Bulletin: Binary options are highly risky and can leave investors with no protection
Key learnings:
- The sale of short-term binary options has been banned in Canada and Mastercard and Visa have blocked binary option payments. However, investors in Canada are still able to purchase these offerings using other means and through other jurisdictions.
- Purchasing binary options from outside Canada leaves consumers with few opportunities to recover their money if something goes wrong.
- Be very cautious about purchasing investments based solely on online or telephone marketing.
Binary options remain a high risk
Binary options are a very high-risk investment that Canadians should avoid. It is like a placing an all or nothing bet on the performance of an underlying asset. At best, they are a high-risk investment strategy suitable only for sophisticated investors who are willing to lose their entire investment. At worst, the investments may be frauds designed to take advantage of unwary investors.
Binary options are illegal in Canada. These investments are sold by companies located outside the country. The companies offering binary options are not licensed to sell investments to Canadians, they are not regulated in Canada and they are not within OBSI’s jurisdiction to investigate.
In 2017, the Canadian Securities Administrators (CSA) undertook several measures to prevent the sale of binary options to Canadians. These measures included working with credit card companies, tech companies and advertisers. However, because binary options are both a global and digital investment, a ban is challenging to enforce. Canadians unaware of the volatile and often fraudulent nature of these products may continue to purchase them over the internet.
Our experience
We have received multiple complaints from investors who used their credit card to purchase binary options. These investors later disputed credit card charges related to these transactions. They believed that because they did not receive the promised services (such as the ability to withdraw their investment capital) that the issuing credit card company should allow a chargeback or reversal of the charge.
In the cases OBSI investigated, the chargeback was refused by the credit card company. We found that the banks involved were not at fault for the failure of the chargeback request because they followed the normal chargeback policies and procedures. It was the policies of the payment card network operators that prevented the consumer from recovering any disputed charges. As a result, we could not recommend that the banks compensate the cardholders. We identified this as a systemic risk and reported it to the Financial Consumer Agency of Canada.
Normal purchase protections won’t apply
We are concerned that Canadians may still invest with companies that are selling investments illegally and possibly fraudulently. Investors should be aware that many of the protections in place for Canadian investors and credit card users may not be available to them for such purchases.
Canadians should only ever invest money through companies licensed to sell investments in Canada. To find out if a company is licenced in Canada, go the CSA website here.
More information may also be found at:
https://www.securities-administrators.ca/aboutcsa.aspx?id=1610