eToro faces Lawsuit from Australian Regulator Over Crypto CFDs Offering

Australia's Securities & Investment Commission (ASIC) has filed a lawsuit against eToro, focusing on the suitability of the investment platform's target market for its contract for difference (CFD) product.

The lawsuit examines eToro's assessment method to determine if retail customers fell within the intended market during the period from Oct. 5, 2021, to July 29, 2023.

A CFD is a financial instrument that allows investors to profit from asset price changes without owning the asset.

ASIC expressed concern about the type of CFDs offered by eToro, considering them complex and high-risk, particularly when involving volatile or high-risk assets like cryptocurrencies, foreign currencies, and commodities.

The design and distribution obligations required eToro to define a "target market determination" before conducting retail distribution activities related to the CFD product.

However, ASIC alleges that eToro failed to adequately define a suitable target market, disregarding the financial circumstances and requirements of its retail clients.

According to ASIC, eToro's screening test excluded only a small percentage of retail clients, allowing many clients to trade the CFD product even when it was unsuitable for them.

Consequently, the majority of consumers who acquired the CFD product reportedly incurred losses.

An eToro spokesperson stated that the company's Australian subsidiary would respond to ASIC's allegations after careful consideration.

"There is no impact or disruption of service for clients of eToro AUS, and no material impact on eToro's global business," the spokesperson said.

The proceedings pertain to the period from October 5, 2021, to July 29, 2023. eToro AUS now operates with a revised target market determination for CFDs.

ASIC is no stranger to acting to protect consumers from high-risk CFD trading.

These have include stop orders, notably against Saxo Capital Markets (23-127MR) and Mitrade Global Pty Ltd (23-141MR).