- ASIC launches a lawsuit against eToro, alleging inadequate customer screening for its high-risk CFD products.
- The legal action could have significant implications for trading platforms and their handling of volatile financial instruments like CFDs.
- Deputy chair of ASIC, Sarah Court, believes retail clients face the risk of losing all their funds
The Australian Securities and Investments Commission (ASIC) has launched a lawsuit against eToro, a prominent trading platform, over its handling of Contract for Difference (CFD) products. The regulator contends that eToro did not adequately screen its customers, thereby exposing retail investors to high-risk and volatile leveraged derivative contracts.
CFDs are a type of bet on whether the price of assets, like cryptocurrencies, will go up or down. eToro lets its users make these kinds of bets. The legal action, initiated in the Federal Court, accuses eToro of marketing its CFD product to an overly broad audience and contravening design and distribution regulations. ASIC also alleged that the platform’s screening test was inadequate to prevent unsuitable customers from trading the product.
Sarah Court, the deputy chair of ASIC, voiced her disappointment with eToro’s alleged non-compliance. She emphasized that CFD issuers should not modify their target markets to accommodate their existing client bases:
CFD target markets should be narrowly defined given the significant risk that retail clients may lose all of their deposited funds.
The lawsuit further alleged that between October 5, 2021, and June 14, 2023, nearly 20,000 of eToro’s clients lost money trading CFDs. The regulator also pointed out that the risks associated with CFD products were exacerbated when the underlying assets themselves were highly risky and volatile, such as cryptocurrencies.
In response to the allegations, an eToro spokesperson said in a statement that the company had revised its target market determination for CFDs. The spokesperson also assured that there would be no disruption to its services. Furthermore, the firm noted that it would consider ASIC’s allegations and respond accordingly.
Meanwhile, the U.S. Securities and Exchange Commission (SEC) has recently filed a lawsuit against Richard Schueler, the creator of the four-year-old cryptocurrency HEX. The SEC accused Schueler of conducting unregistered offerings and committing fraud in connection with another project, PulseChain. The complaint alleged that Schueler misappropriated at least $12 million from PulseChain’s offering proceeds to purchase luxury goods for himself.
