Germany’s Financial Supervisory Authority is investigating Binance for its offering of tokenized shares and is already holding a preliminary opinion that doesn’t look too encouraging for the world’s leading crypto exchange.
According to a legal opinion published on its official website, the Bundesanstalt für Finanzdienstleistungsaufsicht —or simply BaFin— considers that Binance would be violating securities laws by issuing shares of publicly traded companies like Tesla, regardless of whether or not they are being exchanged on the blockchain.
If It Looks Like a Security, Smells Like a Security, and Behaves Like a Security…
A tokenized share is the representation of a stock on a blockchain. It is in theory backed 1:1 by real shares purchased by Binance. Tokens behave similarly to normal stocks, paying dividends in cryptocurrencies in the same way a normal stock would.
In very simple terms, they operate in a similar way to a stablecion, except that the underlying asset is a share instead of money. Bittrex and FTX already offer support for tokenized stocks.
The BaFin statement did not distinguish between securities offered by traditional institutions and the product offered by Binance. It argued that Binance should have notified regulators and complied with all necessary procedures to offer securities to the German market.
A Costly Mistake
In particular, the BaFin explains that Binance should have published a prospectus with all the information required by law to rule out fraud and legal violations. After evaluating and approving the content of this prospectus, Binance would be legally authorized to offer the tokenized shares.
“BaFin has a reasonable suspicion that Binance Deutschland GmbH & Co. KG in Germany offers securities in the form of “share tokens” with the designations TSLA/BUSD, COIN/BUSD and MSTR/BUSD to the public without the necessary prospectuses on the website https://www.binance.com/de.”
According to BaFin, Binance’s decision to offer the famous Binance Stock Tokens constitutes a violation of Article 3(1) of the EUProspectus Regulation. If this were the case, the fines could be quite hefty for Binance, being calculated on the basis of the company’s total profit – and not only on the profit obtained from trading tokenized shares.
Pursuant to Section 24 paragraph 3 No. 1 WpPG, a breach of the prospectus obligation constitutes an administrative offence and can be punished with a fine of up to 5 million euros or 3 percent of the total turnover of the last financial year in accordance with Section 24 paragraph 6 of the WpPG. Fines may also be imposed up to twice the economic advantage of the infringement.
Binance Stock Tokens Are The Target of Regulators All Around The World
Germany is not the first country to issue an unfavorable opinion regarding Binance’s Stock Tokens. Just last week, UK authorities revealed that they were working to understand the legal nature of Binance Stock Tokens and determine whether or not they are securities. In the event that the statutory criteria deem the tokenized shares to be securities, Binance will also have to face the consequences in the UK.
And according to information from the South China Morning Post, Hong Kong authorities could be evaluating a similar scenario. However, a spokesperson told the Asian outlet that the regulatory bodies in that country would not comment with official positions.
This recent regulatory pressure marks a new hurdle for Binance which recently bet on expanding its services, offering new tokenized stocks including Coinbase, MicroStrategy, Apple and Microsoft.