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The German market supervisory authority has rejected a request from the crypto exchange Binance to remove a warning of possible violations of securities regulations in a deepening dispute over trading “tokens” in connection with stocks.
BaFin went tough last week on stock tokens, which Binance says represent stocks of US-listed companies such as Apple, Tesla and Coinbase, arguing that these types of offers require the filing of an investment prospectus. Failure to provide these documents could constitute a criminal offense, it said.
However, the exchange, one of the world’s largest in the rapidly growing market for crypto currencies, informed BaFin that the regulatory authority’s view is based on a “misunderstanding”, according to people familiar with the matter. They asked BaFin to delete the warning from their website, but the guard did not move, said these people.
The deepening dispute shows how financial regulators are beginning to take a more active role in overseeing parts of the largely unregulated cryptocurrency industry as it penetrates traditional and highly controlled markets like stocks.
Binance has advised regulators that their stock tokens are not securities as they are bought and sold through a third party provider and cannot be transferred to other customers or exchanges, according to the people briefed on their position.
But the German regulator told the Financial Times that trading on Binance itself is enough for the tokens to represent a security or financial investment product that also requires a prospectus.
According to German law, securities and other “investment products” may not be sold without the publication of a prospectus, which requires the prior approval of BaFin. The supervisory authority ensures that such disclosure “contains the minimum information required by law and is written in an easily understandable manner”.
Binance told the Financial Times that “we generally do not comment on communications with regulators” and added that they take compliance obligations “very seriously”. The exchange also stressed that it is “obliged to comply with local regulatory requirements wherever we operate. We will work with regulators to resolve any questions they may have. “
The stock exchange still has a week to react to the BaFin announcement last Wednesday. In its statement last week, BaFin pointed out that a violation of the prospectus requirement could result in a fine of up to EUR 5 million or 3 percent of the issuer’s last annual turnover. The issuer can also be held liable for any investor losses. The regulator has the legal authority to prohibit the sale of the securities.
According to CoinMarketCap.com, Binance is by far the world’s largest trading platform for digital currencies, with sales exceeding $ 50 billion per day. There is no formal corporate seat, but there are subsidiaries that operate in many jurisdictions.
The UK’s Financial Conduct Authority, which oversees a Binance unit based in London, told the FT last month that it is also considering the group’s introduction of share token trading. In addition to share tokens and trading a variety of cryptocurrencies, Binance also offers its users a range of more complex financial products, including crypto futures and options.