The Australian Securities and Investments Commission (ASIC) has filed a lawsuit against investing platform eToro over its contract for difference (CFD) product, the financial regulator said in a press release on 3 August.
According to the announcement, ASIC has alleged that eToro used insufficient screening tests for its CFD product — a leveraged derivatives contract that allows clients to speculate on price movements of an underlying asset — which targeted targeted too wide a market, and breached design and distribution obligations. The financial regulator further noted that the product’s target market was far too broad, and that its screening tests was “very difficult to fail and of no real use in excluding customers”.
The filing claimed that eToro allowed its clients to amend their answers during the screening test, and the platform even warned users if the answers they selected could result in them failing. ASIC noted that CFD products had heightened risks when the underlying assets also had their own risks — which includes products such as crypto assets — and alleged that between 5 October 2021, and 14 June 2023, nearly 20,000 eToro users had lost money trading the platform’s CFD product.
An eToro spokesperson said the company was “considering the allegations filed by ASIC in these proceedings”. They also noted that the proceedings relate to the time period from 5 October 2021, to 29 July 2023, and that eToro Australia was now “operating with a revised target market determination in place for CFDs”. The spokesperson also assured users that there is no impact or disruption of services for Australian clients, and that there was “no material impact on eToro’s global business”.