The Consummate Guide to Binary Options Trading in the United Kingdom

The Financial Services Register offers information on all bodies, individuals or firms that have been, or presently are fully regulated by the PRA (Prudential Regulation Authority), as well as the FCA (Financial Conduct Authority). The register allows for public records searches on any corporation that an individual or business is seeking to conduct business with.

The FSR is one of the most useful available in that it details options for recourse if transactions go awry. By conducting business with unregulated individuals or companies, the risk is that bad transactions will not be covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service. Compliance with the regulatory constructs of the PRA and the FCA is imperative for safe trading practices for binary options in the United Kingdom.

Binary Options and UK Regulation: The FCA Perspective

Binary options regulation is not undertaken by the Financial Conduct Authority (FCA). When traders dabble in binary options, they are not under the protection of the financial services regulatory framework in the United Kingdom. Further, there is discussion in the UK government regarding precisely how binary options should be regulated, and whether it should fall under the control of the FCA.

As it stands, binary options brokerages are regulated by the UK Gambling Commission. This only holds true if remote gambling equipment is in the United Kingdom. If the remote gambling equipment is not located in the UK, regulation of that binary options brokerage will not fall under the control of the UK Gambling Commission or under the purview of the Financial Conduct Authority (FCA).

It is interesting to point out that outside of the United Kingdom, European Union member countries consider binary options brokerages to be financial products and not gambling-related products. According to European Union financial services law, all entities which have legally been established and regulated in any EEA country (European Economic Area) are fully entitled to conduct business operations in any of the other European Economic Area countries as soon as the structural and procedural frameworks and regulations have been met. This brings about an interesting reality in the United Kingdom since binary options brokerages that operate in Europe (European Economic Area countries) are welcome to conduct business operations in the United Kingdom and they will be registered among financial services firms.

How Can Traders Address Concerns about Binary Options Brokerages in the UK?

Over the past 3 years there were several changes that took place in the UK binary options market. The Financial Services Authority (FSA) was previously responsible for regulating brokerages in the UK. However, this authority was broken up into the Financial Conduct Authority (FCA) which continued with the ‘regulatory operations’ and the Prudential Regulation Authority (PCA) maintained the supervisory aspect of the banking activities.

It should be pointed out that binary options are not regulated by the Financial Conduct Authority (FCA). And it is important to understand what options are available to traders when it comes to queries, complaints and accountability. Recall that binary options brokerages in the United Kingdom fall under the framework of the UK Gambling Commission which does not offer ‘recourse’ or ‘protection’ for money that is lost through gambling-related activity in the normal course of operations.

The public register of licensees offers information on all companies currently holding a UK Gambling Commission licence. If a binary options brokerage is not licensed and regulated by the UK Gambling Commission, there is no recourse in the UK for customers who lose money to unscrupulous operators. As such, the FCA and the UKGC advise traders to carefully vet binary options brokerages before depositing funds.

Licensing and Regulation for UK-Based Binary Options Brokers

There are plans afoot to provide regulation for binary options as a financial product in the UK. A law known as the Gambling Act of 2014 (licensing and advertising) is in place. Binary options are now seriously being considered as financial products and this was brought into the public debate in 2015 when registration and licensing for binary options brokers in the United Kingdom came under focus. Several leading binary options providers attempting to drop anchor in the UK market have preferred instead to wait until the regulations are in place before they invest in the UK market.

The reason why leading binary options brokers operating in the European Economic Area (EEA) may prefer to wait for regulation is that a legal framework needs to be in place to secure the activities of these brokerages. One of the most important requirements is the provision of segregated bank accounts. This ensures that the binary options broker maintains a separate bank account from the traders who invest with the brokerage. This legal requirement ensures that traders are protected in the event of a bankruptcy, or legal action against the brokerage.

The segregation of bank accounts is especially important when it comes to regulation in the United Kingdom. In other words, an existing binary options brokerage or and intending binary options brokerage must show that it can clear all of its obligations vis-a-vis financial responsibilities/obligations from its own funds and not from the funds of traders depositing into their accounts. This requires extensive capital resources, and many would-be brokerages simply do not qualify under these requirements.

This is an important safeguard for traders and it increases the likelihood of being paid out on winning trades by the brokers in question. Liquidity to the tune of millions of pounds would typically be required, perhaps even more than that for a broker offering services to UK patrons. This would require the backing of major banks, insurance companies, corporate entities and angel investors. Many European traders have run into problems with brokerages that simply fail to provide the safeguards to traders, but UK authorities refuse to allow this problem to be perpetuated in Britain.

Traders can easily check to see if a binary options broker is listed on the financial services register in the United Kingdom. This will determine whether it has been authorised by the Financial Conduct Authority to operate as a binary options broker. Important details about the brokerage must be entered such as its reference number, its postcode or its name. This is easily obtainable from the binary options website. Once the data has been input, the financial services register will provide the necessary information about its authenticity. It has already been stated that UK binary options brokers will be protected under the financial services compensation scheme to the tune of £50,000-£85,000.

Requirements for Opening Accounts with Binary Options Brokerages in the United Kingdom

For UK citizens and citizens of the EU, there are 2 pieces of documentation that are required to open an account. These include an international passport or a drivers’ license as the first piece, and a bank statement/utility bill/credit card statement as proof of residential address. International citizens wanting to trade at UK binary options brokerages will be required to submit the same information as listed above, all with a public notary’s seal of approval. The reason for the stringent security checks is to validate the identity of the trader in question. Binary options trading like any online financial transaction is subject to fraudulent activity (money-laundering, tax evasion etcetera) so verification of data is essential.

Recall that binary options trading is legal in the United Kingdom. This means that traders are fully entitled to trade these financial instruments at licensed binary options brokers. The UK was among the first to legalise financial betting, given that the UK was a major player and continues to be in the Forex trading arena. UK traders are advised to stick to binary options brokers that are licensed in the EU or the UK only, since brokerages licensed elsewhere do not offer the same recourse and protections to traders.

The disbandment of the FSA led to the creation of the FPC and the FCA. The FPC ensures that binary options brokers licensed in the UK follow the rules established by the FCA. The actions of a few binary options brokerages have tarnished the reputation of many exemplary brokers who put their traders first. Several jurisdictions consider binary options trading gambling activity, while many others consider it a financial trading activity. Regulation has heretofore been conducted by CySEC (Cyprus Securities and Exchange Commission), with passporting done via the MiFID. For UK traders however, the Financial Conduct Authority would provide a much better safety net than CySEC alone. The most important thing to look out for as a new trader is FCA authorization, or a register of FCA badges on site. This is pivotal when making a decision to trade binary options in the UK. Therefore, in summation, UK traders can safely enjoy binary options trading with EEA-licensed brokerages, or those licensed and regulated in the UK by the UK Gambling Commission.