Tokenized stocks, a new breed of digital assets mirroring the prices of listed companies, could give investors a false sense of ownership and undermine market confidence, according to a top European regulator.

Natasha Cazenave, executive director of the European Securities and Markets Authority (ESMA), cautioned that many tokenized stock products being marketed in the European Union fail to grant actual shareholder rights, such as voting or dividends.

She said that the lack of clarity in how these assets are presented could lead retail investors to believe they hold company shares when, in reality, they do not.

Shareholder rights absent

Unlike traditional equity purchases, tokenized stocks are often issued through special-purpose vehicles or intermediaries, and the tokens merely track the underlying stock’s price.

Cazenave stressed that while tokenization promises features like fractional trading and round-the-clock market access, the absence of ownership rights poses a “specific risk of investor misunderstanding.”

Her remarks come as platforms including Robinhood and Kraken expand tokenized stock offerings in Europe and other regions.

The World Federation of Exchanges last week echoed ESMA’s concerns, urging regulators to strengthen oversight before the sector grows larger. The group warned that without intervention, tokenized products could expose investors to unexpected risks and damage market integrity.

Efficiency gains still elusive

Advocates have argued that tokenization can modernize finance by lowering costs and broadening access to assets ranging from equities and bonds to real estate.

Cazenave acknowledged this potential but noted that most existing projects remain limited in scale, illiquid, and far from delivering the efficiency benefits touted by advocates.

For now, European regulators appear intent on balancing innovation with investor safeguards, signaling that tokenized stocks will remain under scrutiny as the technology develops.

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The European Banking Authority (EBA) has finalized rules requiring banks to hold significantly more capital against so-called “unbacked” cryptocurrencies like Bitcoin and Ether.

In its final draft of regulatory technical standards released on Tuesday, the EBA said the rules aim to “address implementation aspects and will ensure harmonisation of the capital requirements on crypto-asset exposures by institutions across the EU.” The framework applies to European Union-based banks holding crypto assets on their balance sheets.

According to the accompanying documentation, digital assets in group 2 (a and b) are subject to “a general 1,250%” risk weight. Group 2b refers to “other” crypto assets, including unbacked ones such as Bitcoin (BTC). Group 2a refers to a subcategory of the same assets that meet the Bank for International Settlements’ hedging and netting criteria.

Group 1 b refers to so-called asset-referenced tokens tied to traditional financial instruments. This group is subject to a 250% risk weight.

Those risk weights were introduced as part of the Capital Requirements Regulation (CRR III) and took effect in July 2024.

The latest EBA draft adds the technical elements needed to calculate and aggregate crypto exposures, such as credit-risk, market-risk and counterparty-risk modeling. It also introduces strict separation between assets, meaning Bitcoin and Ether (ETH) cannot be offset against each other.

Once the final draft goes to the European Commission, Brussels will have up to three months to decide whether to endorse it as is or with amendments, or send it back for redrafting. After endorsement, the bill would become a delegated regulation and be forwarded to the European Parliament and the Council, with a three-month objection window extendable to six.

If neither the European Parliament nor the Council objects, the draft will come into effect within 20 days of its publication in the Official Journal of the EU.

Related: US bank lobby challenges crypto firms’ bids for bank licences

EBA finalizes strict crypto rules

The rules are expected to directly affect European banks already holding crypto on their balance sheets. Italian bank Intesa Sanpaolo, which bought 1 million euros worth of Bitcoin in January, would need to hold 12.5 million euros in capital against that position under the new framework.

Fintech firm Revolut is unlikely to be affected by the change. The bank’s crypto services are off-balance-sheet and managed by its non-banking arm, Revolut Digital Assets Europe Ltd.

Related: Germany’s top banks managing $4.5 trillion+ in assets are going crypto—Here’s what to watch

Europe swims against the tide

The EBA’s stance contrasts sharply with the broader direction of global regulators moving toward embracing crypto within existing financial frameworks.

In late March, the Federal Deposit Insurance Corporation (FDIC) stated in a letter that institutions under its oversight, including banks, can now engage in crypto-related activities without prior approval.

In April, Switzerland passed amendments ot its DLT Act enabling banks to custody tokenized securities and offer guarantees for stablecoin issuers under a clear legal framework.

Recent reports also suggest US President Donald Trump is planning to sign an executive order directing banking regulators to investigate claims of debanking made by the cryptocurrency sector and conservatives.

The US banking sector is already taking notice, with JPMorgan Chase reportedly exploring crypto-backed loans, signaling a potential shift in how US banks view crypto assets.

The new EU capital rules could limit bank participation in the growing digital asset market, especially as decentralized finance and tokenization continue to expand into mainstream financial services.

Magazine: Crypto wanted to overthrow banks, now it’s becoming them in stablecoin fight

]]> https://earlybirdsinvest.com/eu-banking-regulator-finalizes-capital-rules-for-banks-holding-bitcoin-ether/feed/ 0 51965 https://earlybirdsinvest.com/uk-regulator-to-allow-retail-investors-access-to-crypto-etns-in-october/ https://earlybirdsinvest.com/uk-regulator-to-allow-retail-investors-access-to-crypto-etns-in-october/#respond Sun, 03 Aug 2025 10:32:18 +0000 https://earlybirdsinvest.com/uk-regulator-to-allow-retail-investors-access-to-crypto-etns-in-october/

Retail investors in the U.K. will soon be able to buy crypto exchange-traded notes (cETNs) under a new rule from the Financial Conduct Authority (FCA) set to take effect Oct. 8.

The FCA had previously barred retail access to crypto ETNs in 2021, citing investor protection concerns.

However, with the market maturing and some crypto investment products now better understood, the regulator said it will allow access, provided the ETNs are listed on recognized, FCA-approved U.K.-based exchanges.

Products must follow financial promotion rules to prevent misleading advertising and inappropriate incentives. The FCA’s Consumer Duty rules, which require firms to avoid causing foreseeable harm, will apply. The FCA warned, however, that there won’t be coverage under the Financial Services Compensation Scheme for these products.

The move comes after retail investors gained access to a plethora of cryptocurrency exchange-traded funds (ETFs) overseas in the U.S. These funds, per SoSoValue data, have already accumulated $146.4 billion in total net assets.

Trade associations representing banks and financial firms are worried about the cybersecurity risk management practices at federal regulatory agencies.

Officials at the American Bankers Association, the Bank Policy Institute, the Managed Funds Association and the Securities Industry and Financial Markets Association recently penned a letter to US Treasury Secretary Scott Bessent outlining their concerns, specifically highlighting the recently disclosed cybersecurity breach of Office of the Comptroller of the Currency’s (OCC) email system.

“To address similar challenges across all financial regulatory agencies, we encourage the Administration to implement the following recommendations:

(1) ensure agencies are held to the same or substantively similar security and data protection standards expected of financial institutions to include transparency and accountability for upholding these standards;

(2) enable firms to retain and house their own sensitive data needed for regulatory engagement;

(3) improve regulatory agencies’ incident response processes to include notification and communication with regulated institutions; and

(4) consolidate and streamline examinations conducted by the financial regulatory agencies to reduce the amount of data being shared.”

The trade associations note that “nation-state cyber adversaries” are increasingly targeting federal agencies, including financial regulators.

In regard to the OCC, hackers accessed nearly 150,000 emails after first compromising the regulator’s system back in May 2023, Bloomberg reports.

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Sujha Sundararajan

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Sujha Sundararajan

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Sujha has been recognised as Women In Crypto 2024 by BeInCrypto for her leadership in crypto journalism.

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Last updated: 

May 25, 2025

The Cyberspace Administration of China, the national internet regulator and censor, has shut down more than a dozen social media accounts that were spreading false information on stock and crypto markets.

The agency said Saturday that some of the targeted accounts touted illegal stock recommendations and hyped crypto trading.

Social Media Accounts, Websites Lure Netizens With Fake Crypto Hypes

According to a report by Baidu, several accounts on Weibo with names such as “Huo Ge Chats About Cryptocurrency”, and “Arn – On Coins,” promoted any hyped crypto transactions.

“[They] induced netizens to participate in virtual currency transactions by posting group chat information and profit screenshots,” the report read. Further, some websites – PKEX, WEEX, and HTX – offered app download services for trading in international crypto platforms.

The accounts were found in popular Chinese social media platforms, including Weibo, Douyin, RedNote and WeChat. The fake accounts and websites involved in crypto promotions have been closed, the watchdog noted.

The Cyberspace Administration has collaborated with financial regulators to carry out the crackdown operation.

“The public should invest wisely, stay alert to risks, avoid spreading rumours, and steer clear of illegal financial activities,” the regulator said.

Surging Crypto Criminal Cases

With China’s ban on crypto trading and mining, many Chinese citizens have been on the lookout for offshore exchanges. Some of them have been routing transactions through VPNs or international platforms.

To meet the demand, fraudsters have been using false claims to lure victims into scams involving fake promotions, and phishing.

The People’s Bank of China Digital Currency Research Institute warned users in April over claims circulating online about the launch of a “Digital Yuan Bank.”

Various platforms have spread false information alleging new pilot programs in cities like Shanghai.

According to the Securities Times investigation, scammers have used these claims to solicit personal and financial data from the public. They promised cashback returns of up to 5%, creating chat rooms and hosting in-person events to convince individuals to convert digital yuan using unauthorised channels.

Further, blockchain security firm SAFEIS reported that money involved in crypto-related crimes in China surged 10-fold to 430.7 billion yuan ($59 billion) in 2023.

Germany’s Federal Financial Supervisory Authority (BaFin) has rejected Ethena Labs’ application to issue asset-referenced tokens under the European Union’s Markets in Crypto-Assets Regulation (MiCAR).

The regulator also raised concerns that the sUSDe may constitute an unlicensed security offering.

According to BaFin’s official notice, the application submitted by Ethena GmbH, a Frankfurt-based entity under Ethena Labs’ corporate structure, exhibited “significant deficiencies” in organizational practices and failed to meet MiCAR requirements concerning asset reserves and capital adequacy. 

BaFin immediately imposed enforceable supervisory measures, including prohibiting further public offerings of the USDe token within Germany, and ordered custodians to freeze the token’s reserve assets.

Notably, some stablecoin issuers have been facing difficulties under the MiCA regulation. Major European exchanges delisted Tether USD (USDT) because they were concerned that the token might be non-compliant. However, authorities have not yet deemed USDT non-compliant.

Ordered to stop USDe issuance

However, under a MiCAR transitional provision, Ethena GmbH continued issuing the token in Germany after applying for authorization on July 29, 2024.

Approximately 5.4 billion USDe tokens are currently circulating, most of which were issued before MiCAR’s effective enforcement and outside of Germany.

BaFin clarified that its actions do not affect USDe’s secondary market trading but temporarily restrict redemptions directly through Ethena GmbH. Since January 2025, Ethena BVI Limited, an affiliated entity based in the British Virgin Islands, has also facilitated the token’s issuance.

Moreover, the regulator appointed a special representative to monitor compliance and noted the potential for additional actions, including a ban on public offerings of associated securities.

Securities offering

Beyond operational shortcomings, BaFin expressed a “sufficiently substantiated suspicion” that the sUSDe token qualifies as a security under German law and has been offered publicly without an approved securities prospectus. 

The sUSDe is a yield-bearing stablecoin acquired by staking USDe. BaFin’s concern stems from the financial structure and alleged profit promise embedded in the sUSDe token, which may trigger regulatory classification as a security.

BaFin’s position introduces a regulatory challenge to hybrid instruments like sUSDe, which combine stablecoin mechanics with yield-generation features. The regulator is actively evaluating whether the public distribution of such instruments requires compliance with securities law, including disclosure and prospectus obligations. 

The outcome of this classification could set a precedent for similar crypto assets in the European Union.

Ethena Labs’ response

In response, Ethena Labs published a statement confirming that it had been informed of BaFin’s decision to reject Ethena GmbH’s MiCAR application.

The company acknowledged the decision in a public statement and said it is “evaluating alternative frameworks” for regulatory compliance.

Ethena added:

“Since its inception, Ethena has been exploring various options and jurisdictions when it comes to regulatory frameworks globally. A MiCAR authorization via Ethena GmbH was one of various options we have been pursuing.”

The firm emphasized that the decision does not impact USDe minting and redemption activities facilitated by Ethena BVI Limited, which services the “vast majority” of users.

The company also denied speculation of an asset freeze, asserting that all reserves remain available. It added that it plans to revise its terms of service in the coming week.

BaFin’s rejection reinforces the increasing scrutiny of stablecoins and synthetic yield instruments operating within or targeting European markets following the implementation of MiCA.

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