On 7 December 2018, the FCA published Consultation Paper 18/37: Product intervention measures for retail binary options (CP18/37).
Earlier this year the European Securities and Markets Authority (ESMA) introduced a temporary EU-wide product intervention measure to ban investment firms from marketing, distributing or selling binary options to retail consumers. The ban applied from 2 July 2018 for an initial 3-month period and has since been renewed twice but has been amended to exclude securitised binary options (defined by ESMA as binary options that are listed on a formal trading venue, are subject to a prospectus, and have minimum contract periods from the point of entry to the expiry of the binary option). The FCA supported ESMA’s approach.
In CP18/37 the FCA proposes rules to prohibit the sale, marketing and distribution of binary options to consumers treated as retail clients by firms that carry out activity in, or from, the UK. The FCA’s proposals are intended to be a permanent prohibition to replace ESMA’s temporary intervention measure.
The FCA proposes, however, to include in its prohibition certain types of binary options that ESMA decided to exempt from its renewal of measures on 2 October 2018 (our blog is here). In particular, the FCA’s prohibition will cover securitised binary options as defined and exempted by ESMA. The FCA believes that these products have a similar, binary pay-off structure and are just as difficult for retail consumers to value as other types of binary options, and so raise similar, significant concerns about investor protection.
The deadline for responses to CP18/37 is 7 February 2019. The FCA intends to publish a policy statement and final Handbook rules by March 2019. CP18/37 further notes that if these rules are not finalised by 29 March 2018, the FCA is likely to adopt temporary, emergency product intervention measures to replicate ESMA’s temporary intervention to ensure consumer protection is not lost.