The chasm between sleeping watchdogs
WATCHDOGS have got themselves into a fine mess over binary options, leaving investors with no protection.
The Financial Conduct Authority decided that binary options are a bet, not an investment. You can gamble that an index, a share or a commodity will move up or down in seconds. In the time it takes to spin a coin, you can win back your money plus a percentage – or lose the lot.
Other European watchdogs disagree. Cyprus licensed a long list of binary options firms and under EU rules they are allowed ‘passports’ to trade in Britain and have their names on the FCA public register, even though the FCA refuses to monitor them.
The FCA says binary options are regulated by the Gambling Commission, but this watchdog is not interested. Some British investment firms now offer binary options trading, among them legitimate firms that have been vetted and approved by the FCA for other products.
But how is the ordinary investor to know the difference? ETX Binary, owned by Monecor (London) Limited, is a genuine City company fully licensed by the FCA. It offers binary options on Monecor’s website, with a note on the page of its FCA-authorised status. This should mean that the FCA regulates it and if necessary, investors would have access to the Financial Ombudsman Service and Financial Services Compensation Scheme. They don’t, though.
The FCA said it had ‘not changed its view that binary options fall outside our regulatory perimeter. ETX is not authorised or regulated to carry out binary options by the FCA’. This is the Gambling Commission’s territory, the FCA says. But the Gambling Commission said it had never heard of ETX or Monecor and the ETX website says it is regulated by the FCA. Neither watchdog is interested, so investor protection falls down the chasm between them.
All this may change, though. ETX itself told me it has been arguing with the FCA that it really should be regulating binary options. And the Government has now stepped in, apparently on orders from the European Commission.
Britain has been told to fall in line with other EU countries and the Treasury now says it has changed its mind: binary options are not gambling after all, but a financial investment, and it is proposing to change the law to make the FCA responsible. There are no plans, though, to make firms licensed by other EU countries come under Britain’s own Ombudsman or compensation scheme. So the mess continues.