The Australian Securities and Investments Commission (ASIC) said it has commenced proceedings in the Federal Court against eToro Aus Capital Limited over its contract for difference (CFD) product.
ASIC alleges that the eToro broker has breached design and distribution obligations and license obligations to act efficiently, fairly, and honestly.
According to the regulator, the broker's target market for the CFD product was too broad for such a risky and volatile trading product, and its screening test failed to properly assess whether a client met the established criteria to trade the product.
The Australian Securities and Investments Commission believes that eToro's actions likely contributed to a significant number of retail clients being exposed to a CFD product that was unlikely to meet their investment objectives, financial situation, and needs, resulting in a significant risk of loss of capital.
"Between October 5, 2021, and June 14, 2023, almost 20,000 of eToro’s clients lost money trading CFDs. eToro’s website states that 77% of retail investor accounts lose money when trading CFDs with eToro," ASIC said in a statement.
"Our message to the industry is that CFD target markets should be narrowly defined given the significant risk that retail clients may lose all of their deposited funds. CFD issuers must comply with the design and distribution regime and cannot simply reverse engineer their target markets to fit existing client bases," said Sarah Court, Deputy Chair of ASIC.
"Providers need to ensure clients are receiving products that are consistent with their needs," she added.
It is worth noting that the court has yet to set a date for the first hearing.
Other news: Interactive Brokers publishes financial results for July.
