German Financial Regulator Cracks Down On Binance’s ‘Stock Tokens’

Binance, dubbed as the largest crypto exchange to date, might be violating securities laws, according to German financial watchdog BaFin. The reason – Binance’s announcement it would start offering tokens denominated in the exchange’s own cryptocurrency, which gives crypto investors exposure to MicroStrategy Inc, Microsoft Corp, and Apple Inc.

Until the announcement, Binance tokenized shares of Tesla Inc and Coinbase Global Inc.

However, tokens tracking the movement of shares in Tesla, Coinbase, and MicroStrategy represent securities requiring a prospectus that has not yet been issued. BaFin noted that there is no prospectus for the MicroStrategy, Tesla, and Coinbase issues, which violates European Union securities laws. The fines for Binance are severe, as the issuer might pay a penalty of 5 million euros ($6 million) or 3% of last year’s turnover.

“BaFin has grounds to suspect that Binance Germany is selling shares in Germany in the form of ‘share tokens’ without offering the necessary prospectuses. Please bear in mind that securities investments should only ever be carried out based on the necessary information,” BaFin noted in an announcement.

The German regulator’s move comes after European regulators began examining Binance’s decision to launch a service that allows traders and investors to trade tokenized fractions of company shares via a German intermediary brokerage company.

Meanwhile, authorities are facing challenges in clearly identifying whether or not crypto-related products or services are violating securities laws.

Binance’s CEO Chanpeng ‘CZ’ Zhao commented on the service launch that tokenizing stocks is “demonstrating how we can democratize value transfer more seamlessly”, adding that Binance, as a business entity, is very regulated.

Binance’s ‘stock tokens’ represent a “share in a stock corporation” and provide the “economic returns” of owning those shares, according to the exchange. Token buying and selling are done via Binance’s native BNB token, while German CM-Equity is responsible for managing services such as custody for acquired shares, KYC procedures, and compliance checks.