eToro Sued by Australia’s Market Regulator for Leveraged Product

Social investing platform eToro’s Australian entity (eToro Aus Capital Limited) has been sued by the country’s markets regulator for alleged breaches of “design and distribution obligations and of eToro’s licence obligations to act efficiently, honestly and fairly,” a press release said Thursday.

Australia’s Securities and Investments Commission (ASIC) allegations are about eToro’s contract for difference (CFD) product, a leveraged derivative contract that allows a client to speculate in the change in value of an underlying asset such as crypto.

In the past few months, Australia has cracked down against crypto firms, including Binance Australia, whose offices were searched by ASIC. Major banks in Australia have imposed partial restrictions on crypto citing “scams and the amount of money lost by customers.”

ASIC alleges that eToro’s target market was far too broad and its screening test was very difficult to fail and almost 20,000 of eToro’s clients lost money trading CFDs between Oct. 2021 and June 2023.

“For example, 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,” the ASIC said. “…clients could amend their answers without limitation and clients were prompted if they selected answers which could result in them failing.

“eToro AUS is considering the allegations filed by ASIC in these proceedings and will respond accordingly. There is no impact or disruption of service for clients of eToro AUS and no material impact on eToro’s global business,” the company said in a statement, adding that it is now operating with a revised target market determination in place for CFDs.

ASIC is seeking monetary penalties from the Court that is still to schedule a date.