The Central Bank hasn't a clue how to regulate so-called Retail Structured Products, which are selling like hot cakes.
In 2019, Derville Rowland said: "
Binary options have no place in the investment plans of retail investors. They are no more investment than betting on a horse." See
here. So it banned them.
Yet Brian Woods and I have been begging the Bank for months - no, for years - not to ban so-called Retail Structured Products (RSPs), but to force providers to warn prospective investors of the stark choice they often face between (a) getting a 100% return of capital and (b) getting back less than half their capital (before interest). One might even call it a binary option: 100% or less than 50% of capital back. Millions of Euros of RSPs have been sold to unsuspecting ARF holders, credit unions, religious orders, all under the ever-watchful eye of the Central Bank, which of course hates binary options.
Presumably providers have been able to convince the Bank that there is a genuine MiFID consumer need for such products, like the one we looked at recently , which either pays 5% a year and money back, typically after three or four years, or returns less than half the investor's initial capital after ten years. I can imagine people knocking doors down, eager to risk more than half their capital for a measly extra interest rate.
Presumably providers have also been able to convince the Bank that it's ok to show thousands of apparently successful back-tests in brochures, despite the fact that those same back-tests typically utilise indices which were artificially created after the start date of many of the wonderful back-tests which rely on them (I swear, your Honour, that the indices weren't designed purely to suit the back-tests).
The Central Bank has apparently also allowed providers to skate over the typically one in six risk that investors will metaphorically blow their financial brains out with such Russian Roulette products, in direct contravention of the MiFID rule that ALL marketing literature should be fair, clear and not misleading. Ah, sure, it's OK, so long as they throw in the standard warning that the past is not a reliable guide to the future. Of course, innocent investors would never be fooled into believing that thousands of successful back-tests with zero failures, all based on a weird and wonderful specially created index, could have any significance for the future.
The Central Bank apparently thinks that retail investors, who turn to such products to earn a bit more interest, have enough cop-on to avoid being fooled by made-up indices and thousands of back-tests on those same made-up indices, in much the same way as it was happy that the hot-shots who thought they knew all about binary options didn't need to be protected from their folly.
Quis custodiet ipsos custodes?