- Binance has run into regulatory trouble for offering ‘stock tokens’ of some major crypto-related companies.
- The UK is said to be in consultation with the crypto exchange over its complacency and the rules of regulations that apply to the tokens.
Earlier in the month, Binance launched stock tokens representing a share in the stock market. The two- Tesla (TSLA) and Coinbase (COIN) – can be used to track correlating share prices. However, the exchange allows you to buy fractions of the shares, allowing more access and flexibility for retail traders. The tokens are traded on Binance using Binance USD (BUSD), its native stable coin.
The move has sparked interest from UK regulators. In its launch, the exchange excluded US, China and Turkey users from trading these coins. Soon after the launch, there were warnings coming from Hong Kong. Regulators expect the exchange to get a licence before marketing the tokens to the public.
Binance collaborates with regulators
According to the Financial Times, UK regulators are seeking further clarity on the nature of the tokens. Specifically, rules governing transparency and corporate disclosures. The Financial Conduct Authority said in an interview that it was working with Binance on this.
Working with the firm to understand the product, the regulations that may apply to it and how it is marketed…firms and their senior management teams are responsible for determining whether their products and services fall within the remit of the FCA.
The exchange believes the products are compliant. It claims to comply with the EU’s Mifid II markets rules and BaFin’s banking regulations. Additionally, it has cited several reasons why they are ‘share tokens’ and do not cross any regulatory boundary as would be the case if they were securities. The exchange argues that the tokens are not transferable to other users and not settled with cash but rather with its own stablecoin. Additionally, they do not give owners of the token any voting rights like shares do.
Across the border, Germany has failed to comment whether it is looking into the exchange over the new tokens.
Exchange arms up
As the largest crypto exchange by volume, this is not the first time it has crossed paths with regulators. U.S. regulators earlier in the year probed the exchange over conducting activities in the country without a Commodity Futures Trading Commission (CFTC) licence. Binance argued it is not based in the US. For a long time now, the exchange has failed to identify a single headquarter. It previously noted that it has a “large number of regulated entities in multiple jurisdictions that we operate”.
The exchange just recently appointed the former head of the Office of the Comptroller of the Currency (OCC) as the CEO of Binance US. In addition, former US Senator Max Baucus has joined the exchange as an advisor. Both appointments precede a critical bill by the U.S Congress. The Eliminate Barriers to Innovation Act directs the SEC and CFTC to establish a task force to review digital assets. The move is progressive and seeks to achieve clearer crypto regulations.