Italy’s recent decision to ban a number of binary options websites in the country because of their close resemblance to gambling has re-opened the issue for governments and regulators across the world whether to class binary options as a form of gambling or investment.

 

The relatively easy-to-use nature of binary options trading has enabled this new investment vehicle to attain great popularity in recent years. However, this simplistic feature has caused a serious problem within this industry. Essentially, as binary options can only generate two possible outcomes, i.e. win or lose, they are considered by many quarters to be the equivalent of casino gambling, i.e. betting on red or black. 

 

The resultant image has riddled this industry with doubts and uncertainties by producing unbalanced and non-uniformed regulatory systems throughout the world.  To obtain a better appreciation of this problem, the present binary options regulatory statuses of a number of the world’s major trading zones will now be presented.

 

• US: The recent induction of the Dodd-Frank Act has created major changes for the binary options industry within the US. This Act was devised to generate better protection for US investors following the 2008 financial calamity. However, the new laws have widespread impacts which many traders do not comprehend at all. 

  For example, investors cannot now legitimately use binary options to trade the currency and stock markets although they can still utilize them to invest in indices and commodities. Amazingly, many traders and brokers have responded to this Act by disregarding it completely and operating as business as usual. However, such a reckless approach is very foolhardy as the US government is about to implement aggressive programs to prosecuting unlawful activities. 

1. Eurozone: The Eurozone binary options industry is now tracked and controlled by the Regulatory Authority Cyprus Markets, the CySec, since the start of 2013. The primary functions of the CySec are now described. 1. Monitor the binary option industry within the Eurozone; 2. Assess and track the business activities of all binary option brokers in order to identify criminal actions, fraud and money laundering, etc.; 3. Verify the correctness and integrity of all information supply to the public by brokers including advertisements and financial reports, etc.; 4. Validate that all fiscal transactions undertaken by brokers are transparent and performed in a timely manner. 

 

Very soon, binary options will be classified as proper financial investments and not as a type of gambling. Consequently, all brokers will then have to legally obey the regulations stated in the Acts servicing the Financial Service Sector. All brokers that plan to operate in the Eurozone will also have to qualify for a license from CySec. 

 

Japan: Japan has recently introduced new legislation to enhance the profile of its binary options industry. The nation’s Financial Futures Association (FFA) and Financial Services Agency (FSA) have devised the following new regulations to achieve this objective: 1. High/Low options will be prohibited as they are assessed to be a type of gambling; 2. Short expiry times will be banned. For instance, the 60 seconds options and lower will be abolished; 3. Daily losses and trading volumes will be limited; 4. Binary option spreads will be prohibited; 5. Brokers must advise why they can no longer to support the trading of an asset, e.g. extreme risk exposure; 6. Brokers must reveal their entire profits and losses produced by the total trading activities of all their clients. 

 

United Kingdom: The clarity as to whether binary options are classed as a form of gambling or financial trading in the UK is still unclear.  Banc de Binary recently took steps to register with the FSA, however registration is not the same as regulation.  

At the moment, it seems most brokers planning to permit its clients to trade binary options can operate from Great Britain without any restrictions.  However, British traders subscribing with such companies must understand that they proceed to do so at their own risk. This is because British law does not presently support any protective measures for traders as well as not legally providing a requirement to regulate the UK binary option industry.  This is in contrast to financial spread betting firms such as IG Index, which do require regulation by the FSA.

As such, investors can trade binary options within the UK without the concerns of any legal consequences.  However, traders must realize that should disagreements occur, they would not be able to pursue any legal solutions using the present British legal system. 

• Australia: The Australian binary option marketplace is controlled by the Australian Securities and Investments Commission (ASIC). The ASIC monitors and regulates companies providing financial services, including binary options, in order to confirm that they function honestly and with integrity.  

In order to fulfill the regulatory requirements imposed by the ASIC, registered binary options brokers must disclose the following: A definitive and true statement of the binary option services they supply; Proof validating adequate competence, knowledge and skills of all key personnel including law-abiding character profiles; Full training records proving the complete proficiency of all official representatives of the broker; Records verifying that staff of the broker performs its business duties in compliance with the regulations controlling the financial service sector; A procedure of risk management strategies; Evidence that the broker retains the technological, financial and human, facilities to fully support its business; Proof that the broker has implemented strategies and policies to resolve all disputes and compensational claims in a timely fashion. 

 Summary

Despite all these new regulations, countries will still have to implement further actions in order to uplift the statuses of their binary options marketplaces so that they can achieve the same levels of proficiency attained by other more traditional investment instruments. For example, additional laws will have to be introduced that can minimize broker malpractices that still have a significant presence within the binary options business even today. 

As the above analysis confirms, there are definite and very positive moves presently being undertaken around the world to change the profile of binary options so that they can be regulated as a real financial instrument and not viewed any more as a type of gambling in any shape whatsoever. In response to these developments, expert consensus assesses that these new regulations are vital steps forward which will ultimately benefit all involved in the binary options business including traders and brokers alike. 

 

• This research was provided to us by BinaryOptions.com, a leading binary options trading, education and information site.