FCA confirms ban on of binary option retail sales

The UK’s Financial Conduct Authority (FCA) is to introduce a permanent ban on the sale, marketing or distribution of binary options to retail consumers.

Due to come into effect from April 2, the rules will be applicable to all companies that are either operating in or from the UK.

The FCA’s new rules will operate in a similar way as the European Securities and Markets Authority’s (ESMA) European Union-wide, temporary restrictions on binary options. Binary options are financial trading products in which the user bets on a yes/no proposition, such as a company's share price hitting a certain value, within a set period. If the share price hits this value, the player receives a payout, similar to betting on sports. However, if the share price fails to hit that target, then they lose their stake.

However, the FCA’s rules differ in that they will apply to so-called ‘securitised binary options’ that were excluded from ESMA’s prohibition. These are binary options that are listed on a formal trading platform, are subject to a prospectus, and have minimum contract periods from the point of entry to the expiry of the binary option. 

Such products are not currently sold in or from the UK but the FCA has ruled that they pose the same risks for investors is extending the scope of the prohibition to prevent a market developing for these products.

The FCA has said that such is the impact of the permanent ban that it could save retail consumers up to £17m (€19.7m/$22.2m) each year, in addition to cutting the risk of fraud by unauthorised entities claiming to offer such products.

“Binary options are gambling products dressed up as financial instruments; by confirming our ban today we are ensuring that investors don’t lose money from an inherently flawed product,” executive director of strategy and competition at the FCA, Christopher Woolard, said.

However, the FCA has warned that consumers in the UK should remain vigilant of binary option investment scams and should only deal with financial services firms authorised by the FCA.

The FCA also reiterated that after the ban comes into effect, the sale of binary options products will be prohibited, so any firm offering services is likely to be a scam.