One thing we’ve learned over the years as binary options watchdogs is that the efforts of regulators to control the rampant spread of binary options fraud have largely failed. Belgium was the first to outright ban binary options followed by France who merely outlawed the marketing of binary options; both have recently issued warnings concerning unregulated brokers offering binary in their jurisdictions. New Zealand has chosen to take a different route announcing in a recent press release that they would be requiring licenses for binary options brokers starting December 2017. This isn’t a ban, this is an avenue for the NZ regulators to get a grip on fraud and promote a legal and regulated version of trading.
New Zealand: From Complaints to Regulation
The news first broke in April of 2017 when New Zealand’s Financial Markets Authority announced a consultation on binary options licenses following an investigation into a growing number of complaints. The volume of complaints over an 18 month period averaged 40% of total volume as the number of off-shore based platforms targeting New Zealander’s proliferated. Until recently the regulator did not view short term derivative products like binary options and CFD’s under their jurisdiction allowing the market to enter the country unabated. The purpose of the consultation was to determine how best to classify short term derivatives and what to do about them.
The solution they came up with was regulation. Authorities decided to reclassify short term derivatives as regulated financial products and is requiring a license for all brokers and platform based in New Zealand or abroad. The license will require brokers to adhere to FMC Act obligations and to register as a financial services provider. Brokers who are currently operating in the country will have to be compliant by December 1 2017, those who aren’t will have to be before applying for licensing.
The FMA came to this decision following a successful social media campaign. The regulator used Facebook to track interest in binary and CFD products and concluded that yes, there was demand so instead of trying to stop it they will try to control it. This approach is similar to one put forth by Canada’s Investment Industry Association of Canada, the IIAC. They wished to allow a regulated version of binary options in Canada in order to provide legal services for those who wanted to trade and some protections for those who might be targets for fraud.
Good for NZ, Good for All!
In our opinion, this is the right thing to do. There is no way that regulators are going to be able to shut out binary options, it’s just not possible. The Internet is still wide open, anyone with the desire and motivation can set up a broker from hidden and/or remote location and enter our lives at will. The only way to combat it is to fight it head on, allowing, providing and supporting a regulated means of trading.