The latest compliance issues in wealth management around the world.

The Financial Conduct Authority, the UK regulator, confirmed late last week that firms acting in or from the UK are banned from selling and marketing binary options to retail clients amid concerns that these are highly risky and poorly understood.

A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all.

The FCA said it estimates that the permanent ban on binary options could save retail consumers up to £17 million ($22.3 million) per year, and may reduce the risk of fraud by unauthorised entities claiming to offer these products.

The regulator said it acted after consulting a range of parties about binary options. Its ban takes force from 2 April. 

“The new rules tackle widespread concerns about the inherent risks of these products, and the poor conduct of the firms selling them. This has led to consumer harm in the UK and internationally through large and unexpected trading losses,” the FCA said in a statement. 

The watchdog’s rules are very similar to those of the European Securities and Markets Authority’s, EU-wide temporary restrictions on binary options. However, the FCA will also apply its rules to so-called “securitised binary options” which were excluded from ESMA’s prohibition.

Securitised binary options are not currently sold in or from the UK. The FCA said that these products pose the same risks for investors and so it is extending the scope of the prohibition to prevent a market developing for these products.