It’s been a couple of years since the issue of regulation has started to make its way into the binary options branch of the retail trading industry. The Cyprus Securities and Exchange Commission (CySEC) was the first regulatory body to announce that it will be regulating binary options providers in 2012 and ever since, it has been the top regulatory destination for binary options treated as a financial product.
While some other jurisdictions have been giving out licenses as “games of chance,” those were popular destinations for companies in the gaming industry. The fairly low capital requirements have made CySEC the top binary options regulation destination for new operators.
This year this could change. After a prolonged legal battle, a local Dutch binary options broker with its own platform has managed to score a victory against the local financial regulator.
A court ruling by the Dutch Financial Regulator Autoriteit Financiële Markten (AMF) has mandated the watchdog to grant a financial license to locally operating brand Optieclub.nl. Until now, the company has been refused an operational license as a financial services provider due to concerns from the regulator that the product resembles a game of chance.
After the company was directed towards the Dutch gambling commission by the AMF, it didn’t proceed with applying for a gambling license. Instead it decided to turn the matter over to the Dutch court and seek an answer as to why its service was denied a proper license, despite falling into the financial markets product definition under MiFID regulations.
Regulatory Game Changer for Binary Options in the EU
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Aside from granting Optieclub a legal license which can be passported under MiFID, the court’s decision creates an EU-wide precedent which could alter the dynamics of the binary options regulation space altogether.
Since binary options have been qualified as financial instruments under MiFID, the Dutch financial regulator is now obligated to regulate Optieclub (and for that matter any other company applying with the local regulatory body) honoring its application under MiFID.
Optieclub’s lawyers Hester Bais (BAIS Legal) and Bas Jongmans (Gaming Legal) have expressed their thoughts that the ruling is a message that the AFM should only regulate policies that have been introduced by law makers. Regulators cannot be allowed to introduce policies themselves, such as designating a certain product based on the financial markets as gambling.
The nature of the MiFID directive consists of creating a harmonized regulatory environment. Hence there is no logical reason for a locally-based company to go to Cyprus in order to obtain a license from CySEC, when it already should be able to apply under its local laws.
The court’s decision clarifies that financial instruments treated under MiFID should not be regulated under gambling regulations, since the Dutch financial regulatory laws already provide an adequate regulatory framework.
Since the court ruling is limiting the powers of the Dutch financial regulator, AFM, there are expectations that the watchdog will appeal the ruling.
Following is a link to the Dutch court ruling (in Dutch).