The Cyprus Securities and Exchange Commission (CySEC) has today published a consultation paper regarding its proposed reforms to the regulatory framework governing the provision of investment services in binary options by firms under its supervision (CIFs).
CySEC proposes five fundamental reforms to eliminate deficiencies in the existing regulatory framework for binary options, and establish new, enhancing conduct standards and measures to ensure retail investor protection.
In compliance with the Investment Services and Activities and Regulated Markets Law of 2007, this is to assist firms to:
- act honestly, fairly and professionally in accordance with the best interests of their
- provide adequate information to clients about the financial instruments offered;
- executive orders on terms most favourable to clients;
- execute clients’ order, promptly, fairly and expeditiously.
Demetra Kalogerou, Chair of the CySEC, commented:
Binary Options products as we know them today carry deficiencies and do not provide retail investors with adequate protection when investing in such high risk and complex financial instrument.
The proposed reforms now under consultation will enhance the nature, characteristics and trading methodology of this type of retail financial instrument. The new proposed standards regarding the Digital Options Contracts will seek to eliminate the causes of concern regarding the practice that are found commonly to be followed by those providing binary options products, ensuring firms act in an honest, fair and professional manner. Crucially, these reforms will standardize trading in Binary Options, bringing significantly greater transparency to investors and better terms for the investors when executing orders, thus provide enhanced investor protection.
The complete CySEC directive on Binary Options reads as follows:
TO : Cyprus Investment Firms
FROM : Cyprus Securities and Exchange Commission
SUBJECT : Enhancing the regulatory obligations of CIFs when providing investment services in binary options
The Cyprus Securities and Exchange Commission (‘the CySEC’) is revising the standards required for the provision of investment services in binary options by the Cyprus Investment Firms (‘the CIFs’). This Circular establishes new standards relating to the nature, characteristics and trading methodology of these instruments to assist CIFs in meeting the obligations to act in the best interests of their clients.
1. This Circular applies to CIFs which are currently providing investment services in relation to binary options.
2. According to Investment Services and Activities and Regulated Markets Law of 2007, as in force (‘the Law’), CIFs must:
i. Act honestly, fairly and professionally in accordance with the best interests of their clients [article 36(1) of the Law] and provide adequate information to clients about the financial instruments offered [article 36(1)(b) of the Law].
ii. Execute orders on terms most favorable to clients (article 38 of the Law).
iii. Implement procedures and arrangements for the execution of orders which provide for the prompt, fair and expeditious execution of client orders (article 39 of the Law).
3. CySEC, after taking into consideration the above-mentioned regulatory obligations, is establishing the standards described in Annex 1 in order to assist the CIFs, defined in point 1 above, in meeting their obligations to act in the best interests of their clients.
4. If a CIF does not apply the standards of Annex 1 when providing investment services in binary options, it is highly unlikely that it could demonstrate to CySEC that meets the obligations of point 2 above.
5. Circular No C126 (issued on April 14, 2016) which revised accepted practices for the provision of binary options is repealed.
6. CIFs are requested to:
i. Without any delay, review their policies and arrangements and ensure that they fully comply with the provisions of this Circular.
ii. Without any delay, undertake, corrective measures/amending actions, where necessary, in order to comply with this Circular.
iii. Provide to CySEC confirmation signed by the Board of Directors as to CIFs’ compliance with this Circular and, where applicable, describe the corrective measures adopted to ensure their compliance.
The above confirmation must be sent to firstname.lastname@example.org within three (3) months from the publication of this Circular.
Chairman Cyprus Securities and Exchange Commission