German financial oversight warned investors that Binance, one of the world’s largest cryptocurrency exchanges, likely violated securities rules when it launched stock token trading, as part of ‘a crackdown on the crypto industry’s foray into highly regulated markets.
Bonn-based BaFin publication a note on its website Wednesday afternoon indicating that the Tesla, Coinbase and MicroStrategy stock movement tracking tokens represent securities requiring a prospectus that has not yet been issued.
BaFin points out that such a violation constitutes a criminal offense punishable by a fine of up to 5 million euros or 3 percent of the last annual turnover of the issuer. The issuer may be liable for any losses of investors.
The watchdog also has the legal power to prohibit the sale of securities.
His move comes after the Financial Times reported last week that European financial regulators were considering Binance’s launch of a service allowing investors to trade fractions of shares through products using a German broker as an intermediary. Since last week’s report, Binance has expanded the stock program to include other stocks such as Apple.
BaFin’s denial underscores the challenge authorities face when deciding how to oversee cryptocurrency companies like bitcoin and ethereum when they encroach on highly regulated markets like stocks.
At the time of the token launch earlier this month, Managing Director Changpeng Zhao said they “demonstrate how we can democratize value transfer more transparently.” In a recent interview with Bloomberg, he described his business as “highly regulated”.
Binance did not immediately respond to a request for comment on BaFin’s statement.
The surge in digital currency prices and the keen interest of retail investors in stock trading have encouraged cryptocurrency exchanges to explore new products mimicking those found in the traditional financial industry. Binance, which claims to be the world’s largest cryptocurrency exchange by volume, allows its users to trade a full suite of crypto derivatives, including futures and options.
In marketing material, he said that each token represents a “share in a corporation” and provides the “economic returns” from owning those shares. The tokens are bought and sold using Binance’s own cryptocurrency, and Binance has said that a German group, CM-Equity, is responsible for managing services such as custody of acquired shares, as well as controls over compliance and customer knowledge. He was not named in BaFin’s statement on Wednesday.
Binance says it does not have an official head office, but affiliates are registered with regulators in countries including the UK. The UK’s Financial Conduct Authority told the FT last week that it was “working with the company to understand the [tokens] product, the regulations that may apply and the way in which it is marketed ”.
The exchange’s stock token trading platform was still accessible on Wednesday afternoon via internet protocol addresses in the UK and Germany. The main stock token exchange website Binance said that only listed residents of China, the United States and Turkey are prohibited from using the service.
Bitcoin has fallen by around $ 10,000 from its all-time high of over $ 64,000 earlier this month, with concerns over the potential of new regulations to shake sentiment. Turkey, home to a large and active crypto market, banned the use of digital coins to purchase goods and services on April 16. The country has also launched a sprawling investigation in several local exchanges.