Wallabies sponsor hit with ASIC action over its financial betting products

One of the lead sponsors of the Wallabies is being sued by the corporate watchdog, which alleges it sold financial betting products inappropriately and breached its obligations to act honestly, efficiently and fairly.

eToro, which signed a three-year deal with Rugby Australia to be the naming rights sponsor for all inbound Wallabies games, was hit with the regulatory enforcement action by the Australian Securities and Investments Commission (ASIC) on Thursday.

ASIC alleges that between 5 October 2021 and 14 June 2023, almost 20,000 of eToro’s clients lost money trading products known as contracts for difference (CFDs). To meet disclosure requirements, eToro’s website states that 77 per cent of retail investor accounts lose money when trading CFDs with the firm.

EToro is a major Rugby Australia sponsor. Credit: Tiffany Hagler-Geard

CFDs are a type of financial betting product where people can bet on the price movement of a stock, commodity or currency. They allow people to use leverage to amplify their bets, meaning if a punter wins their bet they stand to win multiples of what they put in, but if a punter loses their bet they are liable to pay multiples of their loss to the broker.

ASIC launched a crackdown on the CFD sector in March 2021 after years of reviews found Australians had lost several billions punting on these products every year. The regulator lowered the leverage limits from as much as 500 times the initial bet to a cap of between 20 and 30 times depending on the type of bet made.

ASIC also brought in new rules two years ago to ensure all financial products that were sold to retail investors had been properly designed for a target market to ensure they weren’t sold to people who didn’t understand their risks.

ASIC’s case against eToro focuses on the appropriateness of eToro’s target market, and the screening test used by eToro to assess whether a retail client fell within the target market for the CFD product.

The financial regulator alleges that eToro’s target market was too broad so that it captured people with limited understanding of financial products.

ASIC also alleges eToro set up an online ‘test’ for its customers, so it could meet its legal requirements that customers were knowledgeable about the risks associated with the products. But eToro allowed its customers to effectively cheat on the test if they failed by allowing them to change their answers if they were initially incorrect.

The market watchdog alleges that by doing this, eToro was likely to have provided its high-risk products to people where the products were inconsistent with their stated financial needs. For example, ASIC alleges that one customer told eToro that their appetite for risk was medium, and they were saving to buy a home. Under eToro’s system at the time, that person fit into its target market despite the significant risks associated with its products.

A spokesperson for Rugby Australia said it was aware of the ASIC complaint regarding eToro. “eToro has outlined the steps that they have taken to address the issues,” the spokesperson said. “Any further comment is a matter for eToro.”

ASIC deputy chair Sarah Court said the regulator was disappointed with eToro’s approach to Australia’s new laws.

“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,” she said.

“Our concern is that eToro really did not change the marketing or distribution approach to respond to the new design or distribution obligations. They’ve really retrofitted a screening tool that would enable them to keep selling to those people that they were selling [...] to before these new laws.”

Court said that while eToro’s strong marketing presence was not a key factor, the fact that its marketing reached a wide audience required the group to have strong controls about how it determined whether its products were appropriate for individual investors.

“Knowing the risks of the CFD products, how volatile they can be, how complex they are for investors, our view is the target markets for CFD products need to be very narrowly defined,“she said.

ASIC is seeking declarations and pecuniary penalties from the Federal Court.

A spokesperson for eToro said the group’s Australian arm was considering the allegations, and emphasised there was no impact to eToro’s services in Australia

“These proceedings relate to the time period 5 October 2021 to 29 July 2023. eToro AUS is now operating with a revised target market determination in place for CFDs,” the spokesperson said.

“As a business, which is regulated by financial authorities in multiple jurisdictions around the globe, eToro is committed to being compliant with applicable rules and regulations in all the jurisdictions in which we operate. We pride ourselves on working in close collaboration with regulators to ensure consumer protection, while also balancing the need for access for individual investors.”

The spokesperson said eToro’s team in Sydney was committed to growing its business in Australia.

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