Post-Brexit, the regulator’s ban on the sale, marketing and distribution of binary options to retail investors in the UK will replace Esma’s rules
The Financial Conduct Authority (FCA) is imposing a permanent ban on the sale, marketing and distribution of binary options to retail investors in the UK.
The new rules, which will take effect on April 2, are a response to “widespread concerns about the inherent risks of these products and the poor conduct of the firms selling them”, the UK regulator said, adding that consumers had suffered large and unexpected trading losses.
Binary options pay out all or nothing, depending on whether the investor makes the right call. They can have a short time horizon, often as small as a couple of minutes.
In the first weeks of this year, the FCA carried out a consultation on its intention to introduce the ban and its announcement on March 29 confirms the move.
Similar rules already exist across Europe, brought in by the European Securities and Markets Authority in mid-2018. Those temporary measures have been extended every three months since and now apply through July this year.
However, the FCA’s ban also applies to securitised binary options, which are not covered by the Esma restrictions. The UK watchdog wants to stymie the development of a market for these products, which it believes consumers find just as difficult to value accurately.
“Binary options are gambling products dressed up as financial instruments. By confirming our ban today, we are ensuring investors don’t lose money from an inherently flawed product,” said Christopher Wollard, executive director of strategy and competition at the FCA, in a statement.
The FCA rules will replace Esma’s measures once the UK leaves the European Union, and the two regimes will run in tandem until then.
In Europe, Esma also has rolling three-month restrictions on contracts for difference (CFDs) offered to consumers, which have an impact on retail brokers. The FCA carried out a consultation on its own CFD rules, alongside those for binary options, and it has said it expects to publish a policy decision on CFDs and CFD-style options in April. If it is unable to finalise those measures before Brexit, the FCA said it will consider adopting temporary protections to replicate those of Esma.
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