France’s AMF says digital advertising of CFDs on cryptocurrencies is prohibited under Sapin 2 law

Maria Nikolova

Following an analysis of the status of cryptocurrencies, the regulator has decided that derivatives that have cryptocurrencies as underlying assets are not to be advertised via electronic means.

France’s financial markets regulator AMF has earlier today published its stance on the regulation of cryptocurrencies and products related to them.

Following an analysis of the legal status of cryptocurrency derivatives, the AMF has reached the conclusion that the platforms offering these products must abide by the authorisation and business conduct rules, and that these products must not be advertised via electronic means. That is, such products fall within the ambit of the famous Sapin 2 law, which prohibits the digital advertising of binary options and certain CFDs which are deemed toxic for investors.

The regulator stresses the cryptocurrency craziness that has been observed over the past few months and which 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.

Regarding the legal analysis of cryptocurrency derivatives’ status, the AMF notes that 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 underlying assets.

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 II and must therefore comply with the authorisation, conduct of business rules, and the EMIR trade reporting obligation to a trade repository.

More importantly, these products are subject to the provisions of the Sapin 2 law, and notably the ban of advertisements for certain financial contracts, the regulator stresses.

In the face of the ban on advertising of toxic financial products, such as binary options and certain types of CFDs, some companies, many of which are Cypriot, continue to violate the Sapin 2 law in France. This has been confirmed by Robert Ophèle, Chairman of the AMF.

In October last year, he quoted statistics showing that the number of advertisements about trading of such products distributed from February to July 2017 was down by 60% compared to the same period in the preceding year. However, the number of new advertisements about online trading of toxic products distributed after the Sapin 2 law came into force reached 162 at the end of August. A total of 28 providers of online trading services were responsible for these advertisements. Of these 28 companies, 26 were registered in an EU member state other than France. Of these 26 brokers, 19 were Cypriot, a fact that the AMF Chairman called barely surprising.

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