In a media release on Thursday, the Australian Securities and Investment Commission (ASIC) indicated that it started federal court proceedings against eToro Aus Capital Limited, an online investment platform. The legal action focuses on the trading platform’s CFD product and alleges that eToro breached design and distribution duties under its licence to administer efficient, honest and fair services.
ASIC lodges federal court case against eToro’s CFDs
The financial watchdog questions the suitability of eToro’s contract-for-differences (CFD) target market. A CFD is a leveraged derivative contract that allows a trader to invest in the value changes of underlying assets.
ASIC alleges that eToro’s CFD market is too wide considering the high-risk and volatile nature of this trading niche, where most lose their money. The regulator maintains that eToro’s screening checks fall short when assessing retail clients. ASIC further alleges that due to this negligence, a significant number of retail clients fell victim to the product, which was inconsistent with their investment goals and financial reach.
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Specifics of the case refer to the period between 5 October 2021 and 14 June 2023, during which time an estimated 20,000 eToro clients lost money with CFD trading. Previous administrative actions by ASIC to protect consumers from high-risk CFD investments included orders against Saxo Capital Markets and Mitrade Global Pty Ltd.
Sarah Court Source: Anzsog
Sarah Court, ASIC deputy chair, expressed the regulator’s disappointment with eToro, especially considering the trading platform’s market reach. Court commented:
Our message to the industry is that CFD target markets should be narrowly defined given the significant risk that retail clients may lose all of their deposited funds.
