The Central Bank of Ireland has become the latest national regulatory authority to permanently implement the product intervention measures introduced by the European Securities and Markets Authority last August.
Citing client losses and a desire to protect retail traders, the Irish regulator said that it would be putting into law rules that are very much akin to the ones set out by ESMA last year.
That means binary options are finished in Ireland. No one can sell the products to clients inside or outside the country.
“The Central Bank is banning the sale of binary options to retail investors as we consider them a fundamentally flawed product, which have no place in the investment plans of retail investors,” said Derville Rowland, director general of financial conduct at the Central Bank of Ireland. “They are no more an investment than betting on a horse.”
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Leverage caps and risk warnings
Alongside that ban on binary options are a series of prohibitions on the marketing, sale, and trading of contracts for difference (CFDs) that will be familiar to most of our readers.
Leverage caps are in line with ESMA’s product intervention measures. Major currency pairs are capped at 30:1, cryptocurrencies at 2:1 and gold, indices and exotic currencies at 5:1.
Firms are also banned from certain marketing practices, such as welcome bonuses. They must also provide negative balance protection and put risk warnings on any material that is sent to their clients.
“Based on our ongoing work on CFDs at a domestic and EU level, we have concluded that retail investors must be protected from excessive levels of leverage, which can result in unexpectedly high levels of losses and from the risk of losing more money than they put into their CFD account,” added Rowland.
“We also want to stop firms using incentives to entice retail investors to trade in these short term, speculative products.’’