PS19/11: Product intervention measures for retail binary options

Open consultation: CP18/37
Consultation closed
Policy statement and final Handbook rules

In this paper, we set out our final position and Handbook rules to permanently prohibit the sale, marketing and distribution of binary options to retail consumers by firms that carry out activity in, or from, the UK.

Read Policy statement 19/11 (PDF)

Binary options or binary bets are financial products that involve an investor ‘betting’ on whether an event will happen or not. The potential payout is predetermined, with an investor usually losing their initial stake if their prediction is wrong, or receiving a fixed pay-out if they are right. 

This Policy Statement summarises the feedback we received to our Consultation Paper 18/37: Product intervention measures for retail binary options. It also sets out our final policy position, and Handbook rules that will come into force on 2 April 2019. 

We are intervening because of evidence of consumer harm from the inherent risks of these products and the poor conduct of the firms selling them. 

The European Securities and Markets Authority (ESMA) had already prohibited the sale of binary option products on a temporary basis since 2 July 2018. It recently extended that prohibition until 2 July 2019.

Our rules will apply alongside ESMA’s temporary measures, and eventually replace them when the UK leaves the European Union, and/or the ESMA measures expire. 

Firms which comply with our new rules will also be in compliance with the ESMA restriction. However, our prohibition goes further than ESMA’s by capturing all binary options, including ‘securitised binary options’ (as defined by ESMA), which are exempt from their ban. We believe these products pose the same risks of harm to retail consumers. They have a similar binary pay-off structure and are just as difficult for consumers to value as other types of binary options. 

Who this applies to

Our proposals will directly affect:

  • retail consumers who invest in binary options, or are thinking about investing in them
  • UK MiFID investment firms and EEA MiFID investment firms, including Capital Requirements Directive (CRD) credit institutions as appropriate who are marketing, distributing or selling binary options in, or from, the UK to retail clients if we are no longer subject to EU law on 2 July 2019
  • UK branches of third-country investment firms who are marketing, distributing or selling binary options to retail clients

Our proposals may also be of interest to:

  • consumer bodies

The Policy statement also outlines the potential implications of the UK’s exit from the European Union.

What you need to do

From 2 April 2019, your firm must immediately cease (if it hasn’t done so already) selling, marketing or distributing all binary options to retail consumers.

If your firm carries out activity in, or from, the UK you will be required to comply with the new rules in our Handbook alongside ESMA’s temporary prohibition until it ceases having effect in the UK.

Firms’ permissions should reflect the activities that they undertake. Accordingly, firms that are currently authorised to offer binary options to retail clients should request a Variation of Permission (VoP) to remove this investment type or apply for a requirement to limit their permissions to offer these products to professional clients only as soon as practically possible.

Next steps

We will continue monitoring firms’ compliance with this ban.