Introduction
The Federal Financial Supervisory Authority (BaFin) has announced that it will significantly tighten the regulation of trading in turbo certificates in Germany. This decision is based on the results of a market investigation that shows a significant proportion of retail investors suffer losses with these financial products.
Background and Issues
Turbo certificates are complex leveraged products that often lead to significant losses due to their high risks and short holding periods. According to the study, almost 70 percent of these products are held by investors for less than 24 hours, which significantly increases the risk of losses. In particular, investors with more than 1,000 transactions record a loss rate of 91 percent.
Planned Measures by BaFin
To improve the protection of retail investors, BaFin plans the following measures:
- Standardized Risk Warning: Providers must clearly and prominently warn about the high risk of losses. The warning should convey that seven out of ten retail investors incur losses.
- Knowledge Test for Investors: Investors must pass a knowledge test, which must be repeated every six months. At least six questions about trading turbo certificates must be answered correctly.
- Ban on Purchase Incentives: Purchase incentives such as bonuses or reduced order fees are prohibited to protect investors from risky investments.
Impact on Fee Models
These regulations could mean the end of popular fee models, as providers will no longer be allowed to use incentives to attract investors to trading in turbo certificates. This could lead to profound changes in business models.
Compensation for Affected Investors
The new regulations could open up the possibility for affected investors to file for compensation, especially if they were disadvantaged due to inadequate information or inappropriate incentives.