Legal Storm Down Under: eToro Faces Australian Regulator's Wrath

Legal Storm Down Under: eToro Faces Australian Regulator's Wrath

Australia's financial watchdog, the Australian Securities and Investments Commission (ASIC), has taken legal action against eToro, a prominent trading platform, concerning its contract for difference (CFD) product. The regulatory body claims that eToro failed to conduct adequate screening tests before offering leveraged derivative contracts to retail investors.


 

According to ASIC's statement on August 3, they have initiated proceedings in the Federal Court, accusing eToro of violating design and distribution regulations by targeting too broad a market with their CFD product

CFDs, which allow traders to speculate on the price movements of various underlying assets such as stocks, commodities, and cryptocurrencies, were offered by eToro. ASIC contends that these CFDs posed significant risks due to their high volatility.

The commission alleged that eToro's screening test for potential customers was ineffective, allowing unsuitable clients to access the high-risk CFD product. ASIC criticized the platform for permitting clients to modify their answers and prompting them to change selections that might lead to failure.

eToro's cryptocurrency CFDs offer up to two times leverage on certain assets, along with coverage of stocks, currencies, commodities, and precious metals. However, ASIC pointed out that the risks associated with these CFDs were even higher when combined with the inherent risks of the underlying assets, particularly volatile products like cryptocurrencies.

Furthermore, ASIC accused eToro of having a overly broad target market for its CFDs, potentially exposing users without a proper understanding of the associated risks to the product.

In a specific timeframe between October 5, 2021, and June 14, 2023, nearly 20,000 eToro clients incurred losses while trading CFDs, according to ASIC's allegations.

An eToro spokesperson assured that they have reviewed and revised their target market determination for CFDs. However, the company is facing the regulatory allegations and is set to respond accordingly. eToro maintained that its services remain unaffected and operational.

ASIC's Deputy Chair, Sarah Court, emphasized that CFD issuers should not tailor their target markets to align with existing client bases, underscoring the importance of compliance. She expressed disappointment with eToro's alleged failure in this regard.

It's worth noting that in the United States, eToro suspended trading in four cryptocurrencies due to legal action by the Securities and Exchange Commission (SEC), which classified the tokens as securities.

Also Read: No MATIC, DASH, MANA, ALGO for U.S. crypto users on eToro

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