Just after Binance announced its stock tokens, Germany’s Financial Watchdog, BaFin, has revealed that the stock tokens—tracking Tesla, Coinbase, and MicroStrategy—have been identified as “suspicious.” Earlier on Wednesday, Germany’s Financial Supervisory Authority, BaFin, warned investors that the cryptocurrency exchange violated European securities rules with the launch of its stock tokens.
Red flags concerning the stock tokens have also been raised by Hong Kong law firms, asking the authorities to look into the two tokens launched earlier this month. The tokens allow Binance customers to purchase as little as one-hundredth of a regular stock using Binance USD (BUSD), a U.S. dollar stablecoin issued by the exchange. But marketing its security token, representing Tesla stock, to Hong Kong citizens may be violating local securities regulations.
Besides, Gaven Cheong, a partner at Simmons & Simmons law firm, told news outlets on Wednesday that inducing the public to purchase securities is a regulated activity that requires a license from the city’s top financial watchdog, the Securities and Futures Commission (SFC). And Binance does not appear to have secured the license to market or trade security tokens in the region.
Binance may be fined for violating the prospectus
In an announcement on Wednesday, BaFin reiterated that the exchange did not receive a prospectus before trading. Hence, the reason the stock tokens tracking the movement of shares in Tesla, Coinbase, and MicroStrategy have been identified as “suspicious.”
BaFin added that Binance violated the prospectus obligation under Article 3 Paragraph 1 of the European Prospectus Regulation. And violating the prospectus is an administrative offense, which comes with a fine of up to $6 million or 3% of Binance’s annual revenue.
However, on April 22, the Financial Times reported that the U.K. Financial Conduct Authority is “working with the firm (Binance) to understand the product, the regulations that may apply to it and how it is marketed.” Although Binance has not said anything about the developing news, it does not stop regulators from probing the exchange to ensure investors are on the right track.