Malta Financial Services Authority Regulate Binary Options
Regulation, Regulation, Regulation! It seems that the latest trend is for regulation to become a must not just an option for binary options – pun not intended, it just came out. The most recent step was made by the Malta Financial Services Authority (MFSA) as they have released a notice signaling they are harshening the conditions for new brokers to become regulated. Keep reading for more insights.
MFSA: Reasons, Changes and Requirements
The main reason why the MFSA is tightening regulatory conditions is the high risk associated with binary options and the fact that they are so easily available to retail clients. In plain words they are saying what I have been saying: binary options are not as easy as brokers want you to believe and on top of that, almost everyone can open a trading account with ease. The Malta Financial Services Authority will not allow new and unknown brokers to become regulated so at least we know that if a broker is regulated by the MFSA, we are in good hands. Some of the requirements are good reputation, previous experience in a regulated environment, good performance regarding the handling of complaints from their customers and last but not least, key personnel has to be of high competence and expertise. The members of the Board of Directors must have extensive experience in the field of binary options so maybe now when your account manager tells you he has 20 years’ experience he is not lying. Sure, probably your account manager is not a member of the Board but he should be considered key personnel.
Another important aspect is the need for deep pockets. So from now on, a license applicant (broker) is required to have an initial capital of 730,000 euro. If the regulator considers that additional capital is required, the broker must come up with more – MFSA says “Jump!” and brokers say “How high?”. This makes me believe that we won’t see brokers pop out over night like they have been doing lately (in fact it will be almost impossible for new and unknown brokers to become regulated by the MFSA for the reasons above). Also, they will pay a lot more attention to their clients and will be more concerned about people leaving and taking their binary option business elsewhere so ultimately the traders are the one who will benefit.
There is another requirement I am particularly fond of: local presence. The broker applying for license has to conduct the core activity from within Malta. In other words they cannot just have an address there and operate from other parts of the world. Of course, some activities which are not considered crucial to the operation of the brokerage and can be performed from other parts of the world or through outsourcing.
There are some restrictions surrounding the trading platform itself: the MFSA prefers that applicants use a well known platform as opposed to one build in-house. This probably means that we will see more of SpotOption’s platforms, which is not a bad thing but it hinders innovation and doesn’t really allow newcomers. However, if the brokerage wishes to use a proprietary platform, they will have to have it certified by an independent and reputable IT firm.
The Knights of Malta – Defending Binary Options Traders
In my opinion, most of the rules imposed by the Malta Financial Services Authority are a good addition because frankly, binary options brokers do as they please with clients’ money. I’d really like to trade with a brokerage that has people with trading experience in charge, a real address where you can actually find them, good reputation and previous experience in the trading field. But the real question is: how many brokers will actually want to be regulated by the Malta Financial Services Authority? If they are not regulated by the MFSA, they cannot accept Maltese clients, but is that so important? Sure there are binary options traders in Malta, but maybe there aren’t so many that binary options brokers will go through all the hassle to get regulated.