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CySEC Issues Guidance on Derivatives Based on Virtual Currencies

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The Cyprus Securities and Exchange Commission (CySEC) has issued a circular (C268, dated May 15, 2018) that sets out its guidance on derivatives based on virtual currencies.

The circular comes after the decision by the European Securities and Markets Authority (ESMA) to bring Contracts for Difference (CFDs) on virtual currencies within the scope of its product intervention measures.

CySEC has announced that it considers such CFDs to be financial instruments falling within the scope of the Investment Services and Activities and Regulated Markets Law of 2017.

Depending on the specific characteristics of the product, providing investment services in relation to derivatives based on virtual currencies will require specific authorisation by CySEC and must comply with:

  • The applicable national legislation
  • EU regulations
  • CySEC-adopted Guidelines and Recommendations issued by ESMA, and the European Banking Authority (EBA)
  • ESMA published Q&As, Opinions and other Convergence Tools

Furthermore, the obligations under the Investment Services Law apply when designing, creating and distributing derivatives based on virtual currencies. This includes transparency towards clients; outlining the high risks associated with the product.

Regulated investment firms wishing to provide investment services in relation to derivatives based on virtual currencies should submit the appropriate application to CySEC. Those who prior submitted under the category of ‘other service’ under article 5(5) of the Investment Services Law Firms are eligible reclaim the application fee if the application has not been processed yet.