Australian Regulator Sues eToro Over CFDs

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  • ASIC has filed a lawsuit against eToro, alleging potential harm to investors through its CFD product, resulting in significant losses for around 20,000 customers
  • eToro made changes to its crypto policy following SEC lawsuits against Binance and Coinbase.
  • CFDs have remained banned in some jurisdictions due to potential investor harm

The Australian Securities and Investments Commission (ASIC) has taken legal action against trading platform eToro, claiming that its contract for difference (CFD) product poses potential harm to investors. CFDs are leveraged derivative contracts that allow customers to speculate on the prices of various assets, including cryptocurrencies like Bitcoin, Ethereum, and others. The regulator expressed concerns about eToro’s CFD product, stating that it might not have been adequately tested before being introduced to users and that as many as 20,000 users suffered losses as a result.

ASIC Says Customers Suffered Losses

ASIC alleges that eToro’s conduct exposed a significant number of retail clients to the CFD product when it might not have been suitable for their investment objectives and financial situation. The regulator estimates that around 20,000 eToro customers incurred losses due to trading CFDs between October 5, 2021, and June 14, 2023 and is taking action against to company over it:

ASIC considers that eToro’s conduct is likely to have resulted in a significant number of retail clients being exposed to the CFD product that was unlikely to be consistent with their investment objectives, financial situation, and needs, resulting in a significant risk of consumer harm.

The platform, which offered trading services with cryptocurrencies like Bitcoin and Ethereum via CFDs since 2013, had to make changes to its crypto policy after the U.S. Securities and Exchange Commission (SEC) filed lawsuits against Binance and Coinbase.

In response, eToro prohibited U.S. customers from purchasing certain tokens targeted by the SEC, while reaffirming its commitment to providing clients access to a diverse range of asset classes, including stocks, ETFs, and options.

CFDs Remain Touchy Subject

In its filing, ASIC summarised the nucleus of its argument:

The case focuses on the appropriateness of eToro’s target market and the screening test used by eToro to assess whether a retail client fell within the target market for the CFD product.

ASIC’s Deputy Chair, Sarah Court, remarked on the issue, saying, “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.”

CFDs are considered to be so potentially harmful to investors that they remain illegal in some jurisdictions, such as the United States of America and Hong Kong.