Binance and Changpeng Zhao face claim from 1,700 UK investors over risky derivatives

Nearly 1,700 UK investors have filed a lawsuit against Binance in the London High Court, alleging the exchange sold them high-risk leveraged derivative products without ever obtaining approval from Britain’s financial regulator. The claim seeks at least £150 million, roughly $200 million, in damages.

The claimants say Binance marketed complex crypto derivatives to retail investors starting in late 2019, a full two years before the UK’s Financial Conduct Authority formally restricted retail access to such products.

What the lawsuit actually alleges

The High Court action names Binance Holdings Ltd, which is based in the Cayman Islands, alongside UAE-registered entity Nest Exchange, founder Changpeng Zhao (commonly known as CZ), and unnamed individuals. The total number of claimants stands at 1,692.

At the heart of the case is a straightforward argument: selling leveraged crypto derivatives to UK retail customers without FCA authorization violates the Financial Services and Markets Act. Some of the claimants report losing tens of thousands of pounds on these products.

The FCA has taken an increasingly hard line on crypto derivatives aimed at retail investors. In 2021, the regulator formally banned the sale of crypto derivatives and exchange-traded notes to retail consumers, citing concerns that these products posed an unacceptable level of risk. The claimants’ argument is that Binance was already operating outside the rules well before that ban took effect.

Binance has publicly stated it intends to defend against the claims vigorously while maintaining its commitment to complying with applicable laws.

Binance’s growing regulatory headaches

The exchange has faced scrutiny from regulators in the US, where CZ pleaded guilty to federal charges related to anti-money laundering violations in late 2023, resulting in a $4.3 billion settlement. CZ served a four-month prison sentence and stepped down as CEO. He has since been replaced by Richard Teng.

More recently, Binance has encountered setbacks in Europe regarding licensing under the Markets in Crypto-Assets (MiCA) regulatory framework. The UK lawsuit adds another front to what is becoming a multi-theater regulatory battle.

What this means for investors

If the claimants succeed, even partially, it would set a significant legal precedent for how crypto exchanges can be held accountable for selling complex financial products across borders without local authorization.

For traders who use leveraged products, the practical takeaway is straightforward. Before trading derivatives on any platform, verify that the exchange holds the appropriate licenses in your jurisdiction. The FCA maintains a register of authorized firms.

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