By Tom Blitzer
Key Insights:
- ASIC initiates legal action against eToro for breaching obligations.
- eToro accused of exposing retail clients to high-risk CFD products.
- The outcome could reshape client screening and market targeting practices.
According to a recent report, the Australian Securities and Investments Commission (ASIC) has launched a lawsuit against eToro Aus Capital Limited. The local arm of the global crypto exchange is now under fire for allegedly breaching its obligations. The ASIC’s move underscores the regulator’s commitment to protecting consumers in the volatile world of cryptocurrency trading.
The ASIC’s case against eToro centers on the company’s target market and client screening process. The regulator argues that eToro’s target market was too broad for such a high-risk product. Moreover, it contends that the screening test eToro used was insufficient in determining a retail client’s suitability for the product.
Thousands of Retail Clients Suffer Losses
The ASIC’s concern is not unfounded. The regulator points out that nearly 20,000 eToro clients experienced losses while trading Contracts for Difference (CFDs) between October 2021 and June 2023. Significantly, eToro’s website states that 77% of retail investor accounts lose money when trading CFDs on their platform.
Sarah Court, the Deputy Chairperson of ASIC, expressed her disappointment with eToro’s lack of compliance. She emphasized the importance of narrowly defining CFD target markets due to the high risks involved. Besides, she reiterated that CFD issuers cannot manipulate their target markets to suit their existing clientele.
However, at the time of writing, eToro Australia has not yet commented on the lawsuit.
ASIC’s Fight for Consumer Protection
ASIC’s legal action against eToro is a clear message to the crypto industry. The regulator is determined to ensure companies act efficiently, honestly, and somewhat in their dealings with consumers. Consequently, ASIC accuses eToro of failing to meet these standards, particularly concerning its CFD product.
The ASIC argues that eToro’s failure to ensure a suitable target market exposed many retail clients to the CFD product. This situation is at odds with its investment objectives and financial circumstances. Hence, it poses a severe risk of harm to consumers.
In conclusion, the ASIC’s lawsuit against eToro is a reminder of the regulator’s role in protecting consumers. It serves as a warning to other crypto exchanges to ensure they meet their obligations. As the case unfolds, seeing how eToro responds and how this will impact the broader crypto industry will be interesting.