Cysec and binary options
These are all part of a global war on binary options that CySEC has suggested it may join. Being the most popular regulator of binary options, a ban on the financial instrument can cripple the entire industry. However, it will certainly not kill the industry. When Netherlands banned the advertisement of binary options and Forex, the action only drove the brokers underground. Despite the ban, brokers can still sign up clients based in Netherlands. Since the industry is decentralized, it is virtually impossible to completely shut it down.
Moreover, a ban could have a negative effect in that unregulated brokers take the opportunity to fill the gap left by the regulated brokers. Therefore, a ban on binary options by CySEC may leave the traders open to solicitation by unscrupulous, unregulated brokers.
A better approach would be through stricter regulation, as the CFTC did. Following an overhaul on laws governing over-the-counter financial instruments through Dodd-Frank, the CFTC and SEC imposed tougher laws on the industries that scared most brokers away. Through keen supervision and tough penalties, cases of fraud were reduced, leaving only the most trustworthy brokers in operation. Right now, there are only 2 regulated binary options brokers licensed in the US, and there are few cases of fraud.
The good news is that they have not determined to ban the industry, yet. As the chairperson of CySEC said, they are still in consultation, probably even with some of the largest binary options brokers.
If these brokers and the regulator can agree on more favorable terms, the industry may remain active, possibly even thrive, while still protecting the traders. Stay up to date with the financial markets everywhere you go. CySEC cracking down on the industry Over the past year, CySEC along with other financial regulators have toughened laws governing the Forex and binary options industries.
How could a complete ban on binary options affect the industry? Cyprus has become It also would not be the first regulator to put a ban on binary options. One of the many issues impeding the advancement of binary options trading is the method in which call-centers operate. For the most part, regulated brokers use third party marketing agencies to handle advertising and client acquisition.
These centers can be but are not always located outside of Cyprus and the EU and use untrained, unlicensed employees to reach out to clients.
Complaints include misleading clients to the risks of trading and high-pressure tactics used to compel deposits. Countries such as Israel have outright banned the operation of brokers in their jurisdiction because of this, others like France and Canada actively warn against unregulated and fraudulent brokers. This is when a CySEC regulated broker uses a broker registered, headquartered or regulated in another country to draw clientele, trade and provide liquidity for trading.
The practice is allowed by CySEC and EU law and only causes problems when the 3 rd party broker in question is regulated in a manner not consistent with the CySEC framework or is not regulated at all.
The thing to remember is that binary options are legal in the EU. Brokers now face fines up to 1 million Euros for non-compliance. Similar requirements have also been proposed for the use of market makers.