News | June 24, 2021, 16:42 PM | The content is supplied by a Guest author
BaFin, a German Financial Supervisory Authority, has stated that Binance violated security laws by launching stock tokens without informing the authorities first. The ongoing investigation is to determine whether the exchange actually did violate the laws.
Binance is a cryptocurrency exchange that was proclaimed the biggest one in the world based on its trading volume in April of 2021. Regardless, this is not the first huge scandal the company is involved in. It already has countless accusations of fraud, deception of regulators, and more.
Meanwhile, the German watchdog stated that the tokens in question are extremely similar to stocks when it comes to regulations. So, Binance is currently at risk of having to pay a considerable fine and forced out of Germany. BaFin is an independent federal institution that supervises banks, insurance companies, and exchanges. They are the ones responsible for the stability of the German financial system. Their job is to gather information about all traded securities, disclosures from all companies and market participants. All this contributes to detecting market manipulations, uncovering insider trading, or other forms of market abuse.
As surprising as this might be, BaFin was involved in corruption scandals itself. Back in 2006, the Federal Court discovered that the institution was responsible for the plunder of over 4 million euros. The potential fine might come around to anything over 5 million euros. All this is due to the fact that earlier this month the exchange launched new tokens. What makes these tokens different from the regular ones is the fact that they are tied to stock prices, such as Tesla and Coinbase.
Tokenization describes the process of turning a piece of data into a random and completely meaningless sequence of characters. This means that, even if breached, they provide no real value. Tokens serve as a reference to the original data but cannot be used to discover what that data is. Meanwhile, the data is stored in the token vault, which is basically a secure centralized server. Considering how much safer tokens can make any of your online experiences, it is no mystery why the financial world is interested in implementing the technology as actively as possible into each aspect of trading.
Tokenized shares were introduced to integrate stock on the blockchain. They are backed by real shares that the exchange purchased 1:1. These shares have to pay dividends as well, but, unlike the regular ones, in cryptocurrency. This technology is somewhat similar to stablecoins, which were developed back in 2014. The goal behind their invention was to simplify trading for cryptocurrency owners, as well as stabilize the market. Binance, among other participants, raised over $32 million for the project. While some stablecoins faced criticism for various reasons, they also served as a prospect of a decrease in money laundering, improvement in customer data protection and tax compliance, as well as overall cybersecurity. The German Financial Supervisory Authority has issued a statement about their concerns regarding the possible security laws violations that preceded the tokenized shares’ release.
As a result, many investors, including the ones based in China, United States, and other countries. do not have any access to the technology due to the restrictions applied to the exchange by the regulation authorities. The final decision of BaFin will determine whether the tokenized shares will be available to European traders at all. If you are one of those affected by the restrictions the exchange is currently facing, you might want to look into other investment options for now. Visit https://nsbroker.com/ and join back the market.
According to BaFin, Binance had to notify the regulating authorities before making the tokenized technology public in Germany. Moreover, the exchange did not file a prospectus (a document that described the asset to potential buyers, as well as offers information about the company’s background) before the launch. Meanwhile, the German watchdog states that they have grounds for suspicion of law violations considering that the obligatory prospectus was not released by Binance beforehand.
The Financial Supervisory Authority of Germany finds that the crypto exchange violated Article 3(1) of the EU Prospectus Regulation by releasing the tokenized stocks. The article reads the following:
Without prejudice to Article 1(4), securities shall only be offered to the public in the Union after prior publication of a prospectus in accordance with this Regulation.
The fines that may be applied in this case will consist of the company’s profit percentage. If Binance is issued a fine for 3% of their past financial year turnover, they will have to pay over 5 million euros. Regardless, they will have to issue a prospectus for the tokenized shares after all. Once it is evaluated and inspected for violations by the German regulator, the cryptocurrency exchange will be able to legally offer tokenized shares to the market. The good thing is that this gives you more time to educate yourself on the subject and consider a potential investment in the crypto market.