European regulators have banned retail investors from investing in binary options after nearly £60m was cheated from consumers in the UK alone.

The move, which may be made permanent, follows a wave of complaints about scams and rip offs which prompted the FCA to intervene.

Binary options trading has been banned, at least temporarily, by the European regulator ESMA, the FCA confirmed today, and trading in CFDs (Contracts for Difference) has also been restricted.

In the UK in January the FCA took over regulation of binary options from the Gambling Commission following a growing number of binary options investment scams which have cheated investors out of millions. Since 2012, there have been a reported 2,605 victims who have lost Ј59.4m on binary options scams.
Many believed they were trading or investing in the price movement of investments up or down but lost money quickly with some operators failing to pay back investors. The bans and intervention may be made permanent, the FCA said today.

ESMA says it made the move to protect investors.

ESMA’s product intervention measures will be applied to the provision of CFDs including rolling spot forex and financial spread bets, and binary options to retail clients.

ESMA has agreed the following:
1. Prohibition on the marketing, distribution or sale of binary options to retail clients; and
2. Restrictions on the marketing, distribution or sale to retail clients of CFDs, including rolling spot forex and financial spread bets.

The restrictions applied to CFDs are:
• leverage limits on the opening of a position between 30:1 and 2:1, depending on the price volatility of the underlying asset
• a 50% margin close out rule applied on a per account basis
• negative balance protection, limiting retail clients’ liability to the funds in their CFD trading account
• a prohibition on firms offering monetary and non-monetary benefits (excluding research and information tools) to retail investors; and
• a standardised risk warning, including firm-specific figures on the percentage of client accounts that have lost money trading CFDs.

ESMA plans to adopt the agreed measures in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website.

The measures will be published in the Official Journal of the EU (OJ) and firms will be required to implement the prohibition on binary options, one month after publication in the OJ, and two months following the OJ publication, for the restrictions on CFDs.

The product intervention measures will be applied under Article 40 of the Markets in Financial Instruments Regulation (MiFIR) and will have an initial duration of up to three months, after which the measures may be renewed.

The FCA says it fully supports ESMA’s application of an EU-wide temporary product intervention measures.

The FCA expects to consult on whether to apply these measures on a permanent basis to firms offering CFDs and binary options to retail clients.