Chairman of Israeli regulator: “Binary options is harming Israel’s reputation in an extreme way”, plans quash entire industry
Professor Shmuel Hauser, Chairman of the Israel Securities Authority, considers it his responsibility to quash the binary options fraud that is proliferating across the world, deeming it “far more cynical than gambling, as these firms are misrepresenting themselves as legitimate financial enterprises, lying about their whereabouts, rigging their trading platforms and therefore engaging in theft.”
The sudden and very high profile government level and media attention that retail OTC binary options industry has been receiving over the past few months has now manifested itself at senior government level in Israel, home to the vast majority of brands that sell and distribute binary options to an overseas customer base, as well as home to all of the platform providers and market makers.
It is certainly more than debatable as to whether binary options in its now quite established form is part of the financial markets business at all, its six major platform developers/market makers and the respective white label brands that use such platforms to sell to a retail audience, of which there are approximately 300 worldwide, approaching a marketplace so vast and global from a completely different background and standpoint to those who have gained their professional experience in the financial and technology institutions of London, Chicago and New York.
Regulators from the US through to New Zealand are putting a lot of effort into labeling OTC binary options as a scam or ponzi scheme with regular notices about brokerages that are scamming unsuspecting retail customers to creative infographics that outline “How not to fall victim to Binary Options scams”.
Almost weekly, a new investigation is launched in Israel against some familiar names and often some unknown brokerages instigated by foreign regulators with the help of the Israeli Police as well as regulators with new powers.
Just five years ago, the retail binary options business was a fledgling industry, however it has become a vast and international enterprise, with just shy of 300 currently active white label brands which are spread across 6 platforms which are specially designed for white label partners to quickly establish their business and begin to onboard retail customers.
Between 2011 and now, many binary options brands have come and gone. The turnover and lifespan of brands being often quite short, their business model being to establish a call center, take a full end to end solution from one of the 6 dedicated binary options platform providers.
They then call lead lists which in many cases have been purchased from affiliated entities in the online gambling sector in order to extract first time deposits which are often blown within the same day, before passing the lead to a retention desk whose duty it is to extract a further deposit which is then often blown quickly.
After this process, the customer often then does not deposit more – after all, most binary options brands have as much in common with the financial markets industry as quails eggs do with electrolytic capacitors in that most of the ethos behind the binary options business emulates that of an online casino and the customer lists are often compatible with gaming rather than financial markets.
Local regulatory authorities in Cyprus, Canada, Israel, United States, Britain, Australia and New Zealand have over the past few years issued warnings against unlicensed binary options companies soliciting in their region. In some cases against firms that are regulated in one jurisdiction but do not have a license to operate in another, which is an attempt to raise awareness among retail customers of the potential perils of ‘investing’ in binary options as best possible with no actual legal jurisdiction over preventing it.
So far, three countries have outlawed retail OTC binary options completely, those being the United States, Israel, and most recently Belgium. In the United States, binary options must be executed through one of two dedicated central exchanges, NADEX and Cantor Exchange.
Mainstream government officials, regulators and new sources have been bearing down on binary options providers recently, and this week, Professor Shmuel Hauser, Chairman of the Israel Securities Authority, who presides over the financial markets sector in the country which is home to all of the binary options providers and a large proportion of their brands, and the lion’s share of overseas brands also using Israeli platform/market makers on which to base their business.
Now, Professor Shmuel Hauser, Chairman of the Israel Securities Authority which regulates financial markets activity in Israel, has spoken out on his disdain for the largely Israel-based binary options industry. Indeed, all of the platform providers are market makers, and all are based in Israel. They have been able to proliferate because they conduct their business overseas, not onboarding Israeli clients, therefore rendering the Israel Securities Authority unable to curtail their activities.
Professor Hauser has now stepped up, wanting to put an end to the binary options business altogether, having stated this week that he considers the impact and magnitude of the binary options business to be ruinous to Israel’s national reputation.
FinanceFeeds obtained the statement from Professor Hauser, in which he stated “Because we are in a situation where [the binary options firms] are offering this to people abroad, and Israel’s reputation is being harmed in an extreme way. It’s being harmed. We know this. The ISA has a good reputation among regulators abroad, but binary options is giving us a bad name.”
“I see this on a personal level. Not just as a regulator, but as an Israeli citizen and as someone who is disgusted by fraud and especially by the type of people who take money from the unfortunate, from orphans and widows” – Shmuel Hauser, Chairman, Israel Securities Authority
16 international requests under IOSCO provisions, all asking for judicial inquiry into binary options fraudsters
Professor Hauser stated that during an average year, the Israel Securities Authority receives four or five requests from foreign securities authorities with which it has international cooperation agreements (under the provisions of IOSCO, the International Organization of Securities Commissions), asking it to conduct a judicial inquiry into a particular case of fraud. In the past year, by contrast, he said, the ISA received 16 such requests, most of them from European governments, and most of them related to binary options.
“Do you know why European [regulators] come to us for help, mostly from Belgium and France? They see Israeli names. That is how they figure out it comes from Israel” – Shmuel Hauser, Chairman, Israel Securities Authority
Far from having careers which began with an internship at Merrill Lynch or Goldman Sachs after a private school education, Ivy League economics or technology degree and a career as a senior executive at an exchange technology firm or in institutional brokerages, it seems the majority of firms in the binary options industry were founded by and are operated by former online gambling sales people, affiliate marketers, adult entertainment site owners, and lead buyers.
Very few binary options brand owners, employees of the brands nor executives within the platform providers know nor care how liquidity aggregation, connectivity, market execution or trade clearing actually works. It is not part of their business model. Instead, they know about lead conversion, deposits, affiliate marketing and lead list acquisition and recycling.
When mixing financial services and the responsibility toward client funds and the investment nature of the business which regulators deem a major point with regard to customer well-being with gambling, affiliate marketing and lead buying, a number of question marks have now come to light and are in the public domain.
Mainstream newspapers are now beginning to cover regulatory warnings in the way that local regulators have been issuing them to those in the know, therefore taking these warnings to the public at large alongside generic tabloid news reports are now part of the raising of awareness.
Until now, lead buyers, online affiliate marketers with binary options platforms and call centers pressuring customers to deposit before ensuring that no withdrawal is possible – after all, no binary options platform is connected to a live financial market, it is quite simply the house vs the depositor, form of gaming disguised as financial markets trading, in which absolutely no win can take place and the revenues of the company are derived from client deposits.
With the pressure of media interest in the method by which binary options brands conduct their business and whether many operate with the clients best interests in mind, some binary options brands are upping their game, and indeed instead of the $200 to $500 deposits that were commonplace just three years ago, some are taking up to $500,000 from single retail customers, subsequent to which it has become apparent to FinanceFeeds, the money is sometimes never returned, clients are locked into bonus terms that they allegedly did not agree to in order to ensure that they turn the account over several times before not only being able to withdraw any profit, but the original deposit too.
This has come about as the cost of operating a sales floor has increased due to lead acquisition and conversion costs, however the refusal to move away from that model has created unsustainability which is leading to a more gregarious approach by sales people.
FinanceFeeds is aware of at least three cases with three different brokers of this nature, in which litigation is in progress but the firms concerned remain defiant.
New legislation may well be invoked, and currently Israeli police is working with officials abroad in nations such as France, where national regulators have stated that approximately 105 million euros from various French citizens over the course of the last 5 years. France is now in the process of banning the advertising of all derivatives to retail customers.
Professor Hauser has now promised that the ISA will ‘step up a notch and take a big step’ to deal with what he considers to be fraudsters.
In his statement yesterday to a mainstream news source in Israel, Professor Hauser said that various Israeli enforcement bodies, including regulators and the police, have a high-level consultative forum, and that they would get together in that forum to “formulate the policy, and quickly, for how to deal with this problem, because it is a problem of national significance.” The forum, he said, would “decide on operative steps within the current law, and also on additional steps to expand our jurisdiction.”
According to the recent report, Professor Hauser stated “We understand how the binary options companies work in great detail,” he said. “Every time people speak to me about this, you know what I think of? Of ‘The Wolf of Wall Street.” When it was explained that The Times of Israel has reported how some Israel-based firms use that movie to educate their salespeople, Professor Hauser said: “That’s what we’re up against, really.”
He explained that he was able to ban binary options firms from targeting Israelis using existing legislation against gambling. Professor Hauser this week acknowledged to the Chief Editor of the Times of Israel that the fraudulent companies are involved in activities far more cynical than gambling, by misrepresenting themselves as legitimate financial enterprises, lying about their whereabouts, rigging their trading platforms and therefore engaging in theft.
Most certainly, this matter is now at senior government level, which in itself means that a change is on the way.
Photograph: The Knesset, Israel’s parliament