UK Binary Options Regulations
The FCA currently does not provide regulations around Binary Options. They treat the instrument as an Over the Counter (OTC).
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Over the Counter is how Binary Options are traded by the big investment banks (self-regulating).
This of course leaves many Retail binary options brokers who offer their services to the UK client base wide open.
However, given something called MiFid (Markets in Financial Instruments Directive), brokers regulated in Cyprus have been able to provide their services for Binary Options in the UK.
This is because the MiFid directive allows financial intuitions that are regulated by an authority in an EEA (European Economic Area) member state to provide their services in to the citizens of another member state.
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This is termed financial “passporting” and has been used by a number of financial institutions across the continent.
As a result of tax savings and the relatively low cost of doing business, a number of brokers have chosen to use Cyprus as their EU country of choice. This means that the broker would have been regulated by CySec (Cyprus Securities and Exchange Commission).
However, with the UK choosing to leave the EU in June of 2016, this has also thrown MiFid regulations into some level of uncertainty.
This is because the MiFid agreement was only to be implemented in the EEA of which it is uncertain that the UK will remain a member.
There are, however, a number of different brokers who have decided that they would still like to have some UK based regulation of their services. The other route that is sometimes taken is for the UK Binary Options broker to obtain a gambling license.
If the broker is to choose this route, then they would be listed as a gaming product or “fixed odds betting” rather than a financial product.
Some brokers don’t approve of this for two reasons.
Firstly, listing as gambling product rather than a financial one could tarnish the reputation of the instrument. Secondly, in the UK gambling debts are debts of honour which means that the broker has no right of recourse in the event of client losses and debts.