According to a complaint filed by the financial regulator against eToro investment company Aus Capital Ltd, the platform offers users contracts for difference (CFDs) linked to cryptocurrencies, breaching its distribution obligations.
The CFD product is a leveraged derivative contract that allows the client to speculate on changes in the value of the underlying asset: exchange rates, stock indices, stocks, commodities or cryptoassets. ASIC argues that eToro’s target market for such products is “too broad” and the investor verification test offered on the platform is very difficult to fail. ASIC says this test is unhelpful because it does not exclude customers for whom CFDs may not be suitable.
ASIC also claims that between October 5, 2021 and June 14, 2023, around 20,000 eToro users lost money trading CFDs, and the platform’s website states that 77% of retail investors lose money when trading CFDs. The agency asked the court to order the platform to pay a monetary penalty.
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“If a retail customer has a medium risk tolerance but is not an experienced investor and does not understand the risks of CFD trading, that customer still falls within eToro’s target audience,” ASIC said.
An eToro spokesperson said the platform was looking into the charges brought by the regulator, but they would not affect service to Australian customers or disrupt the platform’s operations. Plus, eToro AUS is now working with a revised target market definition for CFDs.
According to media reports, ASIC searched the offices of major cryptocurrency exchange Binance in July. In the same month, the regulator revoked the license of the local branch of US bankrupt crypto exchange FTX.