading apps and sites as well as the analytical and technological tools and methods used.
In December, Massachusetts securities regulators filed a complaint against Robinhood accusing it, among other things, of using gamification to entice continuous use of its service. The trading app later removed the digital confetti with which it has showered users' screens.
SEC chair Gary Gensler says: "While new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice.
"In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors."
The commission says it wants feedback over the next 30 days to better understand the practice and learn what conflict of interests may arise.