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  • Writer's pictureSarah Dixon

eToro Faces Legal Action in Australia

eToro Faces Legal Action in Australia
eToro Faces Legal Action in Australia

An Australian financial regulator has sued the eToro crypto trading platform over “volatile” trading products.

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eToro Faces Legal Action in Australia. ASIC Sues EToro

The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against eToro's cryptocurrency trading platform for alleged violations of licensing and distribution regulations. The ASIC's action follows the loss of funds by approximately 20,000 eToro customers who traded Contract for Difference (CFD) products between October 2022 and June 2023, with 77% of retail investor accounts being affected. eToro Faces Legal Action in Australia.

CFDs are leveraged derivative contracts that allow customers to speculate on changes in asset values. The ASIC has accused eToro of failing to act fairly, as required under the product's design, distribution, and licensing mandate.

ASIC Alleges Shoddy Screening

The Australian Securities and Investments Commission (ASIC) has accused a trading platform of inadequate screening measures, rendering the test ineffective. ASIC also alleges that the platform allowed clients to modify their responses multiple times and even prompted them to select favorable answers. The lack of clear definition for the customer base of the CFD product resulted in retail clients investing in high-risk products and subsequently losing money. As a result, ASIC is seeking declarations and pecuniary penalties against the trading platform. Deputy Chair Sarah Court stated these allegations.

“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.”

Binance In Similar Waters

The ASIC has expressed concern regarding eToro's alleged wrongdoing, particularly due to its significant market presence and reputation as a leading brand that is expected to comply with local and international laws. In a similar vein, Binance, another major player in the industry, is also facing charges from the United States Department of Justice (DOJ). While the ASIC is pursuing eToro, the DOJ is contemplating federal charges against Binance. The allegations against the largest crypto exchange also involve fraud, which could have a significant impact on customers.

Legal Action Could Have Consequences

The Department of Justice (DOJ) has expressed concern about the possibility of negative consequences for Binance customers, similar to what occurred with FTX exchange when its founder, Sam Bankman-Fried, faced legal issues. Meanwhile, the Australian Securities and Investments Commission's (ASIC) legal action against eToro demonstrates its strict stance on targeting markets for CFD products. The commission is committed to protecting retail investors from significant financial harm. The DOJ's approach to Binance, on the other hand, is influenced by considerations of customer welfare and potential repercussions on the market. The outcome of Binance's case remains uncertain, pending confirmation from the DOJ.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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