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CySEC’s new regulations: Does the watchdog protect traders from scams?

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CySEC warns you!

The growing number of frauds in the binary options industry led to many people complaining to local financial regulators in France, Belgium and the UK. These countries are still part of the EU, and CySEC-regulated brokers are supposedly allowed to operate in all EU member states, but this is no longer the case.

By the end of 2016, AMF in France banned binary options advertising, and FSMA in Belgium completely banned OTC derivatives, including binary options and CFDs. CySEC had to make a move to save its reputation as a leading financial regulator in Europe.

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Is CySEC tightening regulations?

In January 2017, CySEC proposed changes in the regulatory obligations of companies providing binary options to retail traders. The changes covered different parameters in terms of advertising, trading software, price quotes and duration of contracts.

At first, when I read CySEC’s proposed changes, I had the impression the Cyprus Commission was actually doing something good for retail traders. However, as T.S. Eliot once said, “Most of the evil in this world is done by people with good intentions”.

Advertising

CySEC rules state regulated brokers must stop offering welcome promotions to clients in the form of bonuses and risk-free trades. This measure was expected to obstruct the wild hunting for new customers.

Contracts

The proposed regulations included a number of changes in terms of the binary options contracts and the broker’s trading platform:

  • Fixed strike price
  • Minimum of 5 minute expiry time
  • Sell back option

CySEC is regulating binary affiliates

On the 1st of June, the proposed changes became fact. When you look at the new rules, one is clear: CySEC is trying to regulate the affiliates rather than the brokers.

The Cyprus commission, headed by Ms. Demetra Kalgerou, has spent six months in creating a blacklist of keywords for affiliates. Strange enough the list includes the keyword CySEC! Please, 'splain it to me, why?

For example, an affiliate website writes a review on IQ Option but is not allowed to confirm the broker is CySEC regulated. Affiliates are also obligated to put “Risk Warnings - Your capital might be at risk” all over the review.

The watchdogs in Canada and France usually warn traders of potential scam brokers. CySEC is probably the only watchdog warning traders about the brokers under its own jurisdiction.

None of the proposed changes in terms of binary options contracts have been applied so far, except for the displayed bid/ask price on the trading platforms.

Affiliates are turning to unregulated brokers

If you read the numbers, you know the binary options industry is driven by the affiliates. When the broker is not attractive for the affiliates, they turn, and the broker’s destiny is defined. Now, we are witnessing two of the largest CySEC regulated brokers, 24option and Anyoption, sinking.

Instead of only regulating advertising and affiliates, CySEC probably should have been taking actions to cooperate with independent price providers. It would have been a job well done if the regulator had guaranteed brokers do not manipulate price quotes on the platforms.

The attempt to remove 60 second options and to fix minimum contracts for 5 minutes was an approach in the right direction. That would have reduced the gambling attitude and addiction to binary options trading.

CySEC is not able to guarantee a safe environment for traders, and it is obvious now the watchdog is trying to kill binary options.

Disclaimer: The article is written for informative purposes only and it is not financial advice. The author does not have any position in the currency pairs mentioned, and no plans to initiate a position. He wrote the article himself and expressed his own opinions. He has no business nor personal relationships with any mentioned government entities or stocks. Readers should not treat any opinion expressed by the author as a specific inducement to make a particular trade or follow a particular strategy, but only as an expression of his opinion.

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