New rules on bonuses and withdrawals from ESMA

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New rules on bonuses and withdrawals from ESMA

Some of you have surely heard some news, in the recent days. After some European Union countries banned the promotion of binary options (e.g. Belgium), European financial regulator ESMA (European Securities and Markets Authority = regulatory institution for Securities and Exchange Commission) banned brokers from giving out a bonus for deposits and ordered a faster processing of withdrawals from accounts.

The regulatory authority is, unlike CySEC, a supranational regulator that has a big impact on the functioning of national regulatory authorities of individual EU countries (such as CySEC or CNB). Now, they’ve issued a new regulation that will have a big impact on binary options and their brokers.

Changes in bonuses in binary options trading

ESMA doesn’t like brokers offering such high bonuses that are, moreover, linked with quite unfair terms. Perhaps everyone knows that after receiving a bonus you have to wager it. Some brokers require it to be wagered 30 times, some even 45x.

For new investors, who unwillingly take bonuses, this is often impossible. In addition, bonuses distort the view of the trading account balance and subconsciously encouraged to invest larger sums. This must change.

I don’t know how much pressure will the regulation make on brokers, so it’s hard to say whether brokers will actually obey. However, we can certainly say that, if they will, then only the regulated ones. List of regulated and trusted brokers can be found here: Binary Options Brokers.

I think, that unregulated brokers will offer bonuses to lure new traders – which is wrong because an inexperienced investor would choose an unregulated broker with a bonus and might never see the money again, instead of choosing a regulated and trusted broker.

Changes in the terms and conditions for withdrawals

Another change, required by ESMA, is regarding to withdrawals. A lot of times it happens, that the withdrawals take absurdly long – up to tens of days, even with regulated brokers.

I must say that, for instance, the broker Top Option doesn’t do its best – withdrawals take up to 4 days. However, who surprised me was IQ Option and Banc De Binary. Both brokers sent withdrawals in two days – I have received all withdrawals (about ten) from them very quickly. This may be because I like to use the e-wallet Skrill.

We must not forget that if you choose to withdraw money via bank transfer, you can still count with extra two to five working days until your bank processes the withdrawal.

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My opinion on changes

As I said, on one hand, these changes are good and make sense. But only if they applied to all brokers without exception – but it will never happen. Unregulated brokers are not really interested in such regulations and therefore they will continue cheerfully offering bonuses.

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Inexperienced investors could then be joining untrustworthy brokers rather than the regulated and trusted ones, which could make the situation even worse, because you can’t really control these brokers. We’ll see how the situation develops.

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

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Brokers News

The Cyprus Securities and Exchange Commission (CySEC) has issued a circular to Cyprus investment firms, setting some new rules about trading bonuses, maximum leverage and withdrawal time. In its essence, these measures are in line with ESMA’s guideline, published in October.

First of all, in its paper CySEC says that the brokers “must avoid the practice of offering bonuses that are designed to incentivize retail clients to trade in complex speculative products such as CFDs, binary options and rolling spot forex as it is unlikely that a firm offering such bonuses could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its retail clients”.

Moreover, all CySEC-licensed forex and binary options brokers must inform it whether or not they have such bonus schemes by December 14.

According to The European Securities and Markets Authority (ESMA), brokers use trading bonuses to lure retail traders into trading in CFDs or other speculative products with high risk. It is also true that in many cases brokers require their clients to trade certain volumes in order to be able to withdraw the bonuses, which involves additional risks.

Speaking of withdrawals, CySEC also urges investment firms to allow same-day withdrawals. According to the circular, brokers must process the client’s fund withdrawal request on the same day it was made (or the next working day if the client’s request is received outside of normal trading hours), provided that the cash balance in the client’s account is positive.

Indeed, forex forums and websites are full of complaints from traders that brokers delay or refuse withdrawals. ESMA’s Q&A document also claims the clients’ right to have access at any time to their funds deposited with a firm offering CFDs and other speculative products.

Also in line with ESMA’s recommendations, CySEC is planning to set the default leverage to 1:50. According to the Cypriot financial watchdog, brokers offering “excessive leverage” to retail clients are most likely not doing it in the best interest of their clients, because the higher the leverage, the greater the risk.

In its Q&A document, ESMA said that brokers should not offer clients the maximum leverage as default, but should instead provide them the option to lower the leverage in order to limit their exposure.
Besides, CySEC also urged brokers to ensure that clients cannot lose more than they have in their accounts, a policy also known as negative balance protection.

In conclusion, forex and binary options brokers regulated by CySEC are required to take the appropriate measures and actions in order to comply with the new rules until January 30, 2020. From then onwards, the regulator intends to “conduct thematic reviews” to ensure they are complying with them, as well as with the general provisions of the law. In case CySEC finds any infringements, it will undertake the respective punitive measures.

CySEC’s new set of rules come on the background of an increased regulatory activity concerning risky instruments in Europe. Many EU regulators have expressed intentions to restrict high-risk trading in instruments. Belgium banned the distribution via online channels of over-the-counter (OTC) binary options, spot forex, and CFDs with leverage from 18 August. France and the Netherlands are in the process of developing laws that would prohibit the advertisement of risky financial instruments, and Germany is also considering similar steps.

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