Australian Financial Regulator Sues eToro for Offering Crypto-Related CFDs
Australian regulators have alleged that consumers who purchase crypto-CFD contracts from eToro have sustained losses. To this effect, the regulators have initiated a case against the cryptocurrency trading platform. The charges against the crypto enterprise hold them accountable for violating the design and distribution requirements for CFD offerings.
The Securities and Investment Commission (ASIC) is currently pursuing legal action against eToro to investigate the suitability of the target market for its CFD products. In addition, the prosecutors are also raising questions over the assessment method of the crypto exchange that allowed the consumers to access products like CFDs.
Local media outlets have reported that the lawsuit was officially initiated on 29th July 2023 as per court filing documents.
It is important to note that CFDs or certificate for difference allows investors to track the price of an underlying asset without owning it directly. It works like a derivative contract that enables the investors to place a bet on the future price increase or decrease of a given crypto asset.
The exchange platform that offers CFD offers the difference between the initial and ending prices for the entire period of the contract.
On the other hand, ASIC has informed the media that the regulatory agency is also investigating the type of CFDs offered by eToro. It is important to note that CFD trading can carry a greater degree of risk in comparison to spot market trading.
As per the ASIC statement, this type of trading is not suitable for retail investors with limited market experience. According to ASIC, eToro was under obligation to mandate a target market determination before allowing access to crypto-CFD products to their retail consumers.
To this effect, the agency has alleged that the crypto trading forum violated its design and distribution obligations.
ASIC Starts Investigation of the Screening Test Designed for Retail Clients
eToro has mandated that investors complete a screening test before they can gain access to its crypto CFD trading services. However, only 8% of the clients between 2021 and 2022 were able to complete the test.
As a result, ASIC has maintained that only the qualifying percentage of the investors should be able to perform CFD trading on eToro. ASIC officials have purported that the biggest portion of the consumers who have invested in CFDs lost money.
On the other hand, a spokesperson from eToro has told the media that the defence team of the firm is going to handle the case on behalf of their Australian wing. At the same time, eToro has maintained that the case is related to the trading during 2021-2023 and the firm has now revised its target market determination for CFDs.
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