The Financial Conduct Authority (FCA) issued a statement on Friday 29 March confirming that from Tuesday, 2 April 2019 all firms and brokers in the UK are "prohibited from selling, marketing or distributing binary options to retail customers". The new rules are mainly in line with the European Securities and Markets Authority's (ESMA) existing rules which place a temporary restriction on binary options. However, the FCA's rules go a step further by applying the rules to "securitised binary options" which, whilst they are not currently sold in or from the UK, the FCA believes pose just a big a risk and seeks to prevent a new market developing now that the prohibition on binary option is in place.

The FCA believes that the new permanent rules will prevent customers losing up to £17 million. Christopher Woolard, Executive Director of Strategy & Competition at the FCA, said: "Binary options are gambling products dressed up as financial instruments. By confirming our ban today we are ensuring that investors don't lose money from an inherently flawed product."

The recent boom in binary options trading is in part fuelled by the simplicity of the trade which allow 'investors' to bet on which way the price for a financial asset or market will go, simply up or down. If the guess is correct the investor is rewarded a fixed amount while the price going to wrong way sees them lose the amount initially staked. The fraudulent investors have a countless ways of ensuring that their targets lose their investments regardless of the way the markets travel. The FCA believes that such trading has more in keeping with gambling and until relatively recently it was overseen by the Gambling Commission.

The other reason so many individuals were caught is the volume of social media advertising. Not all firms that provide services for binary options and advertise on social media are fraudsters; however, at the beginning of 2018 the major social media platforms began to take action by banning binary options advertising. The FCA cautions novice investors to look into the firms that they intend to engage with and make sure that they are actually registered with the FCA and be alert if the firm wants to move you to a "VIP" platform as you may be unaware that all your dealings will be transferred to mirror image an unregulated firm without your knowledge.

The next target for the FCA is contracts for difference (CFD), which is a closely aligned to binary options as a sub-set. CFD are contracts that occur between an investor and an investment bank, the buyer and the seller. The agreement is that they seller will pay to the buyer the difference in an asset's current value (the closing price) and the previous value at the time the contract was struck (the opening price). If the difference is a negative the buyer pays the seller. Initially it was intended to deal with both types of trading at the same time but now a statement with regard to CFD will be delivered shortly. It is anticipated that there will be a raft of changes governing CFD which are aimed at protecting investors from their funds being wiped out.

Giambrone has a robust banking and finance department which assists individuals who have been targeted by fraudulent firms and our lawyers enjoy an enviable success rate for our clients.

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