ESMA and CySEC Suggests Bonus Ban

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ESMA Bans Bonuses Across the Europe

ESMA has recently announced a new guideline that dictates terminating one of the most powerful tools used bi regulated binary brokers. The new guideline will effectively eliminate deposit bonus systems that were attracting traders all over the Europe.

From what we can witness, clients security has become a priority for all regulators across the Europe. ESMA – European Securities Markets Authority has issued this guideline because of the concern that various bonus promotions caused a high level of overtrading among clients. Besides stating the overtrading problem, ESMA has obligated all local regulators to follow new rules.We have found this in ESMA documentation:

“The ESMA consultation paper, in general, argues for more detailed remuneration regulations in relation to incentive payments for products sold, and particularly for new products sold. What perhaps sometimes is neglected is that it is not of an investment firm’s interest to construct inappropriate bonus schemes, to encourage unwanted behavior or to wrongly pay out large bonuses.“

The Future of Binary Options Without Bonuses?

Regulated brokers are aware they need to adapt to new regulations if they want to survive in the European market. The positive thing is that brokers must apply this rule only for European countries, while they can still offer bonus promotions to other countries.

Brokers that have been using bonuses for substantial profits for many years, now have to reorganize their operations and find new methods to retain their clients. Regulated brokerage companies are now adapting to new conditions and trying to find better marketing solutions that will help them attract European traders.

New Binary Options Solutions

Some binary brokers are already working on new projects that are aiming to reduce the regulatory conflicts. This refers to new exchange model that is starting to be popular in the US a few years ago. What are binary exchanges? The principle of binary exchanges means that traders are trading against each other and this could ensure fair and transparent terms for both sides.

Conclusion

From our perspective, the future of bonus promotions in binary options doesn’t look very bright. This decision will probably lead towards closing some brokerage companies, while others will have to adapt in order to practice new regulations. This brings more obligations for binary brokers that will have to follow regulatory requests.

EUR-Lex Access to European Union law

This document is an excerpt from the EUR-Lex website

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Market News

The latest major forex hub which allowed retail clients to use higher leverage, Australia, is about to cap leverage at 1:20, and ban binary options altogether. In an attempt to address “significant detriment to retail clients” resulting from trading in binary options and CFDs, the Australian Securities and Investments Commission (ASIC) proposed product intervention measures similar to those applied by the European Securities and Markets Authority (ESMA) last year.

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This became clear from a consultation paper published today, which proposes a single leverage ratio limit of 1:20 for all forex pairs and gold. This is actually harsher than ESMA’s restrictions which allow the use of leverage of up to 1:30 for major currency pairs. As regards equity indices, ASIC suggests a maximum level of 1:15, commodities excluding gold 1:10, equities 1:5, and crypto-assets 1:2.

The other product intervention measures regarding offering CFDs to retail clients proposed by ASIC include providing negative balance protection, implementing a standardized approach to automatic close-outs of client’s CFD positions in margin call, prohibiting certain trading inducements, and enhancing transparency of CFD pricing, execution, costs and risks.

Commenting on the planned restrictions, ASIC Commissioner Cathie Armour said: “ For many years ASIC has taken strong action to protect consumers of binary options and CFDs, using the range of regulatory tools available to us. However, we are concerned that consumers continue to suffer significant harm from trading these products.”

In order to illustrate the detriment to retail clients, ASIC has included in its official statement some statistics. According to a survey conducted by the Australian financial regulator in 2020, 80% of clients who traded binary options lost money; 72% of clients who traded CFDs lost their investment amount, and 63% of clients who traded forex lost money.

ASIC is now seeking feedback on its proposed product intervention measures until the 1st of October 2020. Most probably, trading in binary options will be banned, as figures show that nearly all traders lose money, and Cathie Armour said that they have product characteristics similar to gambling products.

We are about to see whether the proposed measures regarding CFD trades will be adopted, but some restrictions will definitely be applied for investor protection concerns.

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