Binary options fraud among top concerns of Swedish financial regulator FI

Maria Nikolova

Binary options and stock-related fraud top the list of warnings issued by Sweden’s financial markets regulator in 2017.

Binary options were among the key reasons for issuing warnings in Sweden last year. This becomes clear from the Annual Report for 2017  published by the Swedish financial markets regulator Finansinspektionen (FI).

In 2017, FI warned about 1,129 non-compliant companies that operate in the Swedish market without the necessary permission. In 2017, the warnings concerned mainly equity-related fraud, but also fraud related to binary options. FI made a decision about warning in 18 cases. The bulk of the warnings were received from foreign agencies.

The numbers are in line with recent data provided by other regulators in Europe. For instance, Belgium’s Financial Services and Markets Authority (FSMA) reported in February that it received 1,710 notifications from consumers about various financial matters in 2017, up 13% compared to 2016. Nearly half of the enquiries were questions or complaints relating to fraud and unlawful offers of financial products and services. There were 792 such messages in 2017, up by 45% compared to the previous year.

The messages reporting fraud or unlawful offers mainly concerned binary options, boiler rooms, pyramid schemes and ‘phishing’. New topics in 2017 included credit fraud, virtual currencies and fraud with investments in diamonds. The FSMA published 116 warnings last year, up 70% from 2016. The FSMA issued 46 warnings about boiler rooms, and 42 about fraud related to binary options.

Whereas the Swedish regulator does not outline any particular plans with regard to binary options, the European Securities and Markets Authority (ESMA) is currently considering to ban these instruments. ESMA mulls a prohibition on the marketing, distribution or sale of binary options to retail clients. The regulator considers to adopt this measure as the significant investor protection concerns relating to this product are due to inherent features of the product that are unlikely to be sufficiently addressed through certain restrictions on the product (such as minimum duration contract periods).

Even Norway, which is not a part of the EU but is a part of the EEA, is planning strict measures with regard to binary options. The Financial Supervisory Authority of Norway (Finanstilsynet) proposes that marketing, selling and distribution of binary options to non-professional customers in Norway or from Norway is prohibited. The watchdog emphasizes that it has, on several occasions, investigated foreign providers of binary options that have targeted Norwegian investors without a necessary license. The regulator notes that these entities use aggressive marketing methods and do not provide the necessary risk warnings.

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