Finance Magnates has obtained documents sent from Visa to card issuers, acquirers and processors instructing them on how to manage merchants selling binary options to cardholders in the U.S. and Canada. The company warns that numerous reports of fraud and scams have emerged related to merchants that sell these “higher-risk investments” and lists the steps needed to stop the practice.
Visa writes that the vast majority of binary options are sold through platforms that operate in countries such as Cyprus and Israel – many of these companies are not registered to conduct business in the U.S. or Canada. Even though consumers in the U S. and Canada can access such offshore trading platforms, they are not subject to U.S. and Canadian regulatory oversight. This means that online binary option platforms might not comply with U.S. and Canadian regulatory requirements.
It further goes on to explain that the number of offshore binary option trading platforms targeting U.S. and Canadian consumers is on the rise. As a result, U.S. and Canadian regulatory agencies, such as the SEC and the Canadian Securities Administrators, have reported a surge in fraud complaints associated with websites that offer an opportunity to buy or trade binary options. In turn, these agencies have warned investors in the U.S. and Canada to use caution when participating in unregulated binary options trading.
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War on Binary
Beyond sending a note specifically targeting binary options – an extraordinary measure by itself – Visa also took more steps to restrict the industry’s steps. It now asks card issuers to report to it any client disputes related to fraudulent or unregistered binary options providers. It warns acquirers that transactions submitted on behalf of such providers are subject to “non-compliance assessments and risk reductions measures under the Visa Global Brand Protection Program” – this means Visa sees this matter as a threat to its own brand and might take punitive measures against anyone it determines to be enabling it.
In addition, Visa dictates that acquirers must put in place controls in order to restrict any cross border transactions where merchants are located and operate outside the licensed jurisdiction of the acquirer – thus putting the onus on them to make sure that they do not allow firms not associated with Cantor Exchange or NADEX from operating in the U.S. and practically no binary options in Canada.
Tal Miller, the CEO of payments provider Fibonatix, shared his explanation for the moves: “Visa’s decision to specifically point out Binary Options brokers targeting Canadian and American clients is an additional escalation in the war the regulators in both countries are waging against unregulated operators. This follows a similar move made by MasterCard with regards to FX and Binary Options brokers targeting Japanese clients back in April this year.
We’ve recently been made aware that regulators are applying increasingly more pressure on Visa and MasterCard to cut off the flow of funds to unregulated operators in addition to chasing after the operators themselves. I believe this trend will intensify in the coming months with more markets being closed at the card scheme level.”