Compliance
Compliance Corner: UK Bans Binary Options For Retail Investors

The latest compliance issues in wealth management around the world.
The Financial
Conduct Authority, the UK regulator, confirmed late last week
that firms acting in or from the UK are banned from selling and
marketing binary options to retail clients amid concerns that
these are highly risky and poorly understood.
A binary option is a financial option in which the payoff is
either some fixed monetary amount or nothing at all.
The FCA said it estimates that the permanent ban on binary
options could save retail consumers up to £17 million ($22.3
million) per year, and may reduce the risk of fraud by
unauthorised entities claiming to offer these products.
The regulator said it acted after consulting a range of parties
about binary options. Its ban takes force from 2 April.
“The new rules tackle widespread concerns about the inherent
risks of these products, and the poor conduct of the firms
selling them. This has led to consumer harm in the UK and
internationally through large and unexpected trading losses,” the
FCA said in a statement.
The watchdog’s rules are very similar to those of the European
Securities and Markets Authority’s, EU-wide temporary
restrictions on binary options. However, the FCA will also apply
its rules to so-called “securitised binary options” which were
excluded from ESMA’s prohibition.
Securitised binary options are not currently sold in or from the
UK. The FCA said that these products pose the same risks for
investors and so it is extending the scope of the prohibition to
prevent a market developing for these products.