The newest product of popular crypto exchange Binance is being examined by European regulators, who are trying to determine whether it complied with security laws, the Financial Times reported on 22 April.
According to the publication, the European regulators are concerned whether Binance complied with security laws when launching its newest product, stock tokens representing stock shares. The U.K. Financial Conduct Authority (FCA) told the publication it was currently “working with the firm” to understand the stock tokens, see how they are marketed, and what regulations may apply to them. Germany’s financial watchdog, BaFin, declined to comment on the case, but said:
“Fundamentally, the following applies: 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.”
The Binance stock tokens were first unveiled back on 12 April, when the exchange launched its Tesla stock token representing one share of equity stock. The product enables users to trade as little as one one-hundredth of a share, and were developed by German financial services firm CM-Equity AG, which is a regulated entity. As such, the tokens are an official CM-Equity product that is compliant with E.U. Mifid II markets rules, as well as BaFin’s banking regulations.
The crypto exchange further said its Tesla and Coinbase stock tokens were not settled in fiat currency but in Binance USD (BUSD), and are not transferable to other customers. It also said a prospect was not required as its tokens do not give the same voting right as equity shareholders have, and traders can only acquire the tokens from CM-Equity. Other crypto exchanges that offer stock tokens through CM-Equity are FTX and Bittrex Global, though it remains unknown if the two are also under examination from regulators.
Even though the future of its new product is unknown, the Binance exchange has had an amazing growth in the last quarter, with it having increased its trading volume by 260% and number of users by 346%. Last week, the exchange conducted its 15th token burn and successfully reduced the BNB token supply by 1,099,888.