CySEC Cracking Down On Binary Options Marketing Practices
CySEC has long been the leader in binary options regulation. They were the first to take up regulation of spot style European binary options and continue to lead the field. While regulation is a good thing, the agency has long been criticized for how they handle the industry, the requirements for regulation and the myriad gray areas in which brokers, marketers and service providers continue to operate. In response they have taken on hard line approach that many see as a good thing for the industry.
One of the many issues impeding the advancement of binary options trading is the method in which call-centers operate. For the most part, regulated brokers use third party marketing agencies to handle advertising and client acquisition. These centers can be but are not always located outside of Cyprus and the EU and use untrained, unlicensed employees to reach out to clients. At face value this isn’t a problem, the problem is that the tactics used by the call-centers are often overly aggressive and fall outside the bounds of what is considered appropriate for financial and investment products. Complaints include misleading clients to the risks of trading and high-pressure tactics used to compel deposits. Countries such as Israel have outright banned the operation of brokers in their jurisdiction because of this, others like France and Canada actively warn against unregulated and fraudulent brokers.
Another issue faced by CySEC is the use of 3rd party/country market makers to provide liquidity for binary options brokers. This is when a CySEC regulated broker uses a broker registered, headquartered or regulated in another country to draw clientele, trade and provide liquidity for trading. The practice is allowed by CySEC and EU law and only causes problems when the 3rd party broker in question is regulated in a manner not consistent with the CySEC framework or is not regulated at all.
The thing to remember is that binary options are legal in the EU. The MiFiD recognizes them as financial instruments, CySEC regulates brokers as Cyprus Investment Firms (CIF’s) and their operation is guaranteed throughout the EU by the financial passport, so long as each broker registers within each country it is operating in. To combat the issues associated with the call-centers, marketing tactics and 3rd party market makers Cysec is considering requiring CIF’s to only use internal marketing departments or for the marketing agency to re-locate to Cyprus so they can be monitored. Brokers now face fines up to 1 million Euros for non-compliance. Similar requirements have also been proposed for the use of market makers.
Demetra Kalogero, Chairwoman Cyprus Securites And Exchange Commission – FinanceMagnates Interview. “Based on CySEC’s experience so far and having identified deficiencies in the monitoring of these call centers, CySEC is considering to require the CIFs to only perform these activities internally from their offices in Cyprus or only through a branch, tied agent or regulated entity based in another jurisdiction. It is provided that all sales people will be well trained and pass CySEC’s exams.”
Changes To Broker Requirements
Earlier this year CySEC revealed some changes brokers will have to make in order to remain compliant. Two of these are historical quotes and bid/ask prices, information traders need to know to make good decisions and the brokers need to display in order to maintain transparency. For the most part, the brokers are pleased with the new rules and, in fact, some brokers were already moving in that direction. BinaryOptions.net trusted broker IQ Option is one, their spokesperson had this to say in response to the CySEC circular in which the changes were announced.
“The introduction of display of historical quotes, the specific exchanges where futures products are traded and the mandatory requirement to display the methodology of price calculation of the quoted and expiration price are all welcome”
The IQ Option spokesperson went on to say that the new rules will force a consolidation in the industry. The smaller brokers and the scams will not be able to keep up with the changes leaving only the larger, more established and more trustworthy brokers behind. Technology providers are not immune to the changes either. Most brokers are white labels of top platforms like Tech Financials, SpotOption and Tradologic who will also have to comply with the changes. Tech Financials, the first publicly traded binary options platform provider, executive director Jeremy Lang believes the changes are good for the traders and the industry.
“We believe that the impact of these changes will be positive both for brokers, traders and technology suppliers,”