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ASIC discovered that eToro’s target market was too broad and its screening test ineffective in excluding unsuitable customers for CFDs (Contract for Difference).

Crypto trading platform eToro is facing serious trouble as the Australian Securities and Investments Commission (ASIC) takes legal action against them. The regulator filed a lawsuit, claiming that eToro Aus Capital Ltd. has been offering high-risk leverage derivative products that allow users to speculate on cryptocurrencies.

According to ASIC’s official statement on August 3, they accused eToro of violating the distribution and design obligations of its contract for difference (CFD) product. eToro’s platform offers a range of CFDs, which are leveraged derivatives contracts.

The lawsuit highlights concerns over eToro’s practices and the potential risks associated with their products, leading to legal consequences for the company.

ASIC Raises Concerns about eToro’s High-Risk CFD Offerings

The Australian Securities and Investments Commission (ASIC) expressed worries about eToro’s crypto trading platform and its leveraged derivative contracts called CFDs. These contracts enable buyers to speculate on assets like foreign exchange rates, stock market indices, equities, commodities, and cryptocurrencies.

ASIC found that eToro’s screening tests for retail investors were insufficient. The regulator emphasized that the CFDs offered by eToro were considered “high risk and volatile.” The existing screening test was ineffective in excluding unsuitable customers, as it was designed to be difficult to fail and allowed clients to modify answers freely.

The concerns highlighted by ASIC underline the importance of implementing appropriate screening and risk assessment measures when offering such high-risk financial products to retail investors.

ASIC Accuses eToro of Broad Target Market and Client Losses in CFD Trading

The Australian Securities and Investments Commission (ASIC) has accused eToro of having a “far too broad” target market for its products, with some users having little understanding of the risks involved in CFD (Contract for Difference) trading. ASIC alleges that between October 5, 2021, and June 14, 2023, nearly 20,000 of eToro’s clients lost money while trading CFDs.

ASIC Deputy Chair Sarah Court expressed disappointment with eToro’s alleged lack of compliance. She stressed that the target markets for CFDs should be specific and carefully defined, as retail clients face significant risks of losing all their invested money.

Under the design and distribution rules, CFD issuers are not allowed to adjust their target markets to fit existing clients. eToro’s wide market reach and global brand awareness raised significant concerns for ASIC regarding the potential impact on investors and their financial well-being.

Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

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