- Australia’s financial watchdog has initiated a legal battle against eToro over high-risk product trading.
- The financial watchdog alleged that eToro, a social trading platform, has severely breached its regulations.
- eToro halted the trading of assets considered securities by the Securities and Exchange Commission last month.
eToro Sued to Court by the Australian Securities and Investment Commission
Australian financial regulator, ASIC, has sued eToro, a multi-asset company, for trading volatile products without due legal compliance.
The Australian Securities and Investments Commission (ASIC) alleged that the social trading platform performed insufficient tests on its investors when offering the contract for difference (CFD) products.
CFDs are leveraged derivatives contracts that enable buyers to speculate on the price actions of some assets like foreign exchange rates, commodities, cryptocurrencies, stock market indices, etc.
Australia’s financial watchdog announced on Aug 3 that it had initiated federal court proceedings against the trading platform. The case is focused on eToro’s breach of design and distribution rules which focuses on targeting consumer needs alongside the trading company’s screening test.
The financial regulator alleged that the trading company breached its regulations.
eToro was accused of offering high-risk CFDs to retail investors who may not find the product consistent with their investment objectives.
“eToro’s screening test was very difficult to fail and of no real use in excluding customers for whom the CFD product was not likely to be appropriate. For example, clients could amend their answers without limitation, and clients were prompted if they selected answers which could result in them failing,” the financial regulator said.
The financial watchdog also alleged that between the 5th of October 2021 and the 14th of June 2023, 20,000 of the company’s investors made losses trading CFDs.
eToro had been offering high-risk products to a broad target market. ASIC believed the trading company’s broad target market may enable vulnerable investors without understanding CFDs to suffer losses.
“eToro’s CFD target market was far too broad. For example, if a retail client had a medium-risk tolerance but was not an experienced investor and had no understanding of the risks of CFDs, that client still fell within the target market.”
In response to the lawsuits and allegations, eToro’s spokesperson told media outlets of its revised CFDs target market.
“These proceedings relate to the time period 5 October 2021 to 29 July 2023. eToro AUS is now operating with a revised target market determination in place for CFDs,” the spokesperson said to Cointelegraph.
The multi-asset company also stated that the current events will not affect smooth operations.
Last month, under a different circumstance, eToro stopped trading some crypto assets like Decentraland(MANA), Algorand(ALGO), Polygon(MATIC), and Dash(DASH) after the Securities and Exchange Commission declared the assets as securities in the lawsuits against Binance and Coinbase.
About eToro
eToro is a social trading network that allows traders to copy the trades of experienced traders. It also gives exclusive perks to traders who share their trading strategies.
The social trading network offers the trading of several stocks, crypto assets, and other assets.
