Binance faces UK investor claim over derivatives

Nearly 1,700 British investors have taken Binance and its founder Changpeng Zhao to London’s High Court, seeking at least £150 million in damages over allegations that the crypto trading platform unlawfully sold them high-risk derivative products without regulatory authorisation.

The claim, filed on Monday, marks one of the largest private actions brought in Britain against a global crypto exchange. The investors allege that Binance entities promoted and sold leveraged products, including futures, options and leveraged tokens, from late 2019, exposing retail users to losses that were magnified by the structure of the products. Some claimants say they lost tens of thousands of pounds, while others allege far larger personal losses.

The case is being brought under the Financial Services and Markets Act, with the claimants arguing that Binance was not authorised to offer the products to consumers in Britain. They contend that the platform’s marketing and availability of the products breached rules designed to protect retail investors from complex and speculative financial instruments.

Binance, the world’s largest crypto exchange by trading volume, has said it intends to defend the action. The company declined to comment in detail while the case is before the court. Zhao, widely known in the crypto industry as CZ, stepped down as Binance’s chief executive in 2023 after the company reached a major settlement with US authorities over anti-money-laundering and sanctions-related failures.

The London claim names several Binance-linked entities, including Binance Holdings, incorporated in the Cayman Islands, and Nest Exchange, a UAE-based entity, along with Zhao and other parties associated with the platform. The claimants allege that Binance’s corporate structure made it harder for consumers and regulators to identify which entity was responsible for services offered through the trading platform.

The lawsuit comes at a sensitive point for crypto regulation in Britain. The Financial Conduct Authority banned the sale, marketing and distribution of crypto derivatives and exchange-traded notes to retail consumers from January 2021, after concluding that such products were unsuitable for ordinary investors because of volatility, valuation difficulties, market abuse risks and limited consumer understanding. The watchdog estimated at the time that the ban would save retail consumers about £53 million a year in losses.

The investors’ case focuses partly on the period before that ban took effect, when crypto derivatives were still available to retail users but regulated activities still required permission. The claimants argue that Binance’s products were not simple spot crypto trades but complex financial instruments that could rapidly wipe out invested funds when markets moved against users. Leveraged trading allows traders to control a position larger than their cash stake, raising the prospect of amplified gains but also sharper losses.

Binance’s regulatory position in Britain has long been under scrutiny. In June 2021, the FCA said Binance Markets Limited was not permitted to undertake regulated activity in the UK. The firm later cancelled its FCA permissions, a process completed in May 2023. The regulator has stated that no Binance Group entity holds UK authorisation or registration to conduct regulated business in the country.

The claim also lands as Britain prepares to bring cryptoasset businesses more fully inside its financial regulatory perimeter. New rules are expected to require firms serving UK customers to meet stronger standards on capital, custody, governance, disclosure, market abuse controls and consumer protection. An authorisation gateway is due to open on 30 September 2026, with the broader regime expected to take effect in 2027.

For Binance, the London action adds to a series of regulatory and legal pressures across major markets. The exchange has faced scrutiny in the United States, Europe and Australia over compliance systems, customer classification and its handling of higher-risk products. In 2023, Binance agreed to pay more than $4 billion in penalties in the United States, while Zhao personally pleaded guilty to failing to maintain an effective anti-money-laundering programme and later served a prison sentence.

The company has since sought to present itself as a more compliance-focused business under new leadership, with expanded regulatory, legal and financial crime teams. It says it serves hundreds of millions of users globally and continues to seek licences in major jurisdictions. But regulators remain cautious about its past compliance record, its global structure and the role of Zhao, who remains a significant shareholder.

Arabian Post – Crypto News Network