British financial regulator, the Financial Conduct Authority (FCA), has this week announced it will begin regulating binary trading from January.
After issuing a warning to consumers over what it has been described as a “high-risk” product, the City watchdog will take over binary trading regulations as of 3 January, 2018.
The expansion of this betting activity in recent years has consequently increased the number of complaints and reports of scamming. Since 2012, there have more than 2,500 cases involved in binary trading related scams, leading to losses of almost £60m.
Moreover, the City of London Police’s National Fraud Intelligence Bureau reported 305 fraud cases to May 2016, equivalent to 27 per month. Until now, binary options companies were only monitored by the Gambling Commission but from next year the FCA will step in to authorise and supervise trading.
New legislation stipulates complaints will have to be referred to the Financial Ombudsman Service and therefore victims will have access to the Financial Services Compensation Scheme.
The FCA said in a statement: "The short duration of trades with the complex method used to price binary options, means that it is difficult for consumers to value these products accurately.
"The fact that binary options are similar to fixed odds bets, along with the short duration of contracts, means that they can be addictive and can result in consumers accumulating significant losses."
It added: “In most cases, the firm you are buying options from benefits when you lose. This places the firm's interest in direct conflict with yours, which increases the risk of poor conduct by firms offering these products."