Analysing regulatory and judicial guidance on global CFD industry

Piper Alderman is acting for group members in a class action against IG Markets Ltd and IG Australia Pty Ltd (together, IG) on behalf of everyday Australian investors who have collectively lost hundreds of millions of dollars trading controversial financial products called ‘contracts for difference’ (CFDs).

A CFD is a financial product that enables investors to take a position on the movement of an underlying asset – such as a share, a share price index, a commodity, a currency or even a crypto currency – without owning the asset itself. CFDs are often highly leveraged, with an investor paying only a fraction of what the underlying asset is worth and betting on whether the asset will increase or decrease in value.

CFDs are legal in Australia but have been banned in some other countries, with the Federal Court of Australia describing these products as “financial heroin hits” in the hands of unsophisticated retail investors.

ASIC imposed new conditions on CFD’s in March 2021 to protect inexperienced investors after the regulator found that 72% of retail clients lost money trading in CFDs.

The class action alleges that investors suffered losses in circumstances where IG did not adequately assess their objectives, financial situations and where the risks of investing were inadequately disclosed.  The class action advances allegations of unconscionable conduct and misleading and deceptive conduct.

Our team developed the matter from inception, analysing regulatory and judicial guidance on the global CFD industry, conducting a comprehensive review of IG’s website and publicly available policy and product documents over a six-year period, conducting an advertising campaign and thereafter conferring with anticipated group members to substantiate the allegations.

This matter is significant because the class action aims to recover losses for retail investors who experienced financial harm and distress after being offered highly-leveraged CFDs, despite having little or no experience with complex financial products. While CFDs are legal in Australia, they are banned in several other countries, which draws media and government attention to such cases when they are filed.