Choosing a regulated broker is an essential prerequisite for any binary options trader. However, given the UK’s recent decision to exit from the European Union (EU), the legal framework pertaining to trading regulations could change.
The Effects of Brexit on Binary Options Trading Regulation
For the most part, the repercussions of Brexit are still unknown. With regard to trading, there is still uncertainty around the implications for EU traders who trade with FCA regulated brokers.
The Financial Conduct Authority (FCA) is the UK’s financial regulatory body. The FCA works independently to ensure that the financial markets in the UK operate with integrity. The FCA further provides the minimum standards for market conduct and has the power to investigate companies and individuals whose actions contradict the given regulation. Trading brokers who seek to be approved by the FCA are required to meet strict criteria to protect consumer rights and to ensure that traders are accorded the highest standards of security and privacy.
The Cyprus Securities and Exchange Commission (CySec) is based in Cyprus and is the largest government-based regulatory body of binary options brokers and forex brokers. Given that Cyprus is an EU member, all EU member countries recognize CySec’s regulatory role in financial firms. Some trading brokers are registered with FCA and CySEC while others are registered with just one of these regulatory bodies.
European traders have for a long time, preferred FCA regulated brokers, as they believe the FCA demands stringent standards of regulations. However, following the Brexit vote, there are concerns that the EU may make it unlawful for EU citizens to trade with FCA regulated brokers. While the CySec is also a trusted regulatory agency, most traders prefer the perceived additional security offered by the FCA.
Following Britain’s decision to leave the EU, CySec requested all licensed brokers to explain to their customers the impact that Brexit will have on the brokers’ activities. One possible outcome resulting from Brexit is negative account balances due to a drop in the value of the British Pound and changes in the currency markets.
According to the FCA though, there is no need for traders or brokers to panic. The FCA explained that the regulation of trading and other financial activities would highly depend on the final and future status of the UK with the EU.
In a statement, the FCA said, “A large part of the UK’s financial regulations derive from EU laws. These regulations will continue being the same unless any changes to the legislation are made through Parliamentary and Government action.”
FCA has also asserted that consumer rights will continue to be upheld regardless of any legislative changes.
CySEC provides licensure to brokerage companies and can sanction firms that go against the given standards. CySec requires brokers to hold traders’ money in trust account to guarantee ultimate security. By overseeing the activities of brokers, CySec ensures fairness and standardized practices among all brokers.
Brexit and EU Traders Using FCA Brokers
Presently, the FCA still operates in the EU but the future of this arrangement could change depending on the outcomes of the negotiations between the EU and UK.
In the event that that EU traders can no longer trade with FCA regulated brokers, they may have to switch and start trading with a CySec regulated broker or other brokers regulated by an EU-based body.
However, observers say that it is likely that the rules will not change and that traders in the EU will continue to trade using FCA regulated brokers. So far, nothing significant has changed pertaining to trading and the negotiations between the EU and UK are set to continue for at least two years. As such, there is no big hurry for traders to switch traders yet.
While uncertainty looms large following Brexit, the decision to leave the EU has resulted in instability in the financial markets. Primarily, the value of the British Pound fell to a 31-year low, with other major currencies experiencing some instability. Understandably, traders are keen to see what happens in the coming months, as the move will certainly have implications for the status of forex and binary options brokers.