In accordance with European Securities and Markets Authority’s decision on 27 March 2018, Contracts For Differences (“CFDs”) on virtual currencies are included into the scope of its product intervention measures and in addition are considered as financial instruments under the investment Services and Activities and Regulated Markets Law of 2017.
The Cyprus Securities and Exchange Commission’s (“CySEC”) issued a new circular on 28 March 2018 regarding the trading in virtual currencies and/or trading in CFDs relating to virtual currencies.
In accordance to that circular CySEC provides further explanation on the following:
1. Activities relating to virtual currencies are not currently regulated by CySEC, unless a virtual currency meets the criteria and falls under the existing regulatory framework as provided by CySEC.
2. In addition, Derivatives on Virtual Currencies are now capable of qualifying as financial instruments under the Law. Derivatives on Virtual Currencies may fall under the following categories of Financial Instruments:
• any derivative contracts relating to securities which may be settled physically or in cash
• financial contracts for differences
• any derivative contracts relating to assets not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments
3. As such provision of investment services in relation to derivatives on virtual currencies will require specific authorization by CySEC.
The provision of investment services in Derivatives on Virtual Currencies by Cyprus Investment Firms (CIFs)has the following obligations:
a. act honestly, fairly and professionally for the best interests of their clients,
b. provide fair clear and not misleading information to their clients,
c. provide guidance and warnings on the risks associated with such investments,
d. have adequate product governance arrangements,
e. execute orders on the most favorable terms for the clients and
f. have adequate capital.
Cyprus Investment Firms must get the appropriate permission for the services provided in accordance with the category of financial instruments that the respective Derivative on Virtual Currency falls in.
Enforcement actions will be faced if such products are offered without the relevant permission.
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