The New Regulatory Plans of BaFin
The Federal Financial Supervisory Authority (BaFin) plans to impose stricter regulations on the trading of turbo certificates to protect retail investors from substantial losses. A recent market investigation by BaFin has revealed that German investors lost approximately 3.4 billion euros with these products between 2019 and 2023. About 74.2% of retail investors experienced losses, with the average loss per investor amounting to around 6,400 euros.
Background and Motivation
BaFin has expressed significant concerns regarding investor protection, as turbo certificates are very complex and often associated with high loss risks. Many investors hold these certificates only for the short term, which increases the likelihood of loss. Nearly 70% of turbo certificates are held for less than 24 hours, and among investors with more than 1,000 transactions, the loss rate rose to 91%.
Planned Measures
- Standardized Risk Warnings: Providers will now be required to standardly warn of the high loss risks. The warning should clearly state that seven out of ten retail investors incur losses with turbo certificates.
- Knowledge Test: Investors must pass a knowledge test, in which they must correctly answer at least six questions about trading turbo certificates. This test must be repeated every six months.
- Ban on Purchase Incentives: BaFin prohibits purchase incentives such as bonus payments or reduced order fees when selling these products. This aims to prevent investors from being lured into risky investments by incentives.
Legal Basis
BaFin can restrict or prohibit the marketing, distribution, and sale of financial instruments if there are significant concerns for investor protection. This is based on Article 42 of the European Market in Financial Instruments Regulation (MiFIR) and ยง 15 paragraph 1 sentence 2 of the Securities Trading Act in conjunction with Article 42 MiFIR.
Feedback and Implementation
BaFin is accepting feedback on its planned product intervention until July 3, 2025. Feedback can be sent via email to Anhoerung-Produktintervention@bafin.de. The planned measures aim to enhance investor protection and prevent further losses.