When Is France’s Ban On Binary Options Taking Effect?

A new Israel for binary options and forex brokers is about to emerge in France. The French Parliament this week voted by an overwhelming majority to pass the Sapin II bill, which contains new stricter regulations targeting retail forex and binary options markets. But the bill is unlikely to come into effect immediately, experts have said.

The French financial sector regulator, the AMF, has long tried to clear the country of what are considered risky and predatory financial products. But it needed stronger laws to do that and the passing of the Sapin II bill brings it closer to almost banning binary options trading in the country.

The lawmakers in France voted 308 for and 171 against Sapin II. The regulations contained in the bill will first be published in the national law newspaper before their implementation can start. The AMF is eagerly waiting for the promulgation of the laws to start cleaning up France’s financial sector.

Experts have said that it could take several weeks or even months before the new finance laws could take effect. That means implementation of the laws could only start after mid-December or sometime in January 2017.

But when the laws start working, a new business environment awaits binary options brokers. Sapin II specifically deals with issues around transparency and corruption in the French economy. It also has an element of economy modernization.

Protecting French investors

While the law is broad, the part that applies to forex, CFDs and binary options will try to protect French citizens from investment products that could expose them to heavy losses. First, the AMF has sought to ban advertising and marketing of retail leveraged derivative investment products. The agency has labeled such investment products as highly speculative and risky financial products.

The other proposal that the AMF made in the new finance regulations framework was prohibiting forex and binary options firms from sponsoring sports. That is seen as part of the measure to limit the contact between providers for the so-called risky investment contract and potential clients.

Leverages can be tricky for investors

Besides banning advertising of retail binary options products, the law also seeks to limit the leverage that brokers offer investors. The law caps leverage margin to 20% or 1:5. Through leverage, aggressive investors can multiply their gains rapidly, but it could also lead to significant losses if trades fail to yield the expected returns. Ahead of the U.S. presidential election this week, several forex brokers introduced new measures that broadly limited leverages offered on certain currencies that were expected to be volatile if Trump won the election. The affected currencies were Mexican peso (MXN), the U.K.’s pound (GBP) and Russian ruble (RUB). As expected peso deteriorated against the dollar as election results showed Trump clinching the victory.

Financial sector cleanup in Europe

In much of Europe, financial regulators have stepped up the efforts to curb the activities of retail investment in forex, binary options and CFDs amid growing investor complaints. As such, France’s Sapin II bill only adds to the tightening regulatory environment in the region. While France, Netherlands and other countries in the region have only sought to ban advertising and promotion of risky financial products, Belgium decided to totally ban retail trading in leveraged derivatives.

The financial regulatory changes sweeping across Europe are largely inspired by Israel. Not only has Israel banned retail trading in forex and binary options within its jurisdiction, but has begun a process of prohibiting firms operating within its soil from targeting overseas clients with the same products.