The Australian Securities and Investments Commission (ASIC) has filed a lawsuit against online investment platform eToro Aus Capital Limited (eToro), alleging that the company breached its design and distribution obligations by exposing retail clients to high-risk contract for difference (CFD) products.

CFDs are leveraged derivative contracts that allow investors to speculate on the price movements of underlying assets, such as stocks, commodities, and currencies. However, CFDs are also considered to be high-risk products, and investors can lose more money than they originally invested.

Inadequate Screening for Potential Clients

ASIC alleges that eToro’s target market for CFDs was too broad, and that the company’s screening test for potential clients was inadequate. As a result, ASIC believes that a significant number of retail clients were exposed to CFDs that were not suitable for them.

According to ASIC, between October 2021 and June 2023, almost 20,000 of eToro’s clients lost money trading CFDs. eToro’s website itself states that 77% of retail investor accounts lose money when trading CFDs with the company.

In its lawsuit, ASIC is seeking declarations and pecuniary penalties from the Federal Court. The case is still ongoing, and no date has been set for a trial.