By Samuel Indyk
Investing.com – Stock tokens issued by cryptocurrency exchange Binance have come under scrutiny from the German regulator BaFin, saying that the tokens have most likely violated securities rules.
On Wednesday, the German regulator published a report on its website saying that the tokens tracking shares of certain companies equates to securities trading and therefore a prospectus should have been issued.
Binance began listing stock tokens earlier this month, with Tesla (NASDAQ:TSLA) and Coinbase (NASDAQ:COIN) the first two companies listed on the site. This week, the exchange said they would be adding coins for MicroStrategy (NASDAQ:MSTR), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT).
Binance stock tokens are tokens of company stocks that are traded on traditional stock exchanges. Each token, traded on Binance, represents one ordinary share of the relevant stock and is fully backed by a depository portfolio of underlying securities held by CM-Equity. Holders of the tokens will qualify for any potential dividends.
Potential fine?
In the note on BaFin’s website, the regulator said that a violation of the prospectus obligations can be punished by a fine of up to EUR 5mln or 3% of the total turnover of the last financial year. Fines of up to twice the economic benefit derived from the breach could also be imposed.
Last week, the UK’s Financial Conduct Authority told the Financial Times that it was “working with Binance to understand the product, the regulations that may apply to it and how it is marketed”.
Commenting on the report from BaFin, Binance spokesperson Jessica Jung said the company plans to work with regulators regarding the products.
“Binance takes its compliance obligations very seriously and is committed to following local regulator requirements wherever we operate,” Jung said in an emailed statement, as reported by Bloomberg. “We will work with regulators to address any questions they may have.”