→ The Australian Securities and Investments Commission (ASIC) brought Federal Court proceedings against eToro in Aug. 2021, accusing the trading platform of failing to apply adequate screening tests when offering contract for difference (CFD) products to retail investors.Described by ASIC as “high-risk and volatile” assets, CFDs are leveraged derivative contracts that allow one to contribute funds as collateral to make a larger bet on the performance of an underlying asset. eToro offers CFDs on everything from foreign exchange rates to cryptocurrencies.
The regulator alleged that eToro’s screening test omitted proper exclusion procedures which resulted in customers investing in CFD that should have been considered unsuitable. Furthermore, they argued that CAD customers were prompted and encouraged if they incorrectly selected answers that could have disqualified them from the product.
According to an estimates, almost 20,000 eToro clients have lost money trading CFDs between October 2021 and June 2023.
ASIC Deputy Chair, Sarah Court felt compelled to express her displeasure in eToro’s flouting of compliance standards. “CFD issuers cannot simply reverse engineer their target markets to fit existing client bases”, she emphasised.
In response to their alleged misstep, eToro have decided to revise their target clientele for their CFD. The revise itself clearly states that their alterations shouldn’t result in any disruptions or impact on their service. The trading platform declared they “are currently considering the ASIC’s allegations” and will respond accordingly.
It is worth noting that US markets have wrestled with similar issues in the past. In January 2021, eToro gained permission to to trust four different token initiatives to US investors, but only after they had classified them as SEC securities.
