FCA to include binary bets in “designated investment” definition

Maria Nikolova

The change comes into effect on January 3, 2018, along with the entry into force of the MiFID 2 rules.

The UK Financial Conduct Authority (FCA) is amending its Handbook in line with the MiFID 2 rules. The regulator announced today that the changes will affect the definition of “designated investment”.

Currently, the definition of “designated investment” covers a range of securities (such as contracts for difference, spread bets, rolling spot Forex contracts, warrants, futures and options), as well as P2P agreements and a long-term care insurance contract which is a pure protection contract.

This is about to change, as, effective January 3, 2018, the the definition will be updated to refer to binary bets. The regulator said it did not consult on the change, as it was a minor amendment to existing provisions.

The FCA has earlier this year confirmed that it will be supervising firms offering binary options from January 3, 2018. In addition:

  • individual complaints can be referred to the Financial Ombudsman Service;
  • consumers will have access to the Financial Services Compensation Scheme.

However, protection is set to remain limited as there will be no compensation for investors for any losses from trading.

Binary options are also regulated as investment products in many other European Union (EU) countries. Therefore, under EU financial services law, firms which are legally established and authorised in the European Economic Area (EEA) are entitled to do business in any other EEA country once certain procedural safeguards are met.

Although the FCA does not currently regulate binary options, firms offering binary options trading and operating as financial services firms in other EEA countries, are currently able to do business in the UK and will continue to be after January 3, 2018. If they are, they will appear on the FCA Register of financial services firms. In most cases the firm will still be regulated by its home-state regulator.

The UK authorities have been active in cracking down on binary options fraud lately. For instance, in November, Metro Options Limited was shut down following an investigation by the Insolvency Service.

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