Australia’s financial regulator, the Australian Securities and Investments Commission (ASIC), has taken legal action against eToro, a popular trading platform, over its contract for difference (CFD) product.
ASIC alleges that the platform used inadequate screening tests when offering leveraged derivative contracts to retail investors.
CFDs are a type of leveraged derivative that allows buyers to speculate on the price movements of various underlying assets, including foreign exchange rates, stock market indices, single equities, commodities, and cryptocurrencies.
eToro offers a wide range of CFDs, but ASIC claims that these products are “high-risk and volatile.”
The regulator’s main concern is that eToro’s screening test for the CFD product was insufficient and failed to exclude unsuitable customers.
Clients could easily manipulate their answers to meet the platform’s requirements, making the test ineffective in determining suitable users.
As a result, many customers who were not adequately informed about the risks of CFD trading ended up trading these products.
The specific risks associated with eToro’s crypto CFDs are highlighted, with up to two times leverage on certain assets making them particularly high-risk. ASIC believes that the platform’s target market was too broad, encompassing users who lacked an understanding of CFD trading risks.
ASIC alleges that between October 5, 2021, and June 14, 2023, nearly 20,000 of eToro’s clients suffered losses while trading CFDs.
READ MORE: U.S. Judge Denies Motion to Dismiss SEC Lawsuit Against Terraform Labs
The regulator asserts that these losses were partly due to the platform’s insufficient screening and broad target market.
In response to the legal action, an eToro spokesperson informed Cointelegraph that the company had revised its target market determination for CFDs.
However, they did not specify when the revision took place.
While the proceedings are ongoing, eToro asserts that its service remains uninterrupted. The company is considering ASIC’s allegations and will respond accordingly.
ASIC’s deputy chair, Sarah Court, criticized CFD issuers like eToro for attempting to adjust their target markets to fit their existing client bases.
She expressed disappointment in the platform’s alleged lack of compliance with regulatory guidelines.
This legal action against eToro comes in the wake of similar challenges in the United States, where the platform had to halt trading in four cryptocurrencies after the Securities and Exchange Commission labeled them as securities in separate lawsuits.
In conclusion, ASIC’s lawsuit against eToro centers around the platform’s alleged failure to adequately assess its CFD products’ suitability for retail investors and the wide target market that included customers with little understanding of the risks involved.
The case serves as a reminder of the importance of robust compliance with financial regulations to protect investors and ensure fair practices in the financial markets.
Other Stories:
IRS Issues New Ruling: U.S. Crypto Investors Must Report Staking Rewards as Gross Income
Binance CEO CZ Unveils Plan to Launch Smaller Algorithmic Stablecoins
Decentralized Exchange on Coinbase’s Base Network Pauses Trading Amidst Concerns of Exploit
