Legislation around the world
Loopholes in British regulation have made it easy for unscrupulous binary options firms to operate here with little consequences.
Binary options trading is not overseen by the Financial Conduct Authority (FCA) because it is classed as gambling rather than a form of investment. But it is not overseen by the Gambling Commission either, because that institution only regulates operators that have equipment based in Britain. If the firm’s servers and other equipment are outside the UK, no regulations apply.
However, under European Union (EU) financial services law, if firms legally establish themselves in another member state, they are entitled to do business in the UK once certain procedural safeguards are met.
Many binary options firms have registered themselves in Cyprus. This means although they are not FCA-regulated, they are able to do business as financial services providers in Britain and consequently appear on the UK’s register of financial services firms.
This situation offers little protection for consumers in the UK, with the FCA stating it has “significant concerns over the conduct of firms from other EEA jurisdictions and elsewhere and the nature of the products offered in the current market, which have negatively affected UK consumers.”
The FCA is currently consulting on proposals which would allow it to regulate binary options. The consultation closes on March 2017. It is the second such consultation, with an earlier one held in summer 2015.
Meanwhile, countries around the world have taken action to protect their citizens.
The US bars binary options firms from targeting consumers unless they are operating through registered exchanges and contract markets, of which only a handful of companies are.
Belgium has imposed an outright ban on binary options trading, while the Quebec region of Canadda has recently announced it will not authorise binary bets in its jurisdiction
France has passed a bill that would ban binary options firms from advertising and the Netherlands is planning similar legislation.
Even Israel, the birthplace and capital of binary options trading, is going after the industry. While a ban on firms targeting Israeli consumers has been in place for some time, the government is now working on a law to ban the industry from its shores altogether.