Malta Financial Services Authority Publishes New Rules for Binary Options Operators

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Malta Financial Services Authority Publishes New Rules for Binary Options Operators

By Lex Yaranu | Monday, August 10th, 2020

The Maltese Financial Services Authority (MFSA) has finally made public its comprehensive set of rules regarding the conduct of binary options brokerage business in the tiny island.

This move finally completes the transition of the binary options market in Malta from the gaming industry to the financial services industry.

In coming up with the new regulations for the binary options industry, the MFSA took a careful look at the assets traded on a “win or lose” or “all or none” basis and made a distinction between assets traded as financial derivatives, and non-financial instruments (such as sporting events). A binary option according to the MFSA, is one in which the underlying event is financial in nature. Consequently, bets that are based on randomly generated assets or sporting events do not qualify as binary options and so companies who only offer these instruments CANNOT apply for a MFSA binary options license.

A summary of the new rules is provided below:

  • The owners of such companies must have an established track record in the financial services industry and must be proven to have a history of good corporate governance.
  • Companies that intend to provide binary options trading services are required to apply for a Category 3 Investment Services Licence, which enables such a company to hold clients’ money and offer trading services. Companies that own this license can also trade on their own accounts, allowing them to function as counter parties to trades.
  • Such binary options companies must have established presence in Malta.
  • Capital requirements are pegged at a minimum of 730,000 Euros. The MFSA will also reserve the right to impose higher capital requirements on companies on a case by case basis.
  • Companies wishing to obtain a MFSA binary options license must appoint the services of a risk manager on a full-time basis. Such risk manager(s) must be resident in Malta.
  • Preference is given to companies with white-label platforms developed by companies already established in the industry for such services. Companies that choose to develop proprietary platforms must subject them to IT auditors, and proof of satisfactory performance in the market must be provided.
  • Risk warnings must be provided on the company’s website at all times.

These are the main provisions of the new regulations regarding binary options services in Malta. Traders who want to trade with Maltese-based entities can therefore use these guidelines to perform their due diligence when choosing a binary options broker in Malta.

All You Need to Know About the Malta MFSA Binary Options Regulation

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.

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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.

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In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).

Outside the EU, financial products are offered by Binary (SVG) LLC, Hinds Building, Kingstown, St. Vincent and the Grenadines; Binary (V) Ltd, Govant Building, Port Vila, PO Box 1276, Vanuatu, regulated by the Vanuatu Financial Services Commission (view licence); Binary (BVI) Ltd, Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands, regulated by the British Virgin Islands Financial Services Commission (licence no. SIBA/L/18/1114); and Binary (FX) Ltd., Lot No. F16, First Floor, Paragon Labuan, Jalan Tun Mustapha, 87000 Labuan, Malaysia, regulated by the Labuan Financial Services Authority to carry on a money-broking business (licence no. MB/18/0024).

This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, Japan, or to persons under age 18.

The products offered via this website include binary options, contracts for difference (“CFDs”) and other complex derivatives. Trading binary options may not be suitable for everyone. Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, the products offered on this website may not be suitable for all investors because of the risk of losing all of your invested capital. You should never invest money that you cannot afford to lose, and never trade with borrowed money. Before trading in the complex products offered, please be sure to understand the risks involved and learn about Responsible Trading.

In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, licensed and regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).

In the Isle of Man and the UK, Synthetic Indices are offered by Binary (IOM) Ltd., First Floor, Millennium House, Victoria Road, Douglas, IM2 4RW, Isle of Man, British Isles; licensed and regulated respectively by (1) the Gambling Supervision Commission in the Isle of Man (current licence issued on 31 August 2020) and by (2) the Gambling Commission in the UK (licence reference no: 39172).

In the rest of the EU, Synthetic Indices are offered by Binary (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta; licensed and regulated by (1) the Malta Gaming Authority in Malta (licence no. MGA/B2C/102/2000 issued on 01 August 2020), for UK clients by (2) the UK Gambling Commission (licence reference no: 39495), and for Irish clients by (3) the Revenue Commissioners in Ireland (Remote Bookmaker’s Licence no. 1010285 issued on 1 July 2020). View complete Regulatory Information.

Binary.com is an award-winning online trading provider that helps its clients to trade on financial markets through binary options and CFDs. Trading binary options and CFDs on Synthetic Indices is classified as a gambling activity. Remember that gambling can be addictive – please play responsibly. Learn more about Responsible Trading. Some products are not available in all countries. This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, or to persons under age 18.

Trading binary options may not be suitable for everyone, so please ensure that you fully understand the risks involved. Your losses can exceed your initial deposit and you do not own or have any interest in the underlying asset.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with Binary Investments (Europe) Ltd. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

MFSA Issues Circular on Binary Options Trading

The Malta Financial Services Authority (MFSA) has issued a circular containing the additional conditions introduced for Investment Service Providers within Investment Services Rules in relation to binary options trading. The new conditions were issued in order to complement existing rules, particularly as binary options trading is considered to be a high risk practice.

Whilst those entities whose applications are still being processed are immediately subject to the new conditions, each existing license holder has a period of one year within which to become compliant in relation to shareholding structure conditions.

The circular contains certain conditions surrounding shareholding structure of Malta-licensed binary options operators. In order for an operator to be able to offer binary options, a Category 3 Investment License is required, also meaning that the operator requires a minimum initial capital of € 730,000, or more if required by the MFSA on a case by case basis.

It is important and interesting to note that the MFSA’s interpretation of “instrument” is in line with the European Commission’s interpretation of the term. Hence, “tradability” of the instrument is not a fixed requirement. However it is noted that “binary bets” do not qualify as an “instrument” and therefore are not licensable. The circular also explicitly explains that contrary to spread betting, binary options trading involves fixed gains and losses.

The fundamental activities of binary options trading, also referred to as “core licensable activities”, need to be carried out in Malta and a full-time locally based risk manager is required. Trading data must also be held at the Malta head offices by the license holder and an adequate online trading platform and off-site back-up system are also required. The circular also lists the required facilities that must be made available to the client and implemented on the trading platform in order to ensure customer protection.

All the new conditions introduced to binary options trading in the circular will ensure that the highest regulations standards are maintained among Malta-licensed financial services operators.

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