CySec have done a 360 on their previous position regarding Binary Options. On the 4th May 2012 CySec issued a statement regarding the regulation of Binary Options. Previously CySec had held that Binary Options where not a final instrument presumably holding that Binary Options were more akin to online gaming.
However in there new statement they state they have decided that Binary Options do fall under their remit as the financial regulator of Cyprus. Meaning that those who wish to operate Binary Option platforms from Cyprus now have to gain CIF licence by November the 4th 2012. Companies were obliged to inform CySec of their intention to acquire such a licence from CySec within 30 days of the May 4th announcement or cease offering Binary Options from Cyprus.
What does this mean?
All unregulated binary options companies will have to stop operating in Cyprus by the 4th of November unless they have a licence application in the works. This will likely mean a number of Binary Option companies will up stick and move to other more favorable jurisdictions. However a number of companies will also apply for CySec licences.
One big obstacle to Binary Option firms will be coming up with the 1 Million Euro minimum capital requirement as many of these companies were opened as white label on a relatively small budget. A number of firms have already applied for licences and recieved them most notably S.O SpotOption Ltd. a company that provides platforms for a large percentage of the Binary Options industry.
Will other jurisdictions follow suit? Such as the FSA
In the particular case of the FSA, I feel it is unlikely due to the fact that both GFT and IG Markets offer regulated Binaries due to the fact they are offered in a contract for difference format. This means those in the UK already have access to a form of binary trading without using unregulated brokers.
The problem was also particularly difficult for CySec as a large number of unregulated binary option firms where operating from the jurisdiction due in part to the favorable tax and legal system. This led to a considerable amount of pressure being applied to the regulators at CySec to do something about the problem.
It seems more likely that other smaller jurisdictions may follow CySec’s lead and regulate binary options, especially if this attracts Binary Option providers open up shop within their jurisdiction. However there are still of plenty unregulated jurisdictions for rogue providers to up shop too.
Will this stamp out unregulated Binary Providers?
Almost certainly not as previously noted their are other jurisdictions where regulation is significantly lacking, notably Russia. There is also no pan European consensus on how Binary Options should be classified. For example there classified as a form of gambling or gaming in Malta. People will still have to be wary of who to open accounts with and who to undertake their trading with.
Though this must be seen as a step in the right direction.