The Australian financial regulator ASIC is suing eToro for breaching design and distribution obligations
The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against the financial platform eToro. ASIC alleges that eToro breached its design and distribution obligations, as well as failing to act efficiently, honestly, and fairly. The regulator claims that eToro allowed retail investors to use a high-risk leveraged derivative contract product known as a Contract for Difference (CFD) without conducting sufficient testing or properly assessing the suitability of the product for its target market.
Main breakdowns of the key points:
- ASIC is suing eToro for breaching design and distribution obligations.
- eToro released a high-risk CFD product without conducting proper testing.
- Nearly 20,000 eToro users lost money due to the use of CFDs.
- 77% of retail investors in eToro lost money while using the CFD product.
- ASIC alleges that eToro’s target market for the CFD product was too broad for such a high-risk trading product.
ASIC’s statement on eToro
ASIC claims that eToro’s screening test for the CFD product was inadequate and that it allowed customers for whom the product was unsuitable to invest. The regulator believes that eToro did not take sufficient measures to protect retail investors, resulting in financial losses for thousands of users.
How ASIC treats CFDs
According to ASIC, CFDs are leveraged derivative contracts that allow clients to speculate on the change in value of underlying assets, including cryptocurrencies. ASIC has previously taken action against other financial entities to protect consumers from high-risk financial tools like CFDs.
Hot Take:
eToro’s legal battle with ASIC highlights the importance of proper testing and assessment before releasing high-risk financial products to retail investors. While CFDs can offer opportunities for speculation, they also come with significant risks. Regulators play a crucial role in ensuring that financial platforms like eToro adhere to their obligations and protect consumers from potential harm.
By
By
By
By
By