ESMA warns crypto perpetual futures could fall under CFD rules

The European Securities and Markets Authority (ESMA) warned that crypto perpetual futures products could fall within the scope of regulation for contracts for difference (CFDs).

According to Cointelegraph on the 24th (local time), ESMA said in a notice that if “perpetual futures” or “perpetual contracts” based on cryptoassets such as Bitcoin (BTC) and Ethereum (ETH) meet the definition of a CFD, existing product intervention measures could apply.

ESMA explained that “if the derivatives fall under the definition of a CFD, they would be subject to regulations including leverage limits, mandatory risk warnings, margin close-out rules, negative balance protection, and a ban on offering monetary and non-monetary incentives.” It also called on relevant firms to take measures to identify, prevent and manage potential conflicts of interest.

ESMA, established in 2011, is the body overseeing the implementation of the European Union’s Markets in Crypto-Assets Regulation (MiCA). In January, it also issued a warning about financial influencers promoting highly volatile cryptoassets.

Bill Hughes, senior counsel at ConsenSys and head of global regulatory matters, said the move “made it clear that European authorities are closely watching the leveraged crypto-derivatives market,” adding that “even if a product is reclassified as a ‘perpetual future,’ regulation cannot be avoided if its substance amounts to a CFD.” He noted that firms offering leveraged products to retail investors in the EU should reassess product structures, distribution strategies and internal control frameworks.

Meanwhile, on the same day, crypto exchange Kraken announced the listing of perpetual futures products tracking tokenized assets tied to major stock indices, a gold ETF, and listed companies. The products are expected to be available in more than 110 countries excluding the US, but will not be offered to EU users as of the launch date.