The binary options marketplace has made big strides to improve its reputation in recent years. The poor reputation of the industry, the result of of a handful of early brokers has seen regulation become a hot topic in this industry.
After the first approval of fixed odds contracts for retail trading, the explosion in growth of this industry saw a number of abuses appear. Many of these arose from the actions of unscrupulous brokers. Due to their desire for profits in an monitored industry many bad practices were present in the industry. This was a recipe for brokers to profit which of course was at the expense of their trading clients. Whether this was intentional or otherwise, it dragged the industry into disrepute.
As a result a focus on providing a level of regulation for the industry has been sought. This has developed rapidly from the early CySEC regulation standards to a more global monitoring of activities. Almost all financial bodies from around the globe have increased their scrutiny of companies operating within the industry.
What is Regulation?
Regulation provides a set of legally enforceable conditions by which a financial organisation must operate and conduct its business.
A list of regulations for operation are set out by the regulator. Companies operating in this area are required to abide by specific legislation. In return they are granted an operating license. Brokers are only awarded a license if they achieve the required level of compliance. Consequently if they are found in breach of these rules they are penalized. Firstly this will take the form of a fine. For more serious breaches or if they continue to play foul then their license can be revoked.
While regulators from different regions may have differing levels of requirements, it is broadly assumed that they will;
- require brokers to comply with a set of rules on how to run their business
- ensue they are sufficiently capitalised for their financial activities
- provide segregated accounts to deposit client money
- provide their accounts for inspection and periodic auditing
- furthermore offer a fair and reasonable path for client complaints and a path for escalation
Regulators around the globe have different requirements for a license and hence comparing regulators is difficult. Some don’t require as strict adherence to specific rules as others. Yet it is important to remember that any form of regulation is a minimum requirement before opening an account.
Traders are however advised that they will be better served by making use of the services of a company registered in more established financial markets.
Steps To Take
We advise anyone thinking of trading binary options to do so, only using regulated binary options brokers that hold a valid license with at least one of the following financial authorities.
There are noticeably fewer scam brokers in the market space, however you still need to make checks before handing over your money.
While most brokers are keen to advertise their credentials on their website, you can always double check and are advised to do so. It can take time to research a broker. Nevertheless a couple of minutes spent on research could save you a lot of headaches later on.
To find out more visit the official site of the relevant regulator. These are listed below. Take a look through the list of financial companies that they currently licensing for operation within their jurisdiction to therefore satisfy yourself of their regulatory status.
List of Government Agencies and Regulators Via Region
Australia – Australian Securities and Investments Commission (ASIC) – http://www.asic.gov.au/
Barbados – Barbados Financial Services Commission – http://www.fsc.gov.bb/
Canada – Investment Industry Regulatory Organization of Canada (IIROC) – http://www.iiroc.ca/
Cyprus – Cyprus Securities and Exchange Commission (CySEC) – http://www.cysec.gov.cy/
Denmark – Financial Supervisory Authority – http://www.finanstilsynet.dk/da/
France – Banque de France (BDF) – http://www.acpr.banque-france.fr/
Italy – Commissione Nazionale per le Società e la Borsa (CONSOB) – http://www.consob.it/
Japan – Financial Services Agency – http://www.fsa.go.jp/en/
Malaysia – Securities Commission of Malaysia – http://www.sc.com.my
Malta – Malta Financial Services Authority (MFSA) – http://www.mfsa.com.mt/
Netherlands – Netherlands Authority for the Financial Markets (AFM) – http://www.afm.nl/
New Zealand – Financial Markets Authority – https://fma.govt.nz/
Singapore – Monetary Authority of Singapore (MAS)– http://www.mas.gov.sg/
Spain – Investment sector regulator – Spanish Securities Market Commission – http://www.cnmv.es/
South Africa – Financial Services Board (FSB) – http://www.fsb.co.za/
Sweden – Financial Services Authority – http://www.fi.se/
United Kingdom – Financial Conduct Authority (FCA) – http://www.fsa.gov.uk
United States – U.S. Commodity Futures Trading Commission – http://www.cftc.gov