The Netherlands is to issue an advertising ban on binary options and “other toxic investment products,” the Netherlands Authority for the Financial Markets (AFM) announced.
The Dutch financial services regulator said it was working with Holland’s finance minister, Jeroen Dijsselbloem, to implement a ban that would prohibit advertising by foreign companies offering binary options trading to Dutch customers and possibly advertising of other products, like highly leveraged contracts for differences (CFDs).
“Advertising for these investments entices consumers with the prospect of earning money fast, but it is actually the case that you can easily lose all of the money you have put in” said Merel van Vroonhoven, chair of the AFM Executive Board, in a press release last month.
The Times of Israel has in recent months been detailing massive fraud by Israeli binary options firms, beginning in March with an article entitled “The Wolves of Tel Aviv.” The fraudulent firms purport to be guiding their customers in making lucrative short-term investments, but are in fact using various ruses, including misrepresentation, allegedly manipulating rigged trading platforms and outright refusal to return deposits, to steal their clients’ money.
All Israeli binary options firms are now banned by the Israel Securities Authority from targeting Israelis, but the firms remain free to seek clients abroad. The US has banned overseas binary options firms from targeting its citizens, and numerous countries, including the US, Canada and France, are investigating Israel-based binary options fraud on behalf of their citizens who have been cheated.
In August, Belgium became the first European country to ban the industry.
Nicole Reijnen, a spokesperson for the AFM told The Times of Israel that she sees the soon-to-be-implemented advertising ban as a step towards possibly banning binary options altogether in the Netherlands. The regulator had received 50 complaints last year about binary options.
‘When MiFID II is implemented in 2018 we have more options to ban toxic products for consumers like binary options’. Reijnen also mentioned that the AFM was in a legal battle with Optieclub, which Dutch courts had forced the AFM to license over a year ago. “This is the only company in the Netherlands that has a permit from us. But we think that binary options resemble gambling. Consumers can lose a lot off money in just a sec. To gain in a longer term is very difficult. We expect the outcome of the court case will come Tuesday.”
Meanwhile, a German regulator quoted in the daily Die Welt newspaper said that BaFin (the Bundesanstalt für Finanzdienstleistungsaufsicht or Federal Financial Supervisory Authority) is considering banning binary options along with other financial products as a consumer protection measure.
Contacted by The Times of Israel, Anja Schuchhardt, a press officer at BaFin, declined to comment on a ban, but said BaFin was considering possible steps.
“Since the German Retail Investor Protection Act (Kleinanlegerschutzgesetz) came into force, product intervention (section 4b of the WpHG) has been one of the tools available to BaFin, but it is always regarded as a last resort,” she said. “In the future, therefore, BaFin will continue to consider carefully and with a sense of proportion which specific steps are necessary, firstly with a view to consumers, who must be effectively protected, and secondly with a view to the related interventions in the market which should be kept to the absolute minimum required.”
Denmark issues warning
Denmark, meanwhile, issued its first official warning against binary options.
The Danish Financial Services Authority on September 21 warned consumers against investing in so-called binary options offered on the internet.
“Both in Denmark and the rest of the EU,” the warning read, “there are many examples of consumers who have lost large sums.”
“Binary options are a very speculative product that has far more in common with lottery than investment,” said FSA director Ulla Brøns Petersen. “It has also been shown that a number of providers violate basic consumer rules. Therefore, we urge consumers to stay away.”
She added that despite the fact that some of the binary options companies are regulated in Cyprus, giving them license to operate in the EU, they engage in dubious business practices.
“We hear from customers that the companies often lure them with a starting bonus, which, however, you can only get if you even make a deposit. There are also problems with withdrawing money. Finally, the companies’ telephone salespeople use an aggressive sales technique, and do not at all live up to the rules of responsible advice,” according to Petersen.
Petersen added that no Danish customers who lost money to binary options had been able to get it back through government channels. “You can complain to the Financial Ombudsman in Cyprus, but unfortunately we have no examples where it has led to customers getting their money back,” she said.
The Netherlands ban and the statements by other regulators have come amid a flurry of bad international press for the binary options industry, much of which is run from Israel or is under Israeli ownership.