Three FCA investigations into binary options firms are ongoing

Maria Nikolova

Three investigations are ongoing, including a large multi-jurisdictional one in which one of the key suspects has been arrested.

The UK Financial Conduct Authority (FCA) has published a report about its enforcement activities in 2018/19, revealing the regulator’s efforts to put an end to binary options fraud.

The FCA said it continues to tackle firms and individuals who seek to carry on regulated activities without authorisation. Its Unauthorised Business Department (UBD) received the highest number of reports about potential unauthorised activity in a single year in 2018/19 (16,600 received – 25% increase on last year).

The regulator attributes this increase to two main factors:

  • Firstly, the ongoing success of the FCA ScamSmart campaign – more consumers recognise potential investment scams and know how to report them.
  • Secondly, the proliferation of fraudulent online trading platforms, generally based outside of the UK but targeting UK consumers. These platforms offer fast trading and high returns. They use social media to target investors and present themselves as a natural, more sophisticated, progression to online gambling.

One of the most prevalent types of online trading fraud in recent years has involved binary options, the FCA explains. Binary options were brought within the FCA’s regulatory remit in January 2018 and soon after that the UBD embarked on a major proactive piece of work looking into more than 200 unauthorised binary options trading firms.

While the vast majority of these entities were based outside the FCA’s jurisdiction, several appeared to have some form of UK presence and the regulator subsequently launched investigations into them. Three of these nine investigations are ongoing, including one large multi-jurisdictional one in which one of the key suspects has been arrested.

As a result of our consumer education initiatives and proactive investigation work, binary options are no longer actively promoted to UK consumers.

Outside of the FCA’s efforts to eliminate binary options fraud, the regulator opened a further 11 investigations during the year so 20 in total. Of the matters that were not progressed to investigation stage, the FCA was able to resolve a further 132, the majority of which were concluded through correspondence with the unauthorised firm. The FCA published 521 consumer alerts – the highest in a single year – in matters where resolution with the unauthorised firm was not possible.

Following a consultation into proposals on the prohibition of the sale of binary options to retail customers in the UK, in April this year, the FCA introduced a ban on binary options. All firms acting in or from the UK are prohibited from selling, marketing or distributing binary options to retail consumers.

The rules were introduced in response to concerns about the inherent risks of these products, and the poor conduct of the firms selling them. This has led to consumer harm in the UK and internationally through large and unexpected trading losses.

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