Conjur Releases

Central Bank of Ireland bans sale of binary options and restricts sale of contracts for difference

12 June 2019 Press Going

Central Bank of Ireland

  • The Central Banking concern today announced that it volition ban the sale of binary options to retail investors and restrict the sale of contracts for difference (CFDs) to retail investors.
  • This will be the first time that the Median Bank uses its product intervention powers introduced in 2018, which allow it to prohibit or restrict the sale of certain products.
  • These interventions reflect the Central Banks's meaning concerns relating to the sale of CFDs and binary options to retail investors and will take impression immediately later the European Securities and Markets Authority (ESMA) interference measures lapse.

The binary options measure will prohibit the marketing, statistical distribution or cut-rate sale of binary options to retail investors. The CFD measure will restrict the marketing, distribution or sale of CFDs to retail investors. This restriction consists of limits happening leveraging, a margin enveloping requirement, a demand that retail investors cannot lose more money than they put on into their CFD account, a prohibition on the use of incentives by a CFD provider and a standardized risk warning.

On 27 March 2018, the Central Bank issued a warning to investors on CFDs and binary options. EU competent authorities had undertaken reviews over previous years, which revealed that between 74% and 87% of retail clients incurred losses when investing in binary options. Happening CFDs, a Central Bank inspection published in 2015 found that 75% of retail CFD clients made a going, of which the average loss was €6,900. A espouse-up review of a sampling of the largest CFD providers in Ireland in 2017 found that, in the two-yr stop aweigh to 31 December 2016, 74% of retail clients mislaid money with an average loss of €2,700. Based connected this supervisory work, the Bicentric Bank consulted in 2017 happening specific proposals to protect consumers in relation to CFDs (CP 107).

The Central Bank has worked tight with ESMA on this investor protection issue. In 2018 ESMA imposed temp product intervention measures in relation to the sale of CFDs and binary options to retail investors, measures for which the Central Camber had advocated. Once these temporary measures expire, the Central Bank's national ware intervention measures will forthwith take effect in parliamentary procedure to ensure ongoing protection of retail investors.

Director Unspecialised (Financial Conduct) Derville Rowland said: "The use of our new people product intercession powers demonstrates our continued commitment to number resolutely and robustly to handle investor protection concerns. The Central Bank is ban the sale of binary star options to retail investors as we consider them a essentially flawed product, which have no place in the investment plans of retail investors. They are no longer an investment than betting along a horse.

Based on our ongoing work at CFDs at a domestic and EC level, we have concluded that retail investors must be protected from excessive levels of leveraging, which can result in circumstantially high levels of losses and from the risk of losing more money than they put into their CFD account. We also neediness to give up firms using incentives to entice retail investors to trade wind in these short condition, speculative products.''

Note:

ESMA is an independent EU authority that contributes to safeguarding the stability of the European Union's financial system by enhancing the protection of investors and promoting stable and orderly financial markets.

The product intervention measures bequeath be published happening the Central Bank website prior to entering into effect. The exact date on which the measures will inherit effect is dependent on the see on which the ESMA impermanent measures will expire, with the current ESMA measures referable expire on 1 July 2019 for multiple options and 31 July 2019 for CFDs.

CFDs are complex, leveraged, derivative instruments which enable investors to speculate on the short-term price movements of an underlying reference asset.

Binary options allow an investor to speculate on the short-condition price movements of an underlying source asset. The potential outcome is predetermined, with an investor usually losing their first investment if their prediction is false or receiving a fixed pay-extinct if they are correct.

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