eToro’s Australian division is in hot water after the Australian Securities and Investments Commission (ASIC) slapped it with a lawsuit alleging the social trading platform improperly allowed a wide range of retail clients to use a high-risk and volatile product.
In a statement Thursday, the regulator said it is taking eToro Aus Capital Limited to court over the appropriateness of its target market for contract-for-difference (CFD) products, alleging breaches in the company's design and distribution obligations.
“ASIC is disappointed by the alleged lack of compliance in this case, given eToro’s market penetration and the depth of its brand awareness, both in Australia and globally,” ASIC Deputy Chair Sarah Court said in a statement. It's now seeking declarations, injunctions, and financial penalties against eToro’s Australian subsidiary.
CFDs are a type of financial derivative product that allows traders and investors to speculate on the price of stocks, indices, commodities, foreign exchange rates, and cryptocurrencies, without owning the underlying asset itself.
Headquartered in Tel Aviv, eToro has offices in Sydney as well as Cyprus, the UK, and the US.
“eToro AUS is considering the allegations filed by ASIC in these proceedings and will respond accordingly,” an eToro spokesperson told Decrypt. “There is no impact or disruption of service for clients of eToro AUS and no material impact on eToro’s global business.”
eToro currently offers CFD markets with leverage of 1:2 for certain cryptocurrencies, including Bitcoin, Ethereum, and XRP, limiting the offering to its platinum loyalty program members. It also offers CFDs for stocks, currencies, commodities, and ETFs.
ASIC alleges that between October 5, 2021, and June 14, 2023, almost 20,000 of eToro’s clients lost money trading CFDs. The regulator didn’t immediately respond to Decrypt’s request for comment.
The regulator further said that eToro's target market for CFDs included investors who were not considered to be sophisticated or experienced. For example, ASIC alleges that eToro's screening test was very easy to pass, even for investors who did not have a good understanding of the risks of CFDs. The regulator alleges that eToro allowed clients to amend their answers to the screening test without limitation, with the clients being “prompted if they selected answers which could result in them failing.”
In a separate development eToro last month halted trading in Algorand (ALGO), Decentraland (MANA), Dash (DASH), and Polygon (MATIC) after the Securities and Exchange Commission in its lawsuits against Binance and Coinbase classified the four tokens as securities