ASIC Files Lawsuit against eToro Over Its CFD Product

UTC by Benjamin Godfrey · 3 min read
ASIC Files Lawsuit against eToro Over Its CFD Product
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According to eToro’s website, 77% of retail investor accounts lose money when trading CFDs on the platform.

The Australian Securities and Investments Commission (ASIC) has taken a significant step in its regulatory oversight by commencing legal proceedings against eToro Aus Capital Limited (eToro), an online investment platform.

ASIC Allegations against eToro

A press release issued earlier today revealed that the case centers around eToro’s Contract for Difference (CFD) product and raises concerns about potential breaches of design and distribution obligations, as well as eToro’s license obligations to uphold standards of efficiency, honesty, and fairness.

At the core of the dispute lies the appropriateness of eToro’s chosen target market for its CFD product. ASIC’s allegations highlight a discrepancy between the perceived risks and volatility of the trading product and the breadth of eToro’s target audience. Notably, CFD trading is known for being high-risk, and statistics show that a significant portion of traders may lose money.

The regulatory agency claims that eToro’s screening procedure was insufficient to determine whether a retail client was qualified for participation in such a high-risk trading operation.

One of ASIC’s central claims revolves around eToro’s screening test, which is alleged to be excessively permissive and ineffective in filtering out clients for whom the CFD product may not be suitable. Clients were reportedly free to change their responses, and the screening exam lacked the robustness needed to adequately assess a client’s appropriateness for the product.

ASIC contends that eToro’s actions have led to a scenario where a substantial portion of retail clients have engaged with the CFD product, despite it being inconsistent with their investment objectives, financial situations, and needs. The regulatory body has placed particular focus on the period between October 5, 2021, and June 14, 2023. During this period, over 20,000 eToro clients allegedly lost money trading CFDs.

According to eToro’s website, 77% of retail investor accounts lose money when trading CFDs on the platform. These figures highlight the inherent dangers of CFD trading, emphasizing the importance of acceptable market conduct and investor safety.

In response to the alleged violations, ASIC seeks both declarations and pecuniary penalties from the Court. The case management hearing date is yet to be set, indicating that the early phases of what could be a huge legal battle have begun.

Australia’s Growing Regulatory Scrutiny on Crypto Firms

In recent months, Australia has embarked on a notable crackdown against crypto firms, ushering in a new era of regulatory scrutiny within the digital asset space.

This intensified oversight has not only targeted crypto entities but has also led major banks in the country to adopt partial restrictions on crypto-related activities, citing concerns over scams and customer losses. One of the most notable events in Australia’s crypto crackdown saga was the search conducted by ASIC at the offices of Binance Australia.

Similarly, the ASIC announced the cancellation of FTX Australia’s license on July 19. This move follows the suspension of the license back in November, which was a result of FTX Global’s declaration of bankruptcy.

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