FCA welcomes ESMA decision to intervene in binary options
The FCA has welcomed the European regulator’s decision to potentially intervene in the binary options market which has seen a large number of scams hitting UK investors.
The European Securities and Markets Authority (ESMA) announced that it was considering the possible use of its product intervention powers under Article 40 of the Markets in Financial Instruments Regulation (MiFIR), to address the recent increase in binary options scams and protect investors’ interests.
ESMA is considering applying two measures when it comes to binary options which would prohibit the marketing, distribution or sale of binary options to retail clients and restricting the marketing, distribution or sale to retail clients of CFDs, including rolling spot forex. ESMA will conduct a public consultation on the changes in January.
Any product intervention measure adopted by ESMA under Article 40 of MiFIR can have an initial duration of up to three months and is renewable.
In November the FCA announced that it would take over regulation of binary options from the Gambling Commission from 3 January in the wake of a growing number of investment scams which have cheated investors out of millions.
This means that firms operating in the binary options sector and targeting investors will be authorised and supervised by the Financial Conduct Authority, individual complaints can be referred to the Financial Ombudsman Service and consumers will have access to the Financial Services Compensation Scheme.
Since 2012, there have been a reported 2,605 UK victims who have lost £59.4m on binary options scams. Many believe they are trading or investing in the price movement of investments but many lose money quickly. The FCA also issued a public warning to consumers about the risk of investing in these “high-risk, speculative products.”
Binary options allow a consumer to make a bet on the value or price of a stock, commodity, currency, index, “or just about anything that is capable of being measured in financial terms.” The time periods involved tend to be very short (often around 30 seconds to 5 minutes), says the FCA.
Binary options are currently regulated by the UK’s Gambling Commission but only if the firm has gambling equipment in the UK. Consumers do not currently have the protections offered by the UK’s financial services regulatory framework when purchasing binary options.
However, the FCA warns that any binary options firms based in other EU states will still be regulated by their home regulator although they will appear on the FCA register if they operate in the UK.