The Cyprus Securities and Exchange Commission, with a Circular issued on October 13th, became the first EU Regulator to take a step in monitoring Cryptocurrency trading. The CySEC, after pointing out that there is no specific EU regulatory framework and no official position from the EU authorities to determine whether the trading on virtual currencies falls under MiFID, has outlined a list of requirements for brokers to apply;
· Maximum leverage for trading cryptos is set to 1:5
· Brokers must apply similar organizational requirements and conduct of business rules to those provided by the existing legislation on trading CFDs, including; compliance and internal audit functions, safeguarding of client’s assets, appropriateness of marketing communication, best execution, capital adequacy and record keeping.
· Brokers must ensure that associated risks are identified, managed, monitored, eliminated and pointed out to potential investors
· Brokers must use liquidity providers and virtual currency exchanges that are regulated in the jurisdiction they are established. These and other relevant counterparties must undergo a relevant due diligence by the CIF and agree to periodic and relevant checks by the CIF
· Brokers should use more than one feed provider in order to ensure best execution. In cases that this is not possible, CIFs must be able to determine and record how best execution principles are achieved.
· Brokers must disclose the methodology used to calculate bid and ask price
· Turnover from the provision of the service must not exceed 15% of the total turnover of the CIF per quarter
· Brokers are not permitted to exercise passporting rights when offering the service. The board of directors of each broker is responsible for assessing each individual country status, the brokerage’s obligations and responsibilities in relation to such service with regard to the applicable legal status of virtual currency activities applicable in the country concerned, as well as whether specific authorization is required.
What investors need to keep in mind is that trading in virtual currency with a CIF (Cyprus Investment Firm) does not entitle the investors to any protection under the Investors Compensation Fund, as well as that they have no rights to report to the Cyprus Financial Ombudsman in case of any dispute with the firm they will choose to trade with, as trading in such products is not covered by MiFID and therefore the scope falls outside of the CIFs’ MiFID regulated activities.
The CySEC’s initiative was greatly anticipated by a large part of the CFD and Forex trading community. What remains to be seen is how other national regulators will react and when EU authorities will make their move towards providing guidelines.
Top Forex Rebates currently accommodates 5 CySEC regulated brokers, 2 of which are already offering CFDs on cryptos to non-EU traders and will keep you posted on any development.