German Regulators Pull Up On Binance: We Have Questions On These New Tokens Tracking Stock Market Shares

German Regulators Pull Up On Binance: We Have Questions On These New Tokens Tracking Stock Market Shares


Trader Thomas Lee works on the floor of the New York Stock Exchange, Feb. 28, 2020. AP Photo: Richard Drew

Germany’s financial regulator, BaFin, has threatened to fine Binance, one of the world’s largest cryptocurrency exchanges, for offering securities-tracking digital tokens without publishing an investor prospectus.

Cayman Islands-based Binance said earlier this week that it would offer “stock tokens” denominated in the exchange’s own cryptocurrency, giving investors exposure to MicroStrategy, Microsoft, Apple, Tesla and Coinbase.

Investors in the stock tokens would receive returns on the underlying shares, including potential dividends.

Binance may have violated securities rules when it issued tokenized shares of US stocks such as MicroStrategy, Tesla and Coinbase by failing to issue a prospectus, the Bonn-based regulator said.

“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 on the basis of the necessary information”.

Such a violation of European Union securities law could result in Binance, as the issuer, being fined 5 million euros ($6 million) or 3 percent of its 2020 turnover, according to a Reuters report.

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The regulatory scrutiny is the latest for Binance, which says it doesn’t have a single corporate headquarters but operates through a number of entities spread around the world.

“Binance takes its compliance obligations very seriously and is committed to following local regulator requirements wherever we operate,” spokeswoman Jessica Jung said in a statement emailed to Bloomberg. “We will work with regulators to address any questions they may have.”

Last month, Bloomberg reported that the U.S. Commodity Futures Trading Commission was investigating Binance over concerns that it allowed Americans to place wagers that violated U.S. rules.

The Financial Times reported last week that European financial regulators have indicated that they were considering launching a service that would allow investors to trade some of their shares through commodities that use German brokers as intermediaries.