Analysis: Will CySEC Ban Binary Options Too?
After the US, Israel and Canada, the feasibility of binary options in the EU is shaken - how will CySEC

There have been a set of worrying developments over the past couple of years concerning binary options. What started as a controversy in the US in 2013 with the action of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to limit the offering of the product across the Atlantic, has been spreading to other regions of the world.
While the dispute of whether binary options should be treated as a financial instrument or gambling continues, a number of regulators have joined the US in proclaiming binary options as dangerous or illegal.
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At the beginning of the past week the Israeli Financial Services Authority gave a 30 day notice to brokers providing the contracts in Israel, before a ban on binary options is activated. Canadian authorities have also joined the fray with an announcement that Canadians should be wary of binary options brokerages which are likely to abuse their personal data and credit card information, among other financial fraud.
The Canadian regulators have compared binary options to gambling and elaborated that the brokerages are frequently mistreating their clients. The news comes after a year of complaints and bad press regarding binary options across Europe, particularly from France and the local authority Authorite des Marches Financiers (AMF).
The French regulator has been actively studying the binary options market and published last year a “mystery shopper” survey which revealed striking irregularities in the practices of binary options brokers across Europe.
CySEC Under Fire by European Securities Markets Authority
The Cypriot regulator has been at the center of the AMF study, with the mystery shoppers managing to open accounts at 8 brokerages regulated by CySEC. After some time the clients of the regulated brokerages attempted to withdraw their funds, and succeeded in doing so on only two occasions.
After literally thousands of complaints from clients across the European Union contacting their local regulators regarding the malpractices by companies engaging in the provision of binary options services to their clients, the European Securities Markets Authority has applied pressure on the CySEC to start treating the complaints of clients adequately.
Serving as proof about the situation in which the Cypriot regulator has found itself is the fact that after years of silence, the watchdog has finally started cracking down on dubious practices across the industry and started issuing more material fines. On top of it, CySEC hired a PR agency to facilitate communications with the media.
Feasibility of Regulated Binary Options in the European Union
Looking at the prospects for the industry and CySEC, the possibilities for the continuation of the operation of regulated binary options brokers across the European Union is largely dependent on the watchdogs and the brokers themselves.
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While CySEC has certainly tightened its stance regarding the firms offering binary options contracts across the European Union, it would take action on the part of the brokers to adhere to fair market practices in order for the industry to continue operating legally across the continent.
The ESMA may be pushing for CySEC to suspend regulating binary options companies, however a legal precedent in the Netherlands, which Finance Magnates reported on last year, could provide a necessary lifeline for binary options to continue to be regulated as a financial product.
Dutch company Optieclub has been vigorously battling in court to obtain the right to get regulated as a financial product by the local regulator for a couple of years now. After a court ruling awarded the company with the right to get regulated as a financial intermediary, other regulators across the European Union in theory should be mandated to do the same.
The Case for CySEC to Continue Regulating Binary Options
With CySEC facing criticism from the ESMA regarding the conduct of regulated binary options brokers, there is no choice for the regulator but to approach the matter seriously and make regulated firms adhere to the standards determined by the law.
While a number of companies related to the binary options industry continue to be based in Cyprus, the political case for ceasing regulation and kicking them out of the country is not compelling, especially considering the precarious times for the Cypriot economy and the need for jobs in the country.
Several big brokerages are operating from the island and the industry is providing thousands of jobs, which are hard to be replaced by existing industries on the island. It is in the interest of CySEC to continue to regulate binary options companies especially considering that no other regulators across the EU are particularly enthusiastic about taking on the product. While the FCA was rumored to begin regulating the product in the past, a lot of quarters have passed since then that are making the transition unlikely at present.
Brokers Should Forget About Malpractice for the Sake of Business
Binary options brokerages which are not adhering to honest conduct clearly have no place in the industry and clearly will lose out in the long run. With a number of companies already actively engaging in proper conduct, the word about fraudulent practice gets out quickly amongst the trading community and regulators.
The European Union is a huge market for the product and not many brokers will be able to afford to continue operating should binary options be banned across the European Union. That said, this is contingent on the brokerages and technology providers adhering to honest conduct and avoiding the use of tools that are actively preventing their clients from making winning trades.
Unlike foreign exchange and CFDs trading, where clients have the option to choose whether to trade with a market maker or an STP broker, in the over-the-counter (OTC) binary options market, the broker is always on the other side of the trade.
With no visible elimination of the conflict of interest in sight, binary options brokers might as well consider repaying their clients their winnings on time and adhere to the market price when selling their contracts. This way is the only way forward for the industry considering the rising tide against the product around the globe.
Cysec never protect investor. What cysec care is fine broker money for its own pocket.
Cysec is sharing scam money with broker by fine.
Victims/investors money never recovered/paid.
Look at ironfx victims
Funny you are not mentioning binary exchanges as a way to halt the conflict of interest problem.
Anyways, the article is an interesting read. thanks!
hi troopa,
while exchanges could eliminate the problem, they are a completely different product than the up/down call/put binary options. That product is more complex and more expensive to maintain. Nevertheless, Nadex is a proof that clients can get used to it, I’m just not sure that those clients are anywhere close to the clients that engage in the simplified product which we are all familiar with.
No it’s not different, look at Nadex
I have not only looked at it, I have used it – it is miles ahead of offshore binary options. However, try convincing your average first time trader who is simply clicking on put and call all day long that Nadex is the same thing… good luck!
I am not saying it’s not ahead, i said it’s in essence the same product, but traded on an exchange, no need to be kinky
I know that you’re not saying that… It just puzzles me why do you compare apples to oranges, that’s all.
Yes. This was known and expected. Green or red, red or green. This is not the way to go. By 2018 leverage will be reduced, trading bonuses will be cut etc. The industry is becoming too much of a “casino style”. Yes, trading is good, yes greed is good, yes emotions are good but is becoming a bit too much. Time for some clean up.
The first paragraph is erroneous. The US bans all non-exchange-based financial instruments, they have not picked on the solely binary options as Nadex, Cantor and the CBOE prove. The abuse of personal data and credit card fraud can be found across the internet, not is not just related to financial markets and certainly not solely to binary options. Fraudsters exist and right now there are too many of them operating within the binary options sphere and unfortunately concentrated in Tel Aviv as the Times of Israel has recently attested. Furthermore the pigeon-holing of binaries as an investment or a bet… Read more »
Hi Hamish, well, allow me to respectfully disagree with you. The practices in the industry are damaging even to binary options brokers that adhere to offering the product properly. As to your remark regarding the first paragraph and the U.S., I will say it again – exchange traded binary options have little in common with the popular call/put or up/down product. Nor do they have much in common with the regulated product in Japan.
As to the Israeli FSA, they are simply taking care of the jurisdiction which is their responsibility.
Hi Victor, I agree totally that the practices in the industry are damaging and not just to brokers that adhere to offering the product properly, not least my own website as the term ‘binary options’ is automatically linked with dodgy practices. As to the popular call/put or up/down or over/under, they have little in common? Nonsense! They ARE binary options and so have everything in common with binary options whether traded on an exchange or in Japan. What is different is purely the marketing and subsequent fraud. My point again is that binary options are at present blighted by underhand… Read more »
I disagree – exchange traded binary options can be bought and sold on the exchanges at any point in time, hence the trader is facing much more complexity than a simple call/put or up/down binary option. You raise the right point – marketing the exchange traded product is way more difficult, because the clients need to have basic understanding of how financial markets work and how the value of options fluctuates over time, its not as simple as buy or sell and wait for the expiration time.
Victor, if an exchange was being run fraudulently I would say attack the fraudsters, wherever they are operating from and whatever the product. The instrument is not the issue.
The ‘simple’ call/put, up/down, over/under are just names for at-the-money options which exist on exchanges too. What the marketing guys have done in Tel Aviv is create a much more simple presentation of these instruments. I take my hat off to them. But they are still binary options!
Tootlepip! I’ve got other things to do…………
I don’t see what the question is. ESMA includes them under their definition of a financial instrument. Therefore, for CySEC or any other EU regulator to ban them means lobby the EU Commission to change its definition of the product. Good luck with that
and now with the link http://ec.europa.eu/yqol/index.cfm?fuseaction=question.show&questionId=1095
Actually, provided that European financial regulators received probably way over 10,000 individual complaints (only in France 4,500) throughout 2015, that lobbying effort on their part is not a far fetched scenario
Can you help me how to become a mystery shopper in FX industry? Thank you a lot.
Binary Options industry is 100% scam,
Its all start with misleading online Ads, when the client approach first to buy “trading education” they continue with false promises about how rich they will make you.
Im sure someone in Cysec doesn’t want to stop it, its a money making machine for them.
If anyone needs help in this subject, i would love to help… I lost around $50K and almost my family.