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When it comes to traders using Binary Options in the UK, it is not exactly quite clear as to the regulatory and broker landscape. Indeed, it was always quite muddy when it came to brokers in the UK, Europe and how the rules from countries such as Cyprus applied to the UK. This was made even more complicated by the recent exit from the EU on the Brexit Vote. Although Trading Binary options in the UK can be done and through a number of brokers, only certain brokers are legally allowed to be offering their services to UK clients. As a UK based trading community, the Binary Trading club knows the ins and outs of the regulators environment. The main regulator in the UK is the Financial Conduct Authority (FCA). They are involved with making and enforcing a number of the rules which dictate how financial services firms offer their services to clients in the UK.
The FCA currently regulates CFD and Forex brokers and these brokers would need to get a licence in order to be able to provide these services and claim compliance. The regulations are quite extensive for brokers including background checks on the directors, 500k in the bank account in reserve and a minimum number of staff.
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This is mainly as a result of the leveraged nature of those instruments. Indeed, given how strict the FCA is when it comes to Forex and CFD providers, many of the largest online traders have decided that they would like to make the UK their base including IG and FXCM. However, when it comes to Binary Options in the UK, the picture is slightly different. UK Binary Options Regulations The FCA currently does not provide regulations around Binary Options. They treat the instrument as an Over the Counter (OTC).
Over the Counter is how Binary Options are traded by the big investment banks (self-regulating). This of course leaves many Retail binary options brokers who offer their services to the UK client base wide open.
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However, given something called MiFid (Markets in Financial Instruments Directive), brokers regulated in Cyprus have been able to provide their services for Binary Options in the UK. This is because the MiFid directive allows financial intuitions that are regulated by an authority in an EEA (European Economic Area) member state to provide their services in to the citizens of another member state.
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This is termed financial “passporting” and has been used by a number of financial institutions across the continent. As a result of tax savings and the relatively low cost of doing business, a number of brokers have chosen to use Cyprus as their EU country of choice. This means that the broker would have been (Cyprus Securities and Exchange Commission). However, with the UK choosing to leave the EU in June of 2016, this has also thrown MiFid regulations into some level of uncertainty. This is because the MiFid agreement was only to be implemented in the EEA of which it is uncertain that the UK will remain a member. There are, however, a number of different brokers who have decided that they would still like to have some UK based regulation of their services.
The other route that is sometimes taken is for the UK Binary Options broker to obtain a gambling license. If the broker is to choose this route, then they would be listed as a gaming product or “fixed odds betting” rather than a financial product. Some brokers don’t approve of this for two reasons. Firstly, listing as gambling product rather than a financial one could tarnish the reputation of the instrument. Secondly, in the UK gambling debts are which means that the broker has no right of recourse in the event of client losses and debts.