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Germany’s financial watchdog BaFin could soon impose heavy fines on crypto exchange Binance for the launch of its stock tokens without a prospectus, the agency said in a press release on 28 April.

In the announcement, BaFin warned investors that Binance may have violated E.U. securities rules with the launch of its security-tracking tokens, which have been identified as “suspicious”. According to the financial watchdog, such an offering should have been accompanied by an investor prospectus, the lack of which means Binance had violated Article 3 Paragraph 1 of the European Prospectus Regulation. BaFin’s notice reads:

“BaFin has reasonable grounds to suspect that Binance Germany is selling shares in Germany in the form of ‘share tokens’ without offering the necessary prospectuses. Please bear in mind that securities investments should only ever be carried out on the basis of the necessary information.”

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The regulator further said such a violation is considered an administrative offense, and could be punished with a fine of up to five million euros (around $6 million), or 3% of the annual revenue of the firm. Binance’s stock tokens first came under scrutiny of E.U. regulators on 22 April, when the U.K. Financial Conduct Authority (FCA) said it was “working with the firm” to understand the stock tokens. and what regulations may apply to them.

Binance has claimed that its stock tokens are fully backed by shares stored in a depository portfolio of underlying securities, which is held by equity firm CM-Equity AG, enabling customers to purchase as little as 1/100 of a regular share using BUSD. The exchange first launched tokens representing the shares of Tesla (TSLA) and Coinbase (COIN) on 12 April, and then expanded its offering on 26 April with the addition of MicroStrategy (MSTR), Apple (AAPL), and Microsoft (MSFT) tokens. While Binance is yet to make a comment on the development, a spokeswoman for the exchange, Jessica Jung, told Bloomberg:

“Binance takes its compliance obligations very seriously and is committed to following local regulator requirements wherever we operate. We will work with regulators to address any questions they may have.”

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