The Belgium Financial Services and Markets Authority (FSMA) was the first EU regulator to ban public marketing (and distribution) of OTC derivatives in mid-August. After that France and Netherlands announced they are planning to ban advertising of binary options, forex (and CFDs) in an attempt to protect consumers from scammers and companies engaged in dubious business practices.
Germany’s BaFin comes next: according to the Times of Israel, the Federal Financial Supervisory Authority (BaFin) is considering to impose a ban on trading in binary options and contracts for difference (CFDs).
The media cited Anja Schuchhardt, a press officer at BaFin: “Since the German Retail Investor Protection Act (Kleinanlegerschutzgesetz) came into force, product intervention (section 4b of the WpHG) has been one of the tools available to BaFin, but it is always regarded as a last resort. In the future, therefore, BaFin will continue to consider carefully and with a sense of proportion which specific steps are necessary, firstly with a view to consumers, who must be effectively protected, and secondly with a view to the related interventions in the market which should be kept to the absolute minimum required.”
Binary options are a controversial financial instrument indeed and authorities across the globe are not sure how to classify them. In some jurisdictions binaries are regulated, in others, such as Israel, they are forbidden, while in third they are not, however there aren’t any licensed brokers that offer them. Most binaries brokers in Europe choose regulation in UK where they fall under the supervision of the Gambling Commission, or Cyprus. The Cyprus Securities and Exchange Commission (CySEC) is the most popular regulator of EU binaries brokers.
Except binaries, EU regulators are targeting other financial instruments, such as high leveraged CFDs and forex. Netherlands regulator Authority for the Financial Markets (AFM) defined them as “toxic investment products for consumers” and is therefore intending to ban their public advertising.
French regulatory authority Autorité des Marchés Financiers (AMF) is also deciding on advertisement ban on forex and CFDs with leverage greater than 1:5 in a new bill, called Sapin II. AMF considers those products as “highly speculative and risky financial contracts“ to the general public in France. The move was prompted by a by an AMF report, according to which fraudulent forex and binary options brokerages have solicited almost to €4 billion from French residents over the past 6 years.
Although those moves undertaken by EU financial regulators come as no surprise considering the ever increasing number of warnings and alerts against binaries and forex brokers across Europe lately, such strict measures may not only clean up retail forex and binaries industry, but kill it. After tighter regulations were introduced in US (FIFO rule & leverage cap of 1:50), most retail brokerages moved their businesses outside the US.