CySEC defines the rules for the CFD of crypto-currencies
CySEC defines the rules for the CFD of crypto-currencies
The financial regulator in Cyprus, CySEC, has released a directive outlining its requirements for the brokers FX and CFD under license CIF that offer transactions in Bitcoin, Ethereum and other crypto-currencies. As the prices of these virtual currencies have reached new heights, the volumes of trading of the foreign exchange brokers in all areas of digital climb also – and for some brokers, the crypto-currencies represent a good percentage of their trading activity overall.
The maximum leverage has been fixed at 5:1
The volume of transactions in crypto-currencies should not exceed 15% of the total volume of a broker
Brokers must use more than one provider of flow for each digital currency
The instruments in crypto-currencies are not subject to the rights of MiFID passport
Brokers regulated in Cyprus will have to meet the same requirements as other financial products they offer. The high risks associated with crypto-currencies have been described in a separate release.
Brokers that offer CFD trading on the crypto-currencies will be required to inform openly the clients on a number of factors specific to the asset class. The cypriot investment firms will need to indicate that there is no regulatory framework for crypto-currencies.
Higher risks should be specifically mentioned and a volatility strong need to be specifically highlighted to be a potential cause of significant losses. The investors who trade crypto-currencies will not be able to plead for a compensation of losses through the investor compensation Fund.
In addition to appropriate monitoring of risks, their management and the keeping of records, the brokers will have only use of the liquidity providers regulated in the jurisdiction where they are established.
All liquidity providers will need to be monitored and must comply with the due diligence procedures carried out by the CIF. The brokers are also mandated to use more of a flow that provides pricing specific to the asset and the best performance by cross-checking rate. In the case where a CIF chooses to use a single liquidity provider, it will have to find a way to keep a record on how the best execution practices are followed.
Brokers will also need to clearly disclose to the customer how the bid and ask prices are calculated.
As there is no european regulatory framework governing the crypto-currencies, the CySEC means that the product is not covered by the MiFID directive. The products will fall therefore outside the obligations of CIF under the law.
Finally, and most importantly, brokers are not allowed to exercise their rights to a passport under EU law. This point applies to countries within and outside the EU. The companies will be fully responsible for assessing the state of supply in each country where they offer their services and conform to the rules and local regulations.