The European Securities and Markets Authority (ESMA), the regulatory and supervisory authority for financial markets in the European Union, has issued a notice reminding entities of the need to assess investment instruments that provide leverage exposure to cryptocurrencies.
In Tuesday’s notice, ESMA he said that derivative products, including those sold as “perpetual futures or perpetual contracts” linked to cryptocurrencies such as Bitcoin (BTC) or Ether (ETH), are likely to fall within the scope of intervention measures applicable to contracts for differences, or CFDs. The EU office warned companies to “take appropriate steps to identify, prevent or manage conflicts of interest that may arise in offering these products.”
“Where these derivatives meet the definition of a CFD, they are subject to the relevant product intervention requirements, including leverage limits, mandatory risk warnings, margin closure and negative balance protection, and the prohibition of monetary and non-monetary benefits,” ESMA said.
The EU agency monitoring compliance with regional rules on cryptocurrency markets (MiCA) was created in 2011 to oversee investor protection in financial markets. ESMA has issued similar warnings to entities associated with digital assets, including a January publication aimed at financial influencers who may promote “volatile cryptocurrencies.”
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Bill Hughes, senior advisor and director of global regulatory affairs at Consensys, he replied to ESMA’s notification on X:
“[T]The statement clearly shows that European authorities are keeping a close eye on the leveraged derivatives space. Rebranding a product as “forever future” will not protect it from CFD restrictions if its features meet the definition […] Firms offering leveraged derivatives to retail clients in the EU must review their product analysis, distribution strategies and governance framework – otherwise EU regulators will do it for them.
Kraken announces perpetual futures product following ESMA notification
While not specifically targeting EU markets under MiCA, cryptocurrency exchange Kraken announced on Tuesday it went public that it has listed “perpetual futures tracking tokenized versions” of “major equity indices, gold-backed ETFs and leading public companies.”
The products will be available to residents of over 110 countries outside the US. However, a Kraken spokesperson told Cointelegraph that the product “is not available to EU customers at launch.”
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