The Australian Securities and Investments Commission (ASIC) has taken legal action against eToro Aus Capital Limited, the Australian subsidiary of social investment platform eToro, in a recent press release. The regulator alleged that eToro violated “design and distribution obligations and eToro’s license obligations to act efficiently, honestly and fairly” with respect to its contract for difference (CFD) product. CFD is a leveraged derivatives contract that allows clients to speculate on the change in the value of an underlying asset, including cryptocurrencies. Here are the details…
Lawsuit against cryptocurrency platform in Australia
The lawsuit comes amid a wider crackdown on crypto-related firms in Australia. Specifically, as we reported on Kriptokoin.com, earlier this year ASIC also called the offices of Binance Australia. Also, major banks in the country have placed partial restrictions on crypto trading due to concerns about fraud and customer churn. ASIC claims that eToro’s CFD product is marketed to a very broad target market and that the screening test for potential customers is excessively soft. As a result, around 20,000 eToro customers lost money trading CFDs between October 2021 and June 2023.
The regulator also noted that clients with limited investment experience and insufficient understanding of the risks associated with CFD trading are still considered part of eToro’s target market. Additionally, customers were allowed to change their answers to screening questions without limitations and were asked to adjust their answers to avoid potential disqualification. eToro Aus responded to the allegations by accepting ASIC’s lawsuit and claiming it would handle the claims accordingly. The company clarified that legal actions will not disrupt its services to customers and stated that it does not have a significant impact on eToro’s global business. eToro Aus also announced that it has implemented a revised target market specification for its CFD product.
What is CFD?
CFD deals with a client’s underlying asset such as currency rates, stock market indices, single stocks, commodities or crypto assets. It is a leveraged derivative contract that allows them to speculate on the change in value.
What will be the outcome of the case?
While the outcome of the ASIC lawsuit remains unclear, the legal action against eToro sends a clear message to all financial service providers operating in Australia, particularly those interested in cryptocurrency-related products. Because market participants are now under greater scrutiny. Companies are required to comply with strict regulatory standards to avoid potential legal consequences. Investors and clients in the cryptocurrency space need to be careful and do extensive research before interacting with any financial product or service. As the regulatory environment evolves, it is critical that market participants stay up to date with the latest developments and comply with compliance rules to protect both their interests and investments.
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