The Financial Conduct Authority (FCA) is set to put a permanent ban on the sale, marketing and distribution of binary options to retail consumers from 2 April 2019.
The move is an effort to ward off concerns about the risks of the offerings and the “poor conduct” of the firms delivering them, which is said to translate into unexpected trading losses.
FCA executive director of strategy and competition Christopher Woolard said: “Binary options are gambling products dressed up as financial instruments.
“By confirming our ban today we are ensuring that investors don’t lose money from an inherently flawed product.”
The watchdog expects up to £17m in annual savings for retail customers through the move.
Another positive expected from the ban is reduction in fraud risk from unauthorised firms claiming to provide such products.
The new rule mirrors the ban on binary options by the European Securities and Markets Authority (ESMA), though the ESMA ban is a temporary one.
Moreover, unlike the ESMA ban, the FCA ban covers securitised binary options.
Even though not sold in or from the UK at present, FCA believes that securitised binary options have the same risks.
Through the decision to include these products in the ban, the British regulator intends to block the possibility of a market being developed.