Binance under the lens of European regulators for stock token offering: Report

Quick Take

  • European regulators are reportedly examining Binance for its newly launched stock token offering.
  • They are determining whether Binance complied with security rules before launching the product.

Crypto exchange Binance is reportedly under the lens of European regulators for its stock token offering that was launched last week.

The Financial Times reported the news on Thursday, saying that European regulators, including the U.K.'s Financial Conduct Authority (FCA), are examining whether Binance complied with security rules before launching trading in stock tokens.

The FCA told the FT that it is working with Binance to understand the offering, the regulations that may apply to it, and how it is marketed. The regulator further said that "firms and their senior management teams are responsible for determining whether their products and services fall within the remit of the FCA."

Germany's financial regulator BaFin declined to comment to the FT on any potential examination but said that if tokens are transferable, can be traded on a crypto exchange, provide dividends, and are cash-settled, they represent securities. And firms offering them are required to publish a prospectus.

Binance offers trading in stock tokens via German financial services firm CM-Equity, which is a regulated entity. CM-Equity told the FT that the product is compliant and works as a certificate for a total return swap.

The firm further said that a prospectus was not required because tokens are not transferable to other customers and are settled in Binance's own stablecoin, BUSD, rather than cash.

Binance, on the other hand, said stock tokens do not give the same voting rights that equity shareholders get. And as traders can buy and sell stock tokens from and to CM-Equity, it does not require a prospectus, according to the exchange.

Binance rivals FTX and Bittrex Global also offer trading in stock tokens via CM-Equity. When asked whether any European regulators have contacted FTX, its CEO Sam Bankman-Fried told The Block: "No regulators anywhere have ever reached out to investigate FTX for anything."

Bittrex Global CEO Tom Albright told The Block that the exchange holds a Digital Asset Business Act (DABA) license in Bermuda that allows it to directly offer tokenized stocks on its platform even in countries where accessing stocks through traditional financial instruments and exchanges is not possible.

Another report suggests that Binance could also come under scrutiny by Hong Kong regulators. The South China Morning Post reported Wednesday that Binance is marketing its stock token product in Hong Kong, and the campaign could be deemed a regulated activity that requires a license in the city. Binance, however, does not have any such license in Hong Kong per regulatory records, according to the report.

Update: This story has been updated to include comments from FTX CEO Sam Bankman-Fried and Bittrex Global CEO Tom Albright.

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