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Details of eToro Lawsuit Filed by Australia’s Financial Regulator

The Australian Securities and Investments Commission (ASIC) takes legal action against eToro, alleging its CFD product poses risks to investors, and eToro.

Key Points

  • ASIC initiates legal action against eToro, claiming its CFD product poses risks to investors.
  • ASIC alleges eToro didn’t adequately test the CFD product and exposes retail clients to significant risks.
  • Around 20,000 eToro customers incurred losses from trading CFDs.
  • eToro makes changes to its crypto policy following SEC lawsuits, restricting some assets for U.S. customers while affirming commitment to the cryptocurrency industry.

The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against trading platform eToro, claiming that its contract for difference (CFD) product poses a risk to investors.

CFDs are leveraged derivative contracts that allow customers to speculate on the prices of various assets, including equities, commodities, stock market indices, and digital assets.

Background on eToro and its Cryptocurrency Services

eToro was one of the early adopters in the cryptocurrency space, offering trading services with Bitcoin (BTC) through CFDs starting in 2013. Over time, the platform expanded its support to include other cryptocurrencies such as Ethereum (ETH), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), and more.

The Australian watchdog, ASIC, alleges that eToro did not adequately test its CFD product before introducing it to users. According to ASIC, eToro’s target market assessment and screening test for retail clients may not have been appropriate and effective.

“The case focuses on the appropriateness of eToro’s target market and the screening test used by eToro to assess whether a retail client fell within the target market for the CFD product.”

ASIC further argues that the CFD product offered by eToro is highly volatile and exposes retail clients to significant risks that may not align with their investment objectives, financial situation, and needs.

ASIC estimates that around 20,000 eToro customers incurred losses from trading CFDs between October 5, 2021, and June 14, 2023.

“Our message to the industry is that CFD target markets should be narrowly defined given the significant risk that retail clients may lose all of their deposited funds. CFD issuers must comply with the design and distribution regime and cannot simply reverse engineer their target markets to fit existing client bases,” said Sarah Court, the Deputy Chair of ASIC.

It is worth noting that CFDs are prohibited in certain countries, including the United States of America and Hong Kong.

eToro’s Response to SEC Lawsuits and Amendments to Crypto Policy

eToro made changes to its crypto policy following similar lawsuits filed by the U.S. Securities and Exchange Commission (SEC) against Binance and Coinbase.

As a result, eToro restricted U.S. customers from purchasing assets such as ALGO, MANA, DASH, and MATIC, which were identified as unregistered securities by the SEC.

However, eToro emphasized its commitment to the cryptocurrency industry and affirmed its intention to continue providing clients access to a diversified range of asset classes, including stocks, ETFs, and options.

It remains to be seen how the legal proceedings between ASIC and eToro will unfold and what implications they may have for the broader crypto industry.