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German regulator is planning to implement ban on binary options

Jul 03, 2019

German Federal Financial Supervisory Authority (BaFin) has restated that sale, distribution and marketing of binary options to retail customers will remain prohibited in the country.

BaFin, in response to the expiry of ESMA's (European Securities and Markets Authority) temporary measure, has announced its own prohibition measures. German regulator stated that permanent ban would be in force if the European-wide measures are not renewed. BaFin has outlined its objectives in a general administrative act.

German regulator perceives a great number of risks for the investors in relation to binary options, one of those being substantial security concerns as binary options are complex and lack transparency, especially with regard to the calculation of their performance and the underlying. Since binary options typically are extremely short-term instruments, the BaFin cautions that it is highly complicated for non-professional investors to correctly estimate the risk-return profile. Furthermore, binary option providers commonly act as the direct counterparty to their clients’ trades. This creates direct conflict of interest between the provider and the investor.

As you may already know, BaFin first revealed its plans regarding the permanent binary options prohibition measures at the end of November 2018. And what is more interesting, the German regulator is not the only one introducing national measures.

United Kingdom’s Financial Conduct Authority (FCA) has recently adopted the rules that will be used in order to regulate the retail trading industry, relating to contracts for difference (CFDs).According to the expectation, the FCA aims to adopt leverage caps for CFDs from 2:1 to 30:1. Similar limitations were introduced by ESMA in August of 2018.

The CySEC, Cyprus Securities and Exchange Commission, is another regulator that declared its readiness to implement relevant national measures.

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