German’s regulator has stated that Binance Stock Tokens could go against security laws in the country. The product could be missing a few legal requirements.
BaFin, German’s Financial Supervisory Authority, is currently investigating Binance over offering tokenized shares. The regulator is presently holding a preliminary conclusion from its investigation, which is not favorable to one of the largest crypto exchange platforms in the world.
In a report on the regulator’s website, Binance could violate securities laws by offering shares of publicly listed companies such as Tesla. This could be against the law, even though the stock for such companies will be traded on the blockchain.
BaFin insists stock tokens are securities
A stock token is a share that represents a single unit on a blockchain. The tokens behave similarly to actual company shares, where dividends earned were paid in cryptocurrencies. The only difference between stock tokens and shares is that the underlying security, in this case, is shares and not money.
However, in the BaFin statement, they did not clarify the difference between securities offered by traditional institutions and what Binance was offering. However, the regulator insisted that Binance was supposed to be compliant because they had to comply with the securities laws in the German market.
Failure to follow set guidelines
BaFin argues that Binance needed to publish a prospectus that contained all the information required under the securities laws. This was to rule out any legal violations involved. The prospectus would then be evaluated by the regulator, and the exchange would be authorized to issue the stock tokens.
BaFin further stated that Binance was under suspicion to offer securities in the form of share tokens. The regulator added that Binance was under Article 3(1) of the EUProspectus Regulation. If the investigation concludes that Binance was violating this law, the company could be facing heavy fines. The regulator would charge Binance with a 3% fine of the company’s total profits in the last financial year or up to 5 million euros.
Binance is also under scrutiny by UK authorities to determine the legal nature of the company stock tokens. This will help the FCA to determine if the tokens are securities or not. If the UK also finds these tokens to be securities, Binance will also be heavily penalized in the UK.
Hong Kong authorities are also possibly evaluating Binance stock tokens. This will be a significant hurdle for Binance as the firm looks towards expanding its product offerings by offering tokenized stocks of MicroStrategy, Apple, Coinbase, and Microsoft.