FCA Steps in To Take Care of Binary Options Industry
The Financial Conduct Authority (FCA) is charged with overseeing the operations of financial enterprises across the United Kingdom. It was recently reported that the FCA will move swiftly to fully regulate enterprises that provide risky binary options-style trading as from 2018. The binary options industry came under increasing scrutiny in 2017, given the widespread crackdown by the Israeli government on the unscrupulous providers of these financial services. According to the nature of the binary options industry, traders speculate on the prices of financial instruments.
Unlike conventional investments where financial instruments are purchased and held, binary options trading is a speculative activity where put options and call options are placed on any of the 4 asset categories – shares, commodities, indices and Forex. Many regulators have likened it to gambling activity and are intent on clamping down on untoward practices. The moves by the FCA to regulate binary options firms is only a concern to those who are employing shady practices. Fully regulated entities will have their trading platforms monitored, to ensure they are compliant with the strictest industry standards. With binary options trading, it is possible to rollover huge volumes of money on individual trades in as little as 30 seconds.
FCA to Take over from UKGC
Currently, the United Kingdom Gambling Commission (UKGC) is tasked with overseeing binary options activity in the UK. Given that it is a gambling-style activity, it is currently being managed by the appropriate commission. As from January 3, 2018, the FCA will assume control over the UK binary options industry. Various small-scale private enterprises and bigger operators such as IG Group currently offer binary options trading products in the United Kingdom.
Since most traders end up losing money with binary options, there have been increasing calls to firm up regulatory controls for the industry. The FCA has already moved swiftly to place a set of controls on leveraged options for the spread betting industry. Recall that towards the end of 2016, the FCA released its proposals to tighten up regulatory constraints on spread betting with things like contracts for difference vis-à-vis leverage.
According to the new rules proposed by the FCA, strict controls have now been imposed on the marketing of contracts for difference and the promotion of binary options in the UK. Now, many providers of spread betting and contracts for difference have limited the ability of new traders to access these financial instruments.
Consider that in 2013 the leveraged trade volumes of this industry amounted to £85 trillion – a highly lucrative arena for financial firms to occupy. It should be noted that the FCA is not intent on banning retail CFD (contracts for difference) trading activity. They simply want to tighten the screws to make it more difficult for every day Britons to be able to access these financial services.
FCA Retains Control over Cryptocurrency Regulation in the UK
By limiting leverage, people may be less inclined to wager more money. FCA regulation and impending proposals have led to a consolidation of the spread betting and CFD trading industry in the UK. Unfortunately, the FCA has been a toothless tiger in policing the unregulated offshore providers of spread betting activity and CFD products.
In Cyprus, CySEC (Cyprus Securities Exchange Commission) has required that companies limit leverage to 50:1 between professional traders and inexperienced traders. Many CFD providers and spread betting companies have complied with these lower leverage requirements so as not to evoke the ire of the powerful FCA.
As for binary options entities, the FCA is on a wall path with scam artists. Much the same is true with cryptocurrency trading platforms offering BTC, LTC, ETH, ETC and other digital currency trading options. The inherent volatility of digital currency is cause for concern, and many clients are trying to cash in on this new age sensation, without realizing that they can lose everything. Volatility is extremely high with digital currency, with price fluctuations as high as 30% + in a single day. Currently, the FCA fully regulate CFD trading with digital currency options as well.
Do you believe that the FCA is overstepping its bounds? Should binary options be allowed in the United Kingdom? What about offshore operators – how should the FCA tackle unregulated financial institutions from providing their services to UK clients?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.