BaFin: Binance tokenized stocks could violate securities laws

The German Financial Supervisory Authority, known as BaFin, is currently investigating whether crypto exchange Binance violates securities laws with its tokenized share offerings.

Binance could face a fine of over 5 million euros

Earlier this month, the world’s largest crypto exchange by trading volume launched tokens tied to the price of Tesla and Coinbase stocks. 

Binance’s tokenized shares represent a stock on the blockchain and are backed 1:1 by real shares purchased by the crypto exchange. Just like regular stocks, tokenized shares would also pay dividends but instead in cryptocurrencies. The concept is similar to stablecoins, where the underlying asset is backed by fiat money. 

Germany’s Federal Financial Supervisory Authority published a legal opinion, stating that the crypto exchange’s tokenized shares of publicly traded companies could be violating securities laws. 

Since the launch of the stock tokens on the Binance exchange, investors in the United States, China and a few other jurisdictions cannot have access to them due to regulatory restrictions. BaFin’s announcement could potentially cease the availability of these tokenized products to European investors. 

BaFin argued that Binance should have notified regulators and complied with all necessary procedures before offering tokenized securities to the German market. In particular, the crypto exchange did not file a prospectus before offering the assets. The German watchdog’s statement read:

The BaFin has reasonable grounds for suspecting that the Binance Germany GmbH & Co. KG in Germany securities in the form of "shares token" with the terms TSLA / BUSD, COIN / BUSD and MSTR / BUSD without the required prospectuses on the website https : //www.binance.com/de publicly offers.

The German financial regulator stated that Binance’s decision to offer tokenized stocks constitutes a violation of Article 3(1) of the EUProspectus Regulation. This could be costly for the crypto exchange, as fines are calculated on the company’s total profit. According to the BaFin, a fine of 5 million euros, or 3 percent of the total turnover of the last financial year, could be imposed on the crypto firm. 

A prospectus with all the information required by law to rule out fraud and legal violations would then be evaluated by the German regulator. Once the prospectus has been approved, Binance could then be legally authorized to offer tokenized shares.