Following consultation feedback, the UK’s Financial Conduct Authority (FCA) has confirmed all firms acting in or from the UK are prohibited from selling, marketing or distributing binary options to retail consumers.
The FCA aired its concern about the products in late 2017, before issuing a consultation paper in late 2018 seeking industry feedback, It now says that following that feedback it will officially introduce new rules on April 2, 2019, “to tackle widespread concerns about the inherent risks of these products, and the poor conduct of the firms selling them”. It adds, “This has led to consumer harm in the UK and internationally through large and unexpected trading losses.”
The FCA says its rules are in substance the same as the European Securities and Markets Authority’s (ESMA) existing, EU-wide temporary restrictions on binary options, however, it adds it is also applying its rules to so-called ‘securitised binary options’ that were excluded from ESMA’s prohibition. Securitised binary options are not currently sold in or from the UK. “The FCA thinks these products pose the same risks for investors and so are extending the scope of the prohibition to prevent a market developing for these products,” it states.
The FCA says it estimates the permanent ban on binary options could save retail consumers up to £17m per year, and may reduce the risk of fraud by unauthorised entities claiming to offer these products.
Christopher Woolard, executive director of strategy & competition at the FCA, says, “Binary options are gambling products dressed up as financial instruments. By confirming our ban today we are ensuring that investors don’t lose money from an inherently flawed product.”
The FCA says that UK consumers should continue to be alert for binary options investment scams and should only deal with financial services firms that are authorised by the FCA. “As the sale of binary options to retail consumers is now prohibited, any firm offering binary options services to retail consumers is likely to be a scam,” it states.