Logll Tech News β Australia’s financial landscape is witnessing a legal battle as the Australian Securities and Investments Commission (ASIC) takes eToro to court over its Contract for Difference (CFD) product.
- The regulator alleges that the popular trading platform used inadequate screening tests, allowing the offering of leveraged derivative contracts to retail investors without proper assessment. This article delves into the specifics of the case, shedding light on the risks associated with CFDs and the implications of eToro’s actions.
eToro Faces Legal Trouble Over CFD Product βοΈπ¨
The Australian Securities and Investments Commission (ASIC) is not holding back in its pursuit of justice. On August 3, the regulatory body filed a lawsuit against eToro for its CFD product. This leveraged derivative contract, which allows buyers to speculate on the price movements of various assets, including foreign exchange rates, stock market indices, single equities, commodities, and cryptocurrencies, has come under scrutiny for being “high-risk and volatile.” πΌπ£
ASIC is suing eToro for allegedly breaching design and distribution obligations and their licence obligations to act efficiently, honestly and fairly #CFD
— ASIC Media (@asicmedia) August 2, 2023
ASIC’s Allegations and Concerns π£οΈβ
The heart of the matter lies in eToro’s screening tests, which ASIC contends were insufficient to exclude unsuitable customers from trading the risky CFDs. According to the regulator, eToro’s screening test was overly lenient, making it “very difficult to fail” and thus failing to protect investors who were not suitable candidates for such high-risk products.
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eToro’s crypto CFDs, offering up to two times leverage on certain assets, were also subject to criticism. ASIC pointed out that the underlying assets themselves, especially crypto-assets, were inherently risky and volatile, further amplifying the dangers associated with these leveraged contracts. π
eToro’s Wide Target Market Comes Under Fire π―
ASIC raised concerns about eToro’s target market for its CFD product, suggesting that it was too broad. Even customers with little to no understanding of CFD trading risks fell within its target. This expansive approach to the market posed a threat to inexperienced traders who might have been lured in without comprehending the risks involved.
PDF File: NSD805/2023
According to ASIC’s filing notice, nearly 20,000 of eToro’s clients incurred losses while trading CFDs between October 5, 2021, and June 14, 2023. The regulator argues that such a substantial number of losses raises questions about the suitability of eToro’s target market. βπ
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eToro Responds to the Allegations π£οΈ
In the wake of the legal proceedings, an eToro spokesperson assured Cointelegraph that the company has taken steps to address the concerns raised by ASIC. The spokesperson clarified that the revised target market determination for CFDs came into effect on July 29, 2023, and covers the period from October 5, 2021, to that date.
Despite the ongoing legal battle, eToro asserted that its services remain unaffected and uninterrupted. The company is closely examining ASIC’s allegations and will respond appropriately to the regulatory body’s concerns. π¬π
International Scrutiny for eToro π
The legal troubles for eToro are not limited to Australia alone. In the United States, the company decided to halt trading in four cryptocurrencies due to these digital assets being labeled as securities in lawsuits by the Securities and Exchange Commission (SEC). This further adds to the scrutiny surrounding eToro’s practices and business operations. πΊπΈ
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The Impact on the Trading Industry πΌπΌ
The outcome of ASIC’s lawsuit against eToro could have far-reaching implications for the trading industry, particularly in the realm of leveraged derivative contracts like CFDs. Investors and traders alike are closely watching the proceedings, as the decision could set a precedent for how regulatory bodies approach and enforce rules to protect retail investors. π‘π°
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Conclusion ππ
The legal battle between ASIC and eToro over the CFD product has placed a spotlight on the risks associated with leveraged derivative contracts and the need for robust screening tests to protect retail investors. As the court proceedings continue, the trading industry awaits the outcome, which could shape regulatory approaches and investor protection measures. For now, eToro remains committed to addressing ASIC’s concerns while its services continue without disruption. πͺπΌ
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FAQs about eToro’s CFD Product and ASIC’s Lawsuit πββοΈπββοΈβ
eToro’s CFD product is a type of leveraged derivative contract that enables buyers to speculate on the price movements of various underlying assets, including foreign exchange rates, stock market indices, single equities, commodities, and cryptocurrencies.
ASIC alleges that eToro used insufficient screening tests when offering its CFD product to retail investors, resulting in unsuitable customers trading the high-risk and volatile contracts.
eToro’s CFDs are deemed “high-risk and volatile,” especially when the underlying assets include extremely risky products such as crypto-assets.
ASIC claims that eToro’s target market was too broad, encompassing users with little understanding of CFD trading risks.
Between October 5, 2021, and June 14, 2023, almost 20,000 of eToro’s clients lost money trading CFDs, according to ASIC’s allegations.
eToro has revised its target market determination for CFDs, which is now in effect, and the company is actively evaluating ASIC’s allegations.
In the US, eToro halted trading in four cryptocurrencies following the SEC’s classification of these digital assets as securities, leading to additional scrutiny of the company’s operations. πΊπΈπΌ