Despite the implementation of a ban on the sale of binary options in Canada, certain firms have continued to illegally offer this financial product to investors. The Investment Industry Regulatory Organization of Canada (IIROC) warned that at least two entities have continued to offer binary options under the guise of being falsely regulated by the IIROC.
The Canadian Securities Administrators (CSA) had, in September 2017, implemented a ban on all types of binary options, including “all-or-nothing”, “one-touch”, “cash-or-nothing”, “asset-or-nothing”, and “fixed return” options. Under the proposed instrument 91-102, the ban prohibits offering, selling, advertising, or otherwise offering these financial instruments to individual investors.
This news raised concerns as to whether such bans would be enough to protect investors against fraudulent brokers. The European Securities and Market Authority (ESMA) had announced in March 2018 a ban on the sale, distribution, and marketing of binary options to retail investors, and also placed restrictions on the sale of similar products such as Contract for Difference (CFDs).
The ESMA ban was also criticized as being “too late” in curbing binary options fraud given the years of lax policies towards entities offering this financial product. This laxness had allowed such entities to proliferate in jurisdictions such as the UK, Malta, Bulgaria, and Cyprus, making it more difficult for law enforcement to crack down on them.
In Florida, for instance, the US Commodity Futures Trading Corporation filed suit against a number of binary options firms offering a “Millionaire Money Machine” investing system. According to the complaint, the firms promised investors high rates of return as well as bonuses, and then stopped communication with them once they had deposited money into the firms’ accounts. The CFTC alleged that the brokers had received some $16 million in funds from customers they had solicited to illegally invest in off-exchange binary options.
In response to a CFTC filing, a Florida District Court had issued an Order of Permanent Injunction against the defendants, prohibiting them from continuing their allegedly fraudulent activities. The assets of the defendants have also been placed under a receivership, freezing nearly $8 million in funds.
The defendants challenged the receivership and CFTC’s claims, saying that they did nothing wrong since the brokers they dealt with operated legitimately and were outside of the Commission’s jurisdiction. They cited as an example their dealings with Banc de Binary, a dealer that had been authorized to operate in the EU under a CySEC license.