FCA confirms it is investigating unauthorised binary trading firms – but has the horse already bolted?

On Friday the Financial Conduct Authority issued a list of firms known to be offering binary options in the UK without regulatory authorisation. Offering binary options has required FCA authorisation in the UK since 3 January.

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COME ON RAINDROP! GO ON MY SON! GO ON… oh… oh well, shouldn’t invest money I couldn’t afford to lose.

Binary options is a form of gambling in which punters place bets on whether a stock, commodity or other security will go up or down within a very short space of time, often 15 minutes or less.

 

It is the 21st century equivalent of gambling on which of two raindrops will reach the bottom of a window first.

Adverts for binary options bookmakers have been ubiquitous on local news media and other websites for some time, for those of us who don’t use an ad-blocker.

The adverts follow the well-worn pattern of an ordinary punter talking about how they were struggling with debt but have now found financial freedom. After several paragraphs of talking about how great it is to be able to provide security for their family and go on holidays when they want, they reveal the secret was binary options.

And how they were initially sceptical, wagered a few quid “as they had nothing to lose”, and then swiftly progressed to making 4 figures in one month and 5 figures in the next month as their returns multiplied.

The reality is that as with all forms of gambling, the house always wins. And many people have lost their savings even more quickly than if they had bet in a legitimate casino, as many binary platforms rig the trades, refuse to process withdrawals and simply steal punters’ money.

According to the police, £50m has been lost in binary options scams. Assessing the true scale of losses is almost impossible, as Google searches about binary options are drowned out by fake review sites and fake forums.

So the FCA’s action is welcome. Any firm offering binary options in the UK without authorisation is now committing a crime, and the FCA’s press release suggests that further action may be forthcoming against the firms on the list.

There is likely to be little the FCA can do against binary options firms operating outside the UK. Analysis of the FCA’s list reveals a surprisingly high number – around half – claim to be based in the UK. But it wouldn’t be at all surprising if many of these are virtual office addresses.

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Chart of unauthorised binary options firms operating in the UK, by purported country of origin

And the prospect of the FCA recovering funds on behalf of defrauded binary options investors is pretty slim even when the firms and their money are still in the UK. (If you weren’t defrauded, and just made a bad bet, then the chance of recovery is nil.)

But most of all, this may be yet another stable door that the FCA has shut after the horse has bolted. The binary options ads have already been swiftly disappearing from the local news sites over the past few months.

And what is being flogged by the ads that have replaced them? Cryptocurrency – or to be more accurate, contracts for difference allowing you to bet on whether cryptocurrencies will move up or down. Advertised to UK investors via UK local news sites, with no indication that the advertiser is authorised by the FCA to offer contracts for difference in the UK.

herewego
Here we go again…

As it is written, as one door closes, another one opens.

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