Asic alleges eToro’s target market for the leveraged trading product was "far too broad for such a high-risk and volatile trading product where most clients lose money, and that the screening test was wholly inadequate" to assess whether a retail client was likely to be within the target market.

Asic considers that eToro’s conduct is likely to have resulted in a significant number of retail clients being exposed to the CFD product that was unlikely to be consistent with their investment objectives, financial situation and needs, resulting in a significant risk of consumer harm.

According to the regulator, eToro’s screening test was very difficult to fail and of no real use in excluding customers for whom the CFD product was not likely to be appropriate. For example, clients could amend their answers without limitation and were prompted if they selected answers which could result in them failing.

The watchdog alleges that between 5 October 2021 and 14 June 2023, almost 20,000 of eToro’s clients lost money trading CFDs.

Asic deputy chair Sarah Court says: ‘Our message to 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.

"Asic is disappointed by the alleged lack of compliance in this case, given eToro’s market penetration and the depth of its brand awareness, both in Australia and globally."

In response to the allegation, eToro says that it is now operating a revised target market determination for CDFs, adding: "eToro AUS is considering the allegations filed by Asic in these proceedings and will respond accordingly. There is no impact or disruption of service for clients of eToro AUS and no material impact on eToro’s global business."