EU Regulators to Investigate if Binance Violated Securities Rules With Its Tradable Stock Tokens

European and British regulators have reportedly launched investigations to determine whether popular cryptocurrency exchange Binance breached any of its security laws via its Tokenized Stock Trading Service.

According to a report by Financial Times (FT) today, the Financial Conduct Authority (FCA) told the news media outlet that it is working with the firm to understand the newly-launched service, and to know what laws are applicable to it.

“Firms and their senior management teams are responsible for determining whether their products and services fall within the remit of the FCA,” the regulator was quoted as saying.

FT stated that it reached out to Germany’s Federal Financial Supervisory Authority (BaFin) to check whether it is also studying a possible security law breach by Binance.

BaFin noted that it could not give specific details due to “confidentiality obligations.”

However, it noted that if a token is transferable and can be traded on a crypto trading platform with economic entitlements like cash, then it falls under securities. The regulators added that such tokens are obligated to publish a formal investment prospectus.

Binance’s Certain of Not Breaching Any Law

Reacting to the development, Binance noted that its stock trading service had not breached any EU or British laws.

The largest cryptocurrency exchange by trade volume stated that its stock tokens are CM-Equity products, which comply with the EU’s Mifid II markets rules and BaFin’s banking laws.

Binance argued that since its tokenized stocks are products of CM-Equity, a regulated Munich-based investment group, it implies that the firm is in-charge of the acquired shares custody and its regulatory compliance.

Binance Tokenized Stock Trading Service, which went live last week, is designed to give crypto investors indirect exposure to the stock market.

So far, Binance has listed tokenized versions of Tesla and Coinbase shares. The tokens will track the share performance of the companies they represent, but will only cost a fraction of the shares’ actual cost.

Should its tokenized stocks be considered as securities under EU laws, Binance said it is not its duty to provide a formal investment prospectus since CM-Equity is in-charge of the products.

CM-Equity Dismisses Regulatory Concerns

Speaking in Binance’s defense, CM-Equity told FT that the product is in compliance with the Mifid II rules and does not require a formal prospectus because the tokens are not transferable to other customers.

Rather than fiat, Binance tokenized stocks are designed to settle in Binance USD (BUSD), CM-Equity added.