The Australian financial landscape has been shaken by recent developments, as regulatory authorities have taken action against one of the prominent players in the digital trading arena. The Australian regulator’s decision to file a lawsuit against eToro, a platform for trading and investing in multiple assets, has sent shockwaves through the financial industry. This action underscores the growing scrutiny that digital trading platforms face, as regulatory bodies strive to ensure investor protection and market integrity.
The Australian Securities and Investments Commission (ASIC) initiated proceedings in the Federal Court on August 3rd against eToro’s Contract for Difference (CFD).
According to ASIC, eToro acted unlawfully through the CFD by targeting an excessively broad market and failing to comply with design and distribution standards. These contracts are a form of leveraged investment product that the platform offers to retail investors, which, according to ASIC, underwent inadequate suitability assessments, causing thousands of users to lose money.
To better understand, “CFDs are a type of leveraged derivative contract that allows buyers to speculate on price movements of an underlying asset, such as exchange rates, stock market indices, single equities, commodities, or cryptocurrencies, all of which eToro offers.”[1]
Furthermore, ASIC argues that the CFDs offered by eToro were “high-risk and volatile” and that being such a risky and volatile product, eToro’s target market was too broad for that product. Due to inadequate suitability testing, consumers were exposed to risks, according to ASIC.
This means that the target market was too broad, encompassing less qualified users who were not fully aware of all the risks associated with CFD trading.
Moreover, ASIC stated that CFD products carried additional risk due to the fact that the underlying assets themselves had their own risks, including highly volatile and high-risk products like crypto-assets.
The risk, translated into harm to consumers, can be seen in the fact that “ASIC alleges that between 5 October 2021 and 14 June 2023, almost 20,000 of eToro’s clients lost money trading CFDs.”[2]
On its part, eToro has stated that it will continue its operations and that the lawsuit has no impact on its clients. Furthermore, an eToro spokesperson assures that the company is “operating with a revised target market determination for CFDs.” [3]
As the legal battle unfolds, the outcome of the lawsuit between the Australian regulator and eToro will undoubtedly reverberate throughout the financial industry, especially at a time when ASIC closely monitors companies in the digital asset sector.
Note: to find the official notice of filing read here: https://download.asic.gov.au/media/s2qdjuat/23-204mr-asic-v-etoro-concise-statement.pdf
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[1] https://cointelegraph.com/news/asic-sues-etoro-over-cfd-futures-trading-products
[2] https://cointelegraph.com/news/asic-sues-etoro-over-cfd-futures-trading-products
[3]https://www.diariobitcoin.com/negocios/regulacion/etoro-demandado-australia-por-producto-de-alto-riesgo/
