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Date: 2021-04-23 16:39:14
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The UK’s Financial Conduct Authority (FCA) and Germany’s Federal Financial Supervisory Authority (BaFin) have set their sights on trading Binance’s tradable share tokens. They evaluate whether or not the exchange has complied with the laws of the stock market before launching the product.
Tradable share tokens are a new type of asset that Binance has been offering to users of its platform since last April 12. Is about tokens backed by shares of publicly traded companies, which the exchange trades in fractions.
With these tokens, Binance promises cryptocurrency users easy access to the stock market with the purchase of minimal representations of tokenized shares, with no commission charge. The first stock to be listed on the platform is Tesla (TSLA), from Elon Musk’s electric car company. Days later the token backed by COIN, the Coinbase stock, was launched.
As CriptoNoticias reported, Tesla and Coinbase stock tokens are available in most jurisdictions where Binance operates, with the exception of mainland China, Turkey and the United States, among other territories.
The new product appears to have caught the attention of regulators in some of the European countries where it was launched. This is the case of the United Kingdom and Germany.
According to the information published in the British media Financial Times this week, the first regulator to speak out was the FCA of the United Kingdom, through press statements.
The body ensures be chatting with Binance to understand how tokens work, how they are marketed and how they can be regulated. Through a working group they intend to determine if the negotiable share tokens fall within the competence of the FCA.
In this regard, BaFin, Germany’s financial regulator, was more emphatic, although it did not give details of the investigation. He said that “if the tokens are transferable, they can be traded on a cryptocurrency exchange, provide dividends and are settled in cash, could be classified as a security (security) ». BaFin therefore considers that the companies that offer them should publish a prospectus.
Binance responded to questions from regulators by stating to the Financial Times that share tokens comply with European Union regulations, particularly Mifid II (Markets in Financial Instruments Directive II). This means that they are governed by the precepts established in the region to supervise market transparency and investor protection in the use of financial instruments.
The exchange house added that for the token launch no prospect required, because the assets are not transferable to other clients and are settled with Binance’s stablecoin, BUSD, and not with cash.
The exchange remembers that share tokens are issued through CM-Equity AG, an investment firm licensed in Germany; and Digital Assets AG, a Swiss-based asset tokenization platform.
With the new share tokens, Binance CEO Zhao Changpeng promises to democratize finance. Source: Forkast News / youtube.com
It is these companies that are responsible for the custody of the shares and compliance controls. Hence, the exchange has put a higher level of KYC (know your client) requirement for those interested in this product, as explained by the publication of CriptoNoticias.
It is worth informing that Binance It is not the first exchange to offer this type of tokens, As the FTX exchange last March also partnered with CM-Equity and Digital Assets AG to offer tokenized shares in Germany.
In its writing, this platform clarifies that the commercial activity is under the compliance regulations of CM-Equity. Indicates that interested parties may be invited to be clients of this institution and requires a KYC level II.
Bittrex Global did the same in December 2020 and since that date has offered tokenized shares of Tesla, Apple, Google, Amazon and seven other companies.
The concern about the regulation of share tokens not only has to do with the fact that they could be considered as a security, but also it relates to the marketing of the product.
As published by the South China Morning Post on April 22, Binance is marketing the product in Hong Kong, an autonomous territory of China, and the marketing campaign could be considered a regulated activity that requires a license.
“Inducing the public to buy securities is a regulated activity that requires a license from the main financial watchdog in the city,” Gaven Cheong, a partner at the Simmons & Simmons law firm, told the media. They assure that the exchange house does not have any license of this type in the city, according to the records of the Securities and Futures Commission (SFC).