In-app “nudges” or suggestions are expected offerings from digital financial platforms, but there is debate around whether they are forms of financial advice that need to be regulated.

Why should we care?
At the virtual SEC Speaks conference from the Practising Law Institute, Gary Gensler, chairman of the Securities and Exchange Commission (SEC) said digital engagement practices that go beyond gamification – encompassing underlying predictive data analytics, marketing practices, and behavioral prompts – could raise issues of conflicts of interest, bias, and systemic risks. “For example, a robo-adviser might steer us to higher-fee or more complex products, even if that isn’t in our best interest,” he said. Though he didn’t mention Regulation Best Interest, some may argue it should be applied to online brokers, particularly when a “nudge” is deemed a recommendation. “When do these design elements and psychological nudges cross the line and become recommendations?” Gensler said. “The answer to that question is important, because that might change the nature of the platform’s obligations under the securities laws.” The regulator recently held a public comment period on digital engagement practices of brokers and digital investment advisers. Brokerage firm Robinhood weighed in on this, warning of the consequences of additional oversight. “The bottom line is that additional regulation in this area will undoubtedly raise significant legal issues, require a robust record (including a rigorous assessment of the costs and benefits of regulatory action), and demand substantial engagement with stakeholders,” the company wrote in an October comment letter to the SEC.