- CFDs enable price speculation in relation to crypto or another underlying asset
- eToro's target market was far too broad, tens of thousands of customers lost money
Australia's Securities and Investments Commission (ASIC) is suing eToro Aus Capital Ltd., the global investment platform’s Australian entity, for breaching design and distribution obligations, CoinDesk reported, citing a press release.
Lawsuit targets leveraged derivative product
The lawsuit is over a contract for difference (CFD) product. This is a leveraged derivative offering that enables price speculation in relation to crypto or another underlying asset.
It's part of a broader crackdown on crypto firms
The financial regulator has been cracking down against crypto firms in recent months, most prominently against Binance Australia, whose offices ASIC even searched. A number of leading banks in Australia have imposed limitations on crypto, citing the large amount of financial losses borne by customers.
When FTX filed for bankruptcy, ASIC was suing fintech company Block Earner and BPS Financial for running misleading ads.
In October 2022, ASIC placed interim stop orders on three crypto funds managed by Holon, a local asset manager. The three funds - Holon Bitcoin Fund, Holon Ethereum Fund and Holon FileCoin Fund – targeted retail investors who wanted exposure to crypto markets.
Target group was “far too broad”
Allegedly, eToro's target market was far too broad, due to which tens of thousands of customers have lost money on CFD trading since October 2021 according to ASIC. The platform’s screening test was almost impossible to fail because of the broad market.
ASIC explained:
If a retail client had a medium-risk tolerance but was not an experienced investor and had no understanding of the risks of trading CFDs, that client still fell within the target market. Clients could amend their answers without limitation and were prompted if they selected answers which could result in them failing.
In their response, eToro AUS said they were taking the watchdog’s allegations into account in the lawsuit and would react accordingly, adding that eToro AUS clients would not be affected. There would be no substantial impact on eToro’s global platform either. The company has revised its target market design for CFDs.
ASIC has requested a court award monetary compensation. No trial date has been set.
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