Clarification on trading of Virtual Currencies by the Cyprus Securities and Exchange Commission

Posted on 21 May 2018

The Cyprus Securities and Exchange Commission has issued Circular C268 subject to which it has clarified its position in relation to the trading of derivatives in virtual currencies. The CYSEC has adopted ESMA’s approach as per the relevant decision dated 27 March 2018:   

Derivatives on Virtual Currencies are now capable of qualifying as financial instruments under the Law. A “financial instrument” means those instruments specified in Part III of the First Appendix of the Law. Among the financial instruments listed in Part III of the First Appendix of the Law, Derivatives on Virtual Currencies may fall under the following: i. (4): “[…] any other derivative contracts relating to securities […] which may be settled physically or in cash”;3 ii. (9): “financial contracts for differences”; 4 iii. (10): “[…] any other derivative contracts relating to assets […] not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments”.

According to the Circular, CYSEC clarifies the obligations of Cyprus Investment Firms when offering trading of derivatives in virtual currencies and enhances the firms’ requirements when offering these to their clients.

CYSEC has advised CIFs who have submitted an application for the provision of services in relation to Derivatives on Virtual Currencies, as “other service” pursuant to Article 5(5) of the Investment Services and Activities and Regulated Markets Law of 2017 and have not yet had a decision communicated to them, to claim back the application fees they have paid. No reimbursement will be provided in instances where the application was fully examined and a decision was reached and communicated to the respective CIF.

CYSEC has also reminded CIFs to seek the appropriate permission for the provision of services in relation to the category of financial instruments that the respective Derivative on Virtual Currency falls. CIFs offering such products without the appropriate permission will encounter enforcement actions.

The Commission’s Circular may be accessed here: https://www.cysec.gov.cy/CMSPages/GetFile.aspx?guid=2cd4bb96-9cf7-476d-abce-7f7583406c80

This is an informative update. For any specific query you may have, you may contact us at ioanna.solomou@kyprianou.com