The Australian financial body has sued crypto investment platform eToro for its contract for difference (CDF) product to protect consumers from ‘high-risk’ derivatives.
According to the official sharing, the Australian Securities and Investments Commission (ASIC) has commenced proceedings in the Federal Court against eToro.
The case is focusing on eToro’s user acquisition motives and screening test of the product to conclude if retail clients fell into the target market for this CFD product.
The Australian government’s financial body alleges that eToro has breached design and distribution obligations with the crypto platform not acting honestly and fairly.
The ASIC says that “eToro’s target market for the CFD product was far too broad for such a high-risk and volatile trading product.”
CFD (contract for difference) is a type of leveraged derivative that allows buyers to speculate market movements of the underlying assets such as cryptocurrencies, commodities, stock market indices or FX rates.
ASIC further says that the screening test for this product was ‘inadequate’ to differentiate its target users from the whole user base.
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This product is likely to be exposed to a significant number of users whose investment objectives do not align with it, resulting in financial harm to consumers.
“Almost 20,000 users lost money between 5 October 2021 and 14 June 2023 while trading CFDs,” ASIC clarifies adding, “eToro’s website states that 77% of retail investor accounts lose money when trading CFDs with eToro.”
The ASIC is taking strict actions against crypto companies to protect its citizens. It previously revoked the financial license of FTX Australia to limit its services in the country.
