Continuing on from the first article of our three part series, where we discussed why the regulators have been drawn into action on the binary options industry, we take a look at the different moves made by the individual EU country regulators. Shedding light on how various European countries have chosen to walk that fine line between tightening or loosening their hold on binary options brokerages.
What have the regulators done?
Belgium took a particularly strong stance and had the government ban retail online trading in forex, binary options and CFDs. It specified the ban against over the counter (OTC) derivatives and cited “inappropriate distribution techniques” such as cold calling and gifts / bonuses in particular.
The AFM of the Netherlands is looking to ban all forms of advertising on all CFD and Binary options in the country. The Chairman of the AFM executive board labeled them “toxic investment products” and stressed that “advertising for these investments entices consumers with the prospect of earning money fast, but it is actually the case that you can easily lose all of the money you have put in”.
France introduced a ban on online advertising of binary options and highly leveraged derivatives products in France. The French regulator’s 140 page report stated that close to four billion euros had been solicited from French residents over the preceding six years from “fraudulent” online brokers. This ban will affect binary options contracts and Forex / CFD instruments with leverage greater than 20:1.
Despite expectations that Germany’s BaFin would institute a complete ban on binary options and other derivatives trading, it publically stated that any intervention “would be kept to the absolute minimum required”. It is expected that its eventual action could be in the nature of “product intervention” rather than “advertising intervention”.
Denmark issued an official warning to consumers about investing in binary options. It stated that
“Both in Denmark and the rest of the EU, there are many examples of consumers who have lost large sums”, and added that Danish customers who lost money to binary options had not been able to get it back through the Financial ombudsman in Cyprus for CySEC regulated companies.
Impact on the Startup Nation
It may not be well-known that Israel, dubbed “The Startup Nation” for its high proportion of successful high-tech startup businesses and entrepreneurial fervor, has a strong presence in the binary options and forex markets. It provides much of the software for platforms and marketing for the industry, but has also directly contributed to the industry by being home to a sizable number of binary options companies.
Recent exposés in local press have accused these businesses of particularly shady dealings, with allegations of rigged trading platforms and refusal to return deposits being leveled at the so-called “Wolves of Tel Aviv”. The ISA reacted swiftly to these reports, banning binary options trading amongst Israeli citizens.
Intriguingly, however, it seems that the regulators want to take it one step beyond this level. They want to ban the marketing of binary options abroad from Israel, effectively destroying the entire local industry. In the public sphere there is minimal information that has been reported on these developments, but industry and regulatory insiders advise that the moves are focused specifically at Israeli run call centers.
*As we were getting ready to submit this article for publication, an article was published on the subject in The Times of Israel. According to the article, Israeli Security Authority’s chairman, Shmuel Hauser, declared that “What I am initiating now is legislation that will give us the means to regulate those [companies] that are based in Israel even if they are offering [binary options] to non-Israelis. They too will be covered by the legislation.” We’ve said it time and time again: As the waters of Binary Options brokers become harder to navigate, the opportunity to shift their existing operation unto Forex is an incredibly viable one.
In the last article of our three part series we consider the options available to Israeli-run Binary Options brokerages, and the potential that these alternatives have in transforming the entire industry.
This article was written by Yael Warman, Content Manager at Leverate.