The U.K. Financial Conduct Authority (FCA) is proposing to ban the sale, marketing and distribution of binary options to retail investors and to adopt restrictions on the trading of contracts for difference (CFDs), the regulator announced Friday.
The proposals are contained in two consultation papers.
The CFD proposals are out for consultation until March 7, 2019. The proposed ban on binary options is open for consultation until Feb. 7, 2019.
“The FCA is acting to tackle widespread concerns about the inherent risks of these products, and the poor conduct of the firms selling them, that has led to harm to consumers in the U.K. and internationally through large and unexpected trading losses,” the regulator says in a news release.
The Canadian Securities Administrators (CSA) formally banned trading in binary options with retail investors last year, amid similar concerns about the risks posed by the products to investors.
Since then, regulators in Europe have introduced temporary restrictions, but now the FCA is proposing permanent measures.
Alongside the proposed ban on binary options, the FCA is also seeking to impose restrictions on the sale of CFDs to retail investors, including leverage limits, margin close out requirements, risk warnings, and curbs on incentives.
“We remain very concerned about the harm to retail consumers that’s being caused by the design and distribution of some complex derivative products. This is despite focused supervisory work over several years to try and improve firms’ conduct. Today’s proposals will enhance consumer protection by banning binary options and ensuring CFDs are only marketed and sold to consumers who understand the risks from trading these types of products,” says Christopher Woolard, executive director of strategy and competition at the FCA, in a statement.
The FCA is also seeking feedback on whether other sorts of complex derivative products, such as futures or similar over-the-counter products, should face similar restrictions.
Additionally, the U.K. regulator will launch a separate consultation in early 2019 on a potential ban on the sale of derivatives based on cryptocurrencies to retail investors.