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France’s financial regulator Autorité des marchés financiers (AMF) has issued an opinion that it considers that the offer of cryptocurrency derivatives -i.e., CFDs on cryptocurrencies such as Bitcoin and Ripple – requires authorisation and that it is prohibited to advertise such offer via electronic means.
Essentially, by defining crypto CFDs as ‘derivatives’, the advertising of crypto CFDs falls under France’s Sapin 2 law which bans all advertising of leveraged financial products including Forex trading, binary options and CFDs – with the exception of stop-loss CFDs. The main requirement of the exception is that the broker provides a hard guaranteed stop loss to each CFD trade. CFD trades can only be opened by traders with a specified stop loss price in place. A client which hits zero equity must be stopped automatically out of all other trades, providing effective negative balance protection.
Following an analysis of the legal qualification of cryptocurrency derivatives, the AMF has reached the conclusion that platforms which offer these products must abide by the authorisation and business conduct rules, and that these products must not be advertised via electronic means.
What are cryptocurrency CFDs?
Over the past few months, the recent cryptocurrency boom has spurred several online trading platforms to offer binary options, CFDs or Forex contracts with an end-of-day maturity (rolling spot forex), where the underlying is a cryptocurrency. Such contracts allow investors to bet on a cryptocurrency’s rise or fall, without holding the underlying.
The AMF has carried out a legal analysis of cryptocurrency derivatives. The process of reasoning is twofold: on the one hand, to determine the legal qualification of the notion of “derivative” in the context of cryptocurrency derivatives and on the other, to consider whether a cryptocurrency could be legally regarded as an eligible underlying. The notion of “derivative” is not defined in EU legislation per se. Within the MiFID framework, EU lawmakers only set out a list of derivatives (such as options, futures, swaps or forwards), followed by a list of eligible underlyings.
The AMF concludes that a cash-settled cryptocurrency contract may qualify as a derivative, irrespective of the legal qualification of a cryptocurrency.
As a result, online platforms which offer cryptocurrency derivatives fall within the scope of MiFID 2 and must therefore comply with the authorisation, conduct of business rules, and the EMIR trade reporting obligation to a trade repository. Above all, these products are subject to the provisions of the Sapin 2 law, and notably the ban of advertisements for certain financial contracts.