Binance Faces European Regulators' Probe over Stock Tokenization: Report

Thursday, 22/04/2021 | 16:51 GMT by Arnab Shome
  • The crypto exchange has been offering stock token trading since last week.
Binance Faces European Regulators' Probe over Stock Tokenization: Report
Binance CEO Changpeng Zhao

Binance is under the scrutiny of multiple European regulators as the cryptocurrency Exchange launched stock tokens trading last week, according to a Financial Times report.

The regulators are concerned if Binance’s new offerings are in line with the region’s existing securities laws. Though the report did not specify the names of the European regulators, it is clear that Britain’s Financial Conduct Authority (FCA) is one of the worried market watchdogs.

“[FCA is] working with the firm to understand the product, the regulations that may apply to it and how it is marketed,” the UK regulator told the publication.

Germany’s BaFin declined to comment specifically on the Binance case, but told FT that “if tokens are transferable, can be traded at a crypto exchange and are equipped with economic entitlements like dividends or cash settlements, they represent securities and are subject to the obligation to publish a prospectus.”

Hurdle or Lack of Understanding?

Binance, which is one of the top global crypto exchanges, recently started offering stock token trading: first with the shares of electric car manufacturer, Tesla and then with publicly traded crypto exchange, Coinbase.

The exchange has tapped the services of the German investment firm, CM-Equity AG, and Swiss asset Tokenization platform, Digital Assets AG, for offering stock tokenization. CM-Equity told FT that the product is compliant with the existing Mifid II requirements as it is a certificate for a total return swap.

However, the primary concern was with the issue of a formal investment prospectus that is mandatory as per European securities market rules. CM-Equity denied the need for any such prospectus for Binance’s products.

Interestingly, Binance is not the only cryptocurrency exchange to offer such stock tokenization services. FTX and Bittrex Global were offering similar services much before Binance, but none of these two crypto platforms are known to be under any scrutiny like Binance.

Binance is under the scrutiny of multiple European regulators as the cryptocurrency Exchange launched stock tokens trading last week, according to a Financial Times report.

The regulators are concerned if Binance’s new offerings are in line with the region’s existing securities laws. Though the report did not specify the names of the European regulators, it is clear that Britain’s Financial Conduct Authority (FCA) is one of the worried market watchdogs.

“[FCA is] working with the firm to understand the product, the regulations that may apply to it and how it is marketed,” the UK regulator told the publication.

Germany’s BaFin declined to comment specifically on the Binance case, but told FT that “if tokens are transferable, can be traded at a crypto exchange and are equipped with economic entitlements like dividends or cash settlements, they represent securities and are subject to the obligation to publish a prospectus.”

Hurdle or Lack of Understanding?

Binance, which is one of the top global crypto exchanges, recently started offering stock token trading: first with the shares of electric car manufacturer, Tesla and then with publicly traded crypto exchange, Coinbase.

The exchange has tapped the services of the German investment firm, CM-Equity AG, and Swiss asset Tokenization platform, Digital Assets AG, for offering stock tokenization. CM-Equity told FT that the product is compliant with the existing Mifid II requirements as it is a certificate for a total return swap.

However, the primary concern was with the issue of a formal investment prospectus that is mandatory as per European securities market rules. CM-Equity denied the need for any such prospectus for Binance’s products.

Interestingly, Binance is not the only cryptocurrency exchange to offer such stock tokenization services. FTX and Bittrex Global were offering similar services much before Binance, but none of these two crypto platforms are known to be under any scrutiny like Binance.

About the Author: Arnab Shome
Arnab Shome
  • 6338 Articles
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About the Author: Arnab Shome
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.
  • 6338 Articles
  • 80 Followers

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