Australian financial watchdog charges eToro over 'volatile' trading products
By: Dickson Arinze
August 3, 2023 6:54 AM
The Australian Securities and Investments Commission claimed that eToro customers who did not comprehend the dangers of CFD products might nevertheless purchase them on the platform.
The Australian Securities and Investments Commission (ASIC) has sued eToro over its contract for difference (CFD) product, alleging that the trading platform utilized insufficient screening processes when offering leveraged derivative contracts to ordinary investors.
The Australian Securities and Investments Commission (ASIC) said→ on August 3 that it has initiated Federal Court proceedings against eToro's CFD product for targeting an insufficiently broad market and violating design and distribution guidelines.
CFDs are a class of leveraged derivatives contracts that let purchasers make bets on price changes of an underlying asset, which includes foreign exchange rates, stock market indices, individual stocks, commodities, or virtual currencies, all of which are available on eToro.
ASIC claimed that eToro's CFDs were "high-risk and volatile," and that the platform's target market screening test failed to appropriately exclude unsuitable users from trading the product.
"eToro test for eligibility was extremely easy to pass and served no purpose in barring customers for whom the CFD product was unlikely to be suitable."
"For example, clients could freely amend their answers, and clients were prompted if they chose answers that could fail," it stated.
Certain assets can be leveraged up to two times with EToro's crypto CFDs. Other markets covered include equities, currencies, commodities, and precious metals.
According to ASIC's filing notice→, CFD product risks are heightened when the underlying assets have their hazards, such as "extremely high-risk and volatile products such as crypto-assets."
The regulator also said that eToro's CFD target market appeared too broad, with users who did not know CFD trading risks falling within its scope.
"ASIC alleges that nearly 20,000 of eToro's clients lost money trading CFDs between 5 October 2021 and 14 June 2023," it continued.
According to an eToro spokesman, the company's CFDs target market calculation has subsequently been updated.
"The time frame for these proceedings is from 5th of October 2021 to 29 July of 2023." The target market determination for CFDs has been updated, and eToro AUS is now working with it, the representative added.
EToro also stated that there is no impact or disruption to its service. It is reviewing ASIC's claims and will respond appropriately.
Sarah Court, ASIC's deputy chair, voiced her displeasure with eToro's suspected lack of compliance by saying that CFD issuers "cannot easily reconfigure their target markets to fit their current client bases."
In the United States, eToro ceased trading in four cryptocurrencies after the US Securities and Exchange Commission branded the tokens as securities in lawsuits.