Shearman & Sterling LLP | Financial Regulatory Developments Focus | International Standards Body Encourages Regulatory Clampdown on OTC Leveraged Products
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  • International Standards Body Encourages Regulatory Clampdown on OTC Leveraged Products
    09/19/2018
    The International Organization of Securities Commissions has published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options. This step at international level follows the temporary prohibition of the marketing, distribution or sale of binary options and the restrictions on the marketing, distribution or sale of CFDs to retail clients introduced in the EU earlier this year, which the U.K. Financial Conduct Authority fully supported.

    The report covers rolling spot forex contracts, CFDs and binary options offered and sold on a domestic and cross-border basis by intermediaries to retail investors. The report includes three toolkits providing guidance to IOSCO member jurisdictions on methods for mitigating the harm to retail investors investing in these products.

    The first toolkit outlines policy measures and guidance for the regulation of the offer and sale of these products by intermediaries, including leverage limits, pricing methodologies, marketing restrictions and bans. The second toolkit provides guidance on how member jurisdictions could design investor education programs to inform retail investors about the risks of OTC leveraged products and unlicensed entities active in this area. The third toolkit concerns the activities of unlicensed entities, focusing on binary option firms.  It discusses the challenges posed by these firms when they offer OTC leveraged products to retail investors and presents effective practices already used in some jurisdictions to mitigate the risks created by firms illegally or fraudulently offering these products.

    The toolkits are not binding on IOSCO members. However, IOSCO encourages its members to consider how one or more of the measures could be adopted into their domestic framework to assist in protecting retail investors. IOSCO's statement provides information about binary options and warns retail investors about the risks presented by these products. The statement also includes links to action taken by regulators across the globe to address the potential harm of binary options.

    View the report.

    View the statement on binary options.

    View details of the EU bans.

    View details of the FCA's statement supporting the EU actions.

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