Germany”s Federal Financial Supervisory Authority, better known by its abbreviation “BaFin”, recently determined that restrictions in Germany on the marketing, distribution and sale of contracts for difference (CFDs) to retail investors will continue to apply going forward.
BaFin had already placed tight restrictions on financial CFD trading back in 2017 in order to protect investors. Due to the high risk of loss, it imposed a total prohibition on selling retail investors CFDs that include an obligation to make further contributions. We at the commercial law firm MTR Rechtsanwälte www.mtrlegal.com (https://www.mtrlegal.com) note that BaFin”s concerns were shared by the European Securities and Markets Authority (ESMA), which also decided to place tight restrictions on CFD trading in order to protect retail investors.
BaFin has since restated its significant concerns regarding the protection of investors trading CFDs that include an obligation to make further contributions. On July 23, 2019, it stipulated in a general administrative act that trading financial CFDs that include an obligation to make further contributions will remain subject to tight restrictions going forward. As a result, the level of protection afforded to retail investors will be maintained, even though the measures taken by the ESMA have expired.
BaFin views CFDs that include an obligation to make further contributions as carrying an incalculable risk of loss for retail investors, as losses are not limited to the investment but rather may encompass the entirety of the investor”s assets. To reduce this risk, the leverage limits and negative balance protections set out by the ESMA will continue to apply in Germany. According to BaFin, standardized risk warnings are essential as well. It also maintains that high-risk CFDs must not be made more appealing to retails investors by offering initial credit, bonuses or the like.
This general administrative act provides that the restrictions imposed by the ESMA on the marketing, distribution and sale of CFDs to retail investors will continue to apply. This also means that restrictions continue to apply concerning the amount of leverage permitted and that losses are limited.
These measures are designed, on the one hand, to bolster investor protection and, on the other hand, to deter dubious providers. The market has its fair share of rotten apples out to relieve investors of their money and who show time and time again that they are willing to circumvent legal regulations to this end.
Investors facing problems with financial CFDs can turn to lawyers experienced in the field of capital markets law.