UPDATE, December 2016: CySEC regulated brokers can no longer provide binary options bonuses!
CySEC, the biggest regulator for binary options brokers has issued a new circular explaining the ambiguities that they noticed when checking trading benefits – so called bonuses granting by brokers under their authority. Binary bonuses that are awarded carry terms and conditions of use and this is why CySEC is trying to clarify the proper conduct since it seems some of the CIFs they regulated misused this as a way to trick customers and lock their funds.
CySEC noted that granting these bonuses does not follow the intent of the Investment Services and Activities and Regulated Markets Law of 2007, as in force and Directives DI144-2007-01 of 2012 for the authorization and operating conditions of CIFs. CIFs are Cypriot Investment Firms – all brokers regulated by CySEC. It seems brokers sometimes do not inform traders properly of all conditions and terms that apply when accepting such trading benefits.
As CySEC noted
It has been observed that the trading benefit conditions are not explained, or are not sufficiently explained, to the client in a clear and understandable way.
So, binary brokers have the obligation to explain as clearly as possible, with simple examples, so that customers understand, how bonuses work and what conditions apply. They should mainly focus on the withdrawal rules after the bonus was awarded and explain the application of these rules to any profits that are won by using bonus money.
Also, CySEC check revealed
Granting trading benefit to all clients without exemption and without their consent/acceptance.
The rules are clear – brokers can extend bonuses to clients who satisfy a set of criteria defined by the ‘appropriateness test’ (where applicable) as it is provided under article 36(1)(c) and (d) of the Investment Services and Activities and Regulated Markets Law. Also, client’s consent must be obtained in written form before the bonus is granted.
Conditions that are set for the bonus withdrawals should include sufficient time to reach the turnover rules so that traders do not feel pressure to place many/high trades in short amount of time just to satisfy the conditions. Also, binary brokers should take care that they do not modify rules and conditions for the bonus without notifying the client first. When changing rules, CIF must enable traders to choose if they want to keep the benefit or give it up.
Also, it is crucial that all profits and losses created by using clients’ funds are allocated to clients. In no case may the broker keep the profits. Before handling these allocations, clients must be notified. Also, clients must at all times know what is available for withdrawal and what is not, due to terms and conditions of the bonus. CySEC also warns that withdrawal charges should not be excessive.