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Kristina Frunze

14 November 2017

Regulation Forex

FCA UK Binary Options Regulation launches in 2018


2018 is approaching as so is the new FCA UK Binary Options Regulation. The key financial regulator of the UK will be responsible for monitoring the Binary Options market in the UK starting from the 3rd January 2018.

14 November, AtoZForex The day has come – today, the key financial regulator of the UK, the Financial Conduct Authority (FCA) has made an important decision.

The supervisor has ruled out that starting from the 3 January 2018, firms that offer Binary Options in the UK will fall under the FCA UK Binary Options Regulation. Moreover, they will no longer be licensed by the Gambling Commission.

Risks of Binary Options investment 

The FCA has issued an announcement in regards to the risk of investing in Binary Options. The regulator has called Binary Options “high-risk and speculative products.”

In its release, the UK regulator has drawn the attention of investors to the number of points. For instance, the regulator has highlighted the definition of Binary Options:

“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).”

In fact, the data from the FCA indicates that the majority of traders lose money when making bets. The regulator also stated that consumers find it difficult to achieve sustained profits over a series of bets.

Binary Options Scams

Following on this, the FCA has turned to the topic of Binary Options scams. The supervisor has explained:

“UK consumers may also be targeted by binary options scams, which commonly promise higher than average returns for bets that never occur and manipulate software to distort prices and payouts. They also commonly refuse to return client funds and break all contact with customers.”

The FCA also stated that fraudulent Binary Options firms often tend to advertise on social media. These promotions connect clients to the websites that are tailored to attract people as they also appear professional.

What are the Binary Options Risks outlined by FCA?

The FCA further stresses the risks that can be caused by the Binary Options products. Specifically, the regulator has the following concerns about these products:

Losses from trading - FCA data states that a majority of consumers lose their funds when trading Binary Options.

Addictive behavior“The fact that binary options are similar to fixed odds bets, along with the short duration of contracts, means that they can be addictive and can result in consumers accumulating significant losses.”

Conflicts of interest - The regulator states that when you lose, the firm you are buying options from, wins. According to the FCA, “This places the firm’s interest in direct conflict with yours, which increases the risk of poor conduct by firms offering these products. “

The potential for fraud – Binary Options appear as a significant source of fraud in the UK. Starting from 2012, the FCA has received 2,605 victims who lost £59.4m on binary options scams.

FCA UK Binary Options Regulation launches in 2018

As of now, Binary Options products are regulated by the UK Gambling Commission. This is valid only for the case if the firm has gambling equipment in the UK. Clients currently are not protected by the UK financial services regulatory framework when buying Binary Options.

Yet, this is about to change. Starting from the 3rd of January, 2018 firms that offer Binary Options will fall under the regulation of the FCA. The regulator has highlighted the following points in regards to the FCA UK Binary Options Regulation:

  • firms will be authorized and supervised by the Financial Conduct Authority
  • individual complaints can be referred to the Financial Ombudsman Service
  • consumers will have access to the Financial Services Compensation Scheme

Yet, the FCA also states that the protections will not compensate clients for any losses from trading.

In fact, Binary Options are also regulated as investment products in other European Union states. Thus, the EU financial services law implies that firms that are legally established and registered in the European Economic Area (EEA) have the right to do business in any other EEA nation. Therefore, they are also currently able to do business in the UK.

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