eToro’s Australian branch is under scrutiny as the Australian Securities and Investments Commission (ASIC) initiates legal proceedings against the company. ASIC has accused eToro Aus Capital Limited of allowing a diverse group of retail clients to access high-risk and volatile financial products. The regulatory body is taking eToro to court, expressing concerns about the suitability of its target market for contract-for-difference (CFD) products and alleging violations in the company’s design and distribution responsibilities.
The regulator expressed disappointment with the alleged lack of compliance by eToro, given the platform’s significant market penetration and global brand awareness. ASIC is now seeking declarations, injunctions, and financial penalties against eToro’s Australian subsidiary.
CFDs represent financial derivative products enabling traders and investors to speculate on the price of different assets without holding the underlying asset. eToro, a company with headquarters in Tel Aviv and offices in Sydney, Cyprus, the UK, and the US, presently provides CFD markets with 1:2 leverage for specific cryptocurrencies such as Bitcoin, Ethereum, and XRP.
ASIC’s allegations state that between October 5, 2021, and June 14, 2023, nearly 20,000 of eToro’s clients incurred losses while trading CFDs. The regulator also raised concerns about eToro’s target market, claiming it included investors who were not considered sophisticated or experienced. ASIC alleges that eToro’s screening test was too easy to pass, even for investors with a limited understanding of CFD risks. Furthermore, eToro allegedly allowed clients to modify their screening test answers without restrictions, with prompts to correct answers that could lead to failure.
In addition to the legal battle with ASIC, eToro recently halted trading in Algorand (ALGO), Decentraland (MANA), Dash (DASH), and Polygon (MATIC) after the Securities and Exchange Commission classified the four tokens as securities in lawsuits against Binance and Coinbase.
eToro’s spokesperson confirmed that the company is assessing the allegations filed by ASIC and will respond accordingly. Despite the legal proceedings, eToro assured its clients of no impact or disruption of service and no material impact on its global business.