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The Australian Securities and Investments Commission (ASIC) has taken legal action against eToro, an online investment platform, alleging a failure to act honestly and fairly in marketing its contract for differences (CFD) product. The regulator claims that the target market for the leveraged trading product was too broad for such a high-risk and volatile product, resulting in 77% of retail clients experiencing financial losses.
ASIC argues that eToro’s screening test to assess a retail client’s suitability for the CFD product was inadequate, allowing clients to easily pass the test even if the product was not appropriate for their investment objectives and financial situation. This alleged misconduct exposed a significant number of retail clients to the CFD product, leading to a high risk of consumer harm.
Between October 5, 2021, and June 14, 2023, nearly 20,000 of eToro’s clients reportedly suffered losses while trading CFDs. ASIC’s Deputy Chair, Sarah Court, emphasizes the need for CFD target markets to be narrowly defined due to the potential risk of retail clients losing their invested funds. She expresses disappointment in the alleged lack of compliance by eToro, given the platform’s widespread market penetration and brand awareness in Australia and globally.
In response to the allegations, eToro states that it has now implemented a revised target market determination for CFDs. The company is reviewing the claims made by ASIC and will respond accordingly. It assures clients that there is no service disruption and no significant impact on its global business.
ASIC’s legal action sends a clear message to the industry, stressing the importance of proper compliance with the design and distribution regime to protect consumers and ensure responsible marketing of financial products like CFDs.
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