When binary options were first introduced, the UK authorities described them as “fixed odds bets” and classed them as gambling for the purposes of legal and financial regulation. So binary options brokers were placed under the jurisdiction of the UK Gambling Commission. All this was detailed in the most recent legislation to encompass gambling law – the Gambling Act 2005.
In Europe however, a different view was taken. Standard European practice was to class binary options and binary options trading as a financial instrument and govern them accordingly. Some nations began to regulate them appropriately and it was ultimately the CySec regulation that was adopted across Europe. CySec registration is now the standard that the most reputable binary options brokers will hold.
Binary Trades Regulated as Financial Products?
With one eye as ever, on Europe, the UK is beginning to look again at how binary options are regulated. In a letter written in August 2014, the Department for Culture, Media and Sport wrote to the UK Gambling Commission. The letter suggested that the government was looking again at the most appropriate body to oversee binary brokers.
The letter, referring to binary options trading, suggested the plan was to “take such products out of the scope of the Gambling Act 2005, and regulate them as financial products”. It went on to say the government intended to publish results of any consultation by January 2015. While those timelines have slipped a little, the plans remain the same with the consultation now underway. Classing binaries as financial products would see them fall under the jurisdiction of the Financial Conduct Authority (FCA).
All this has left binary options brokers free to operate in the UK under the umbrella of CySec regulation. The Gambling Commission have shelved plans to ensure all firms have a UK Gambling license until the future landscape has been decided. The sector has become much better policed under the regulations from Cyprus, with some hefty fines ensuring firms are aware the regulations have teeth.
Leading Regulated Brokers:
For UK consumers however, the reassurance that FCA regulation would give cannot be underestimated. The recent collapse of Alpari illustrated how important those financial safeguards can be when the worst does happen. Binary options brokers themselves can see the positive benefit that the additional consumer confidence would bring. The responsible firms would all welcome regulation, and the opportunity to prove they run ethical and importantly, secure operations after some of the less favourable operators of yesteryear.
With the Gambling Commission reluctant to put too much of a financial and administrative burden on brokers – and the likelihood that that could prove unnecessary anyway – the move to reclassify binary options as financial products cannot come soon enough for the industry. FCA regulation could have a really positive effect on the growth of binary options trading in the UK, so the sooner the better in our view.
Some UK focused brokers – eToro and ETX Capital – are already fully regulated by the FCA. This is due to the firm offering financial investments that already fall under the regulations (Contracts for difference “CFDs”), in addition to binary options. Read our full reviews of ETX Capital, and eToro.