Australia’s financial regulator, the Australian Securities and Investments Commission (ASIC), has taken legal action against trading platform eToro over its contract for difference (CFD) product. The regulator alleges that eToro did not conduct sufficient screening tests when offering leveraged derivative contracts to retail investors. ASIC has sued eToro in Federal Court for breaching design and distribution rules and unjustifiably targeting a wide market.
CFDs are leveraged derivatives contracts that allow buyers to speculate on the price movements of various underlying assets, including foreign exchange rates, stock market indices, single equities, commodities, and cryptocurrencies. ASIC claims that the CFDs offered by eToro were high-risk and volatile. The regulator argues that eToro’s screening test for determining the product’s suitability for customers was ineffective as it was difficult to fail and allowed clients to change their answers without limitation.
ASIC further argues that eToro’s target market for the CFD product was too broad, including users with no understanding of the risks associated with CFD trading. The regulator highlights that nearly 20,000 of eToro’s clients incurred losses trading CFDs between October 2021 and June 2023. ASIC’s filing notice states that the risks of CFD products are heightened when the underlying assets themselves are high-risk and volatile, such as crypto-assets.
In response to ASIC’s allegations, eToro has revised its target market determination for CFDs. An eToro spokesperson assured that the company is now operating with a revised target market determination in place. The spokesperson emphasized that there will be no impact or disruption to eToro’s service and added that the company is considering ASIC’s claims and will respond accordingly.
ASIC’s deputy chair, Sarah Court, expressed disappointment in eToro’s alleged lack of compliance and stated that CFD issuers should not manipulate their target markets to fit their existing client bases. She emphasized the importance of issuers ensuring that they offer products suitable for their customers.
It is worth noting that eToro also faced trading halts in the United States for four cryptocurrencies after the Securities and Exchange Commission labelled them as securities in ongoing lawsuits.
In conclusion, ASIC has commenced legal proceedings against eToro, accusing the trading platform of not conducting sufficient screening tests and breaching design and distribution rules when offering its CFD product. The regulator claims that the CFDs were high-risk and volatile and that eToro’s target market was too broad. eToro has since revised its target market determination and is currently assessing ASIC’s allegations.
Source link