The European Securities and Markets Authority (ESMA) announced recently that it has increased the requirements for the cryptocurrencies’ Contracts For Differences (CFDs). CFDs is a method used to reimburse gains or losses that users have accumulated through cash payments instead of delivering physical products or assets.
Online trading companies have lost the battle with the EU markets watchdog after regulator increased the trading restrictions to protect the new and inexperienced investors. The cryptocurrency industry has since last year been trying to stop ESMA from implementing the new trading measures. But last week, ESMA revealed that it’s imposing a ban on the trading of the binary options that comprise of betting on the price of a commodity or asset for a certain period of time.
Furthermore, the market watchdog will control the issuance of CFDs, which enable investors to speculate on the price margins without possessing any asset including the crypto-assets that pose major risks to the financial operations and hence need close monitoring.
In the January, ESMA requested for evidence on the possible interference of cryptocurrency CFDs after it was discovered that the volatility of virtual currency prices is increasingly becoming a major issue for investors and the regulator must intervene to protect the innocent and inexperienced investors who are interested in venturing into space for the first time.
With the new rules, the investors will require having adequate funding to cover at least half of their contract value before launching a CFD. In the past, the investors were allowed to enter the contract with as little as 20% of the CFD’s value.
ESMA joins other regulatory agencies in EU member states following the French financial markets watchdog Autorité des Marchés Financiers (AMF) decision to regulate the cryptocurrency derivatives under the new financial reforms of EU.
Additionally, the Austrian Finance Minister also proposed strict regulations on the digital currencies to curb the money laundering activities in the region. The EU markets watchdogs have constantly warned the investors against indulging in the cryptocurrencies due to the high price volatility, cybercrimes, and other risks associated with the digital currencies.