The biggest challenge for binary options firms gaining regulatory status is knowing the region and market you would like to target. This is an important step that many companies forget to take and invest time and money into researching. Binary options regulation in many countries is only at its earliest stages. Brokers in the EU already need a CySEC or similar financial license from an EU member state as binary options have been deemed a financial product under ESMA. In other zones however, there might be no regulation at all due to the debate of whether binary options are a financial instrument or a gambling one.
It is important to keep in mind that as the industry develops, so will the regulation. The best way to adapt to (future) regulation is to choose technology that allows you the flexibility and versatility to conform to new regulation independent of your technology provider.
The goal of regulation is to minimize financial losses due to white-collar crime and make financial institutions more transparent. Thus, to become regulated you must act as if you are already regulated and build your business model around this. While the growth of your business may not be as quick, it will be sustainable and more resistant to any regulatory hammers.
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Another approach to getting regulated as a binary options broker is to treat your binary business as a Forex business. This approach works well for existing Forex brokers as Forex regulation has been seeing a tightening grip and the industry participants already have the knowledge and experience to operate a transparent and regulator compliant broker.
Adapt Or Die: Regulation Necessitates Change
Another important point to keep in mind is knowing where your pricing comes from (something that is extremely important to regulators) and handling your client’s funds. If you leave the pricing and client fund handling to your technology provider, you are putting your business in the hands of said technology provider. This is an extremely risky maneuver because not all technology providers are capable of fast response to regulatory changes.
In closing, I would like to repeat that to become regulated, you must act as if you are regulated already. It is important to keep a transparent business and minimize your risks. Taking the Forex industry as an outline will help you overcome regulatory burdens and bring peace of mind to your clients.