Australian Regulator Takes Legal Action Against eToro Over High-Risk and Volatile Trading Products

The Australian Securities and Investments Commission (ASIC) has filed a case in the Federal Court against the online investing platform eToro Aus Capital Limited about the suitability of eToro’s target market for contract for difference (CFD) products.

The case is being brought about the appropriateness of eToro’s target market for CFD products. The Australian Securities and Investments Commission (ASIC) asserts that eToro’s target market for contracts for difference (CFDs) was far too wide for such a high-risk and volatile trading product, and that the platform used inadequate screening measures, which resulted in violations in the company’s design and distribution duties.

Customers are given the opportunity to speculate on the value of underlying assets via the use of CFDs, which are leveraged derivative contracts. The conduct of eToro, according to ASIC’s assessment, undoubtedly exposed a substantial number of retail customers to CFD products that were not suitable for their investment goals, financial status, or requirements, which resulted in a considerable risk of consumer damage.

Trading contracts for difference (CFDs) resulted in financial loss for roughly 20,000 of eToro’s customers between October 5, 2021 and June 14, 2023. According to the information provided on the eToro website, the majority of retail investor accounts on the platform end up losing money when they trade CFDs.

Sarah Court, the deputy chair of ASIC, expressed her dissatisfaction in what is purported to be a lack of compliance on the part of eToro and stressed that CFD issuers are required to conform with the design and distribution framework.

In addition to this, she emphasized the need of limiting the scope of CFD target markets in order to avoid suffering major financial losses. The Australian Securities and Investments Commission (ASIC) has leveled a number of claims, and eToro has said that the company is exploring how to react.

Since then, the company has made some adjustments to their CFDs target market assessment, and they have stated that there would be no effect on their service or interruption to their overall operation. eToro places a strong emphasis on its commitment to complying with regulatory requirements and working closely with them.

The Australian Securities and Investments Commission (ASIC) has in the past taken administrative action to safeguard customers from high-risk CFD trading, such as placing stop orders against other businesses.

This case highlights regulatory issues about the management of high-risk CFD products as well as the possible hazards that are presented to ordinary investors. As the legal procedures progress, a careful eye will be kept on eToro’s reaction as well as any following steps it takes.

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