Germany’s supervisor Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin has informed that the restrictions on the marketing, distribution and sale of financial contracts for difference (CFDs) to retail clients in Germany will continue to apply in future.
BaFin first announced its decision back in May 2017, addressing the considerable investor protection concerns. Plus500 Ltd (LON:PLUS), IG Group Holdings plc (LON:IGG), and CMC Markets Plc (LON:CMCX) reacted positively to the new plan.
The Federal Financial Supervisory Authority has stipulated that contracts with an additional payments obligation are to remain prohibited. BaFin has also specified maximum permissible leverage, negative balance protection, a restriction on the incentives offered to trade CFDs and a requirement for risk warnings.
BaFin considers these contracts for difference in particular to carry an incalculable risk of loss for retail investors. Losses are not limited to the client’s capital investment but instead may encompass the entirety of their assets and can amount to multiples of the invested capital. In order to further reduce the risks for retail investors, the leverage limits and other negative balance protections stipulated by ESMA will also continue to apply in Germany. In BaFin’s view, standardised risk warnings are essential as well and retail investors must not be encouraged to enter into the risks associated with CFDs through initial credit, discounts, bonuses or other incentives.
Upon expiry of this measure, the level of protection in Germany will be aligned with the European standard by means of BaFin’s General Administrative Act.