ASIC Files Lawsuit Against eToro for Improperly Offering Risky CFD products

The Australian Securities and Investments Commission (ASIC) filed a lawsuit against eToro's Australian division, alleging that the social trading platform improperly allowed a large number of retail investors to use a high-risk and volatile product.

ASIC stated in a statement on Thursday that it is taking eToro Aus Capital Limited to court regarding the appropriateness of the target market for its contract-for-difference (CFD) products, accusing the company of violating design and distribution obligations.

"ASIC is disappointed by the alleged lack of compliance in this case, given eToro's market penetration and the depth of its brand awareness, both in Australia and globally," ASIC Deputy Chair Sarah Court said in a statement. Currently, ASIC is seeking declarations, injunctions, and financial penalties against eToro Aus Capital Limited.

CFDs are a type of financial derivative product that allows traders and investors to speculate on the price of stocks, indices, commodities, cryptocurrencies, and foreign exchange rates, without owning the underlying assets themselves.

EToro is headquartered in Tel Aviv, setting up offices in Sydney, Cyprus, the United Kingdom, and the United States.

An eToro spokesperson said, "eToro AUS is considering the allegations filed by ASIC in these proceedings and will respond accordingly. There is no impact or disruption of service for clients of eToro AUS and no material impact on eToro's global business."

eToro currently provides CFD markets with leverage of 1:2 for some cryptocurrencies including BTC, ETH and XRP, but only for its platinum loyalty program members. Its CFDs are also available to stocks, currencies, commodities, and ETFs.

According to ASIC, between October 5, 2021 and June 14, 2023, nearly 20,000 customers of eToro suffered losses in CFDs. 

The regulatory authority also stated that eToro's target market for CFDs included unsophisticated and inexperienced investors, citing an example that eToro's screening test was very easy to pass, even for investors who are not familiar with the risks of CFDs. Besides, eToro allegedly allowed customers to modify the answers of the screening test without limitations, with the customers being "prompted if they selected answers which could result in them failing."

Last month, eToro suspended trading in Algorand (ALGO), Decentraland (MANA), Dash (DASH), and Polygon (MATIC) following the U.S. SEC classifying the four tokens as securities in the lawsuit against Binance and Coinbase.

(Source: Decrypt)