TRAction gives its view on the reportability of Crypto CFDs and derivatives

Historically, there was lack of clarity as to whether cryptocurrency derivatives (‘cryptos’) should be treated as financial instruments and therefore subject to ESMA’s derivative reporting rules and reported to a Trade Repository. TRAction gives its view on the reportability of Crypto CFDs and derivatives.

In January 2019, ESMA released a statement on crypto-assets:

“Our survey of NCAs highlighted that some crypto-assets may qualify as MiFID financial instruments, in which case the full set of EU financial rules would apply. However, because the existing rules were not designed with these instruments in mind, NCAs face challenges in interpreting the existing requirements and certain requirements are not adapted to the specific characteristics of crypto-assets.” (Steven Maijoor, Chair)

Table 1 - Summary of reportability of crypto-related products
ProductsMiFIR Reportability?EMIR Reportability?
Non-EEA Listed Crypto Derivatives NoYes
EEA Listed Crypto Derivatives (do not exist yet)YesYes
Non-listed Crypto Derivatives (eg. CFD Crypto)NoYes

To be reportable under MiFIR, the instrument has to be traded on a trading venue, or the underlying has to be traded on a trading venue, within the EEA. Currently, the only venue listed cryptocurrency is a Bitcoin Future listed outside the EEA (on CBOE and CME) so we currently don’t see cryptos as reportable under MiFIR.

Are cryptocurrencies themselves reportable or just the CFD?

Only derivatives are reportable under EMIR, so just the CFD on a cryptocurrency is deemed reportable.

Are all crypto CFDs reportable or just Bitcoin CFDs?

TRAction would expect that if a CFD on Bitcoin is reportable, then all cryptocurrency derivatives are also reportable.

What asset class do they fall under?

Due to the fact the EMIR Reporting Rules were not designed with these instruments in mind, there isn’t a category that perfectly fits a cryptocurrency and therefore some interpretation is required in order to report these instruments.  At this stage, the wider derivative industry and Trade Repositories suggest reporting under the commodity asset class as a cryptocurrency does not (yet?) have an ISO standard currency code, which is required, for it to be reported as a currency.

When did the reporting obligation for Crypto CFDs commence under EMIR?

12 February 2014, when the reporting obligation under EMIR commenced. We are of the view that Crypto CFDs will fall under the definition of derivatives. Hence the reporting of Crypto CFDs would have the same commencement date as all other derivatives contracts.

Is there a backloading requirement for reporting Crypto CFDs under EMIR?

Yes, if you agree with TRAction’s assessment about the reportability of Crypto CFDs, the backloading requirement applies to Crypto CFDs. The reporting obligation applies to derivative contracts which:
(a) were entered into before 12 February 2014 and remain outstanding on that date;
(b) were entered into on or after 12 February 2014.

What should I do next?

We suggest that you review your current product offering and determine whether your Investment Firm has offered or transacted in any cryptocurrency derivatives or CFDs.  Where you have done so:

  • Check if they have been reported; and
  • Where any crypto CFDs have not been reported:
    • consider whether all previous transactions should be backloaded under EMIR and MiFIR; and
    • consider whether you need to lodge a breach report to your NCA.
  • Make sure you update your systems and process to ensure daily reporting of all cryptocurrency derivatives along with your other reportable transactions.

What’s the best way to get compliant?

Regardless of whether you are a current client of TRAction or not, we are happy take a look at your specific situation and give our views, free of charge. Contact us to discuss further.

Emma Ladlow

Emma works in our Sydney office. At TRAction, she works on implementing changes to regulations, improving and expanding our regulatory reporting services and helping with new business initiatives. She has over 7 years’ experience in the finance industry with more than 5 years’ experience specialised in transaction reporting. She worked for one of the largest financial services organisations in the UK and then moved to Australia in November 2018 to join TRAction.