The Australian Securities and Investments Commission, has taken legal action against eToro Aus Capital Limited, an online investment platform, over its contract for difference (CFD) product. The regulator alleges that eToro breached its design and distribution obligations and did not act efficiently, honestly, and fairly.
The focus of the case is on the appropriateness of eToro’s target market for the CFD product and the screening test used to assess whether a retail client fell within that target market. ASIC claims that eToro’s target market was too broad for such a high-risk and volatile trading product, leading to a significant number of retail clients being exposed to a CFD product that was not suitable for them.
Between October 2021 and June 2023, almost 20,000 of eToro’s clients lost money trading CFDs, and the website states that 77% of retail investor accounts lose money when trading CFDs with eToro.
ASIC Deputy Chair Sarah Court emphasized that CFD target markets should be narrowly defined due to the risk of retail clients losing all their deposited funds. The regulator alleges that eToro’s screening test was difficult to fail and did not effectively exclude customers for whom the CFD product was not appropriate.
ASIC is seeking declarations and pecuniary penalties from the Court and has expressed concern over eToro’s screening test inappropriately exposing clients to the CFD product. The date for the first case management hearing is yet to be scheduled.
The case highlights the importance of ensuring that financial products are suitable for consumers and that design and distribution obligations are met.
