Canada’s Financial Ombudsman warns binary options present systemic risk as chargebacks fail

Maria Nikolova

Canada’s OBSI says banks involved are not at fault for the failure of chargebacks requested by binary options fraud victims because the banks followed the normal chargeback policies and procedures.

Nearly one year after the Canadian Securities Administrators (CSA) announced a ban on binary options, Canadian residents continue to experience the terrible consequences of getting involved with this type of risky products. In a recently published Bulletin, Canada’s Ombudsman for Banking Services and Investments (OBSI) warned that binary options present a systemic risk.

OBSI says it has received numerous complaints from investors who used their credit card to purchase binary options. These investors later disputed credit card charges related to these transactions. They believed that because they did not receive the promised services (such as the ability to withdraw their investment capital) that the issuing credit card company should allow a chargeback or reversal of the charge.

In the cases OBSI investigated, the chargeback was refused by the credit card company. The Ombudsman found that the banks involved were not at fault for the failure of the chargeback request because they followed the normal chargeback policies and procedures. It was the policies of the payment card network operators that prevented the consumer from recovering any disputed charges.

As a result, OBSI could not recommend that the banks compensate the cardholders. The Ombudsman identified this as a systemic risk and reported it to the Financial Consumer Agency of Canada.

Canada’s ban on binary options covers all sorts of such products. It applies to binary options, regardless of the specific name. This means that the prohibition covers (list is not exhaustive) “all-or-nothing options”, “asset-or-nothing options”, “bet options”, “cash-or-nothing options”, “digital options”, “fixed-return options” and “one-touch options”. The legislation prohibits advertising, offering, selling or otherwise trading a binary option with or to an individual.

In April this year, the Investment Industry Regulatory Organization of Canada (IIROC) warned Canadian investors not to be fooled by fraudsters attempting to illegally sell binary options under the guise of legitimate investment dealer firms regulated by IIROC.

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