The UK’s Financial Conduct Authority (FCA) has prohibited all firms based in the country from selling binary options to retail clients.
The move follows a consultation in December 2018 where the regulator highlighted its concerns about the inherent risks of such products, and the poor conduct shown by the firms selling them.
Binary options are financial products where the customer either receives a pay-out or loses the investment completely. They have an expiration date, and the outcome depends on the price the asset has on the that date.
“Binary options are gambling products dressed up as financial instruments,” said Christopher Woolard, executive director of strategy and competition at the FCA.
“By confirming our ban today, we are ensuring that investors don’t lose money from an inherently flawed product.”
In the investors’ interests
The ban will come into force from 2 April 2019 and its aim is to save retail clients up to £17m ($22.2m, €19.8m) a year, as well as reduce the risk of fraud by unauthorised firms claiming to offer binary options.
The FCA’s decision follows similar action by the European Securities and Markets Authority (Esma), which banned such products in July 2018 and has been renewing the prohibition every three months.
However, while the FCA’s ban mirrors the European regulator’s, it also applies to “securitised binary options” – which are defined by Esma as “binary options that are listed on a formal trading venue, are subject to a prospectus, and have minimum contract periods from the point of entry to the expiry of the binary option”.
Esma’s ban does not apply to such products; but the FCA said that, although they are not sold in or from the UK, they pose as much risk to retail investors as binary options.
