Germany’s BaFin plans to introduce permanent restrictions on offering of CFDs to retail investors

Germany’s Federal Financial Supervisory Authority (BaFin) is planning to implement the temporary restrictions on the offering of CFDs to retail clients on a permanent basis at a national level. The regulator has earlier today published a draft general administrative act concerning the adoption of the restrictions on the marketing, distribution and sale of CFDs to retail clients in Germany.

BaFin notes the relevant product intervention measures introduced by ESMA which include maximum permissible leverage, a negative balance protection, a margin close out rule, a restriction on the incentives offered to trade CFDs and standardised clear risk warnings. BaFin is also including these protective measures for retail investors in its general administrative act.

With this, BaFin aims to permanently match the level of protection in Germany to the temporary product intervention measure issued by ESMA. This is intended to prevent attempts to evade these measures by providers from other EU countries.

In addition, in taking this step, BaFin is once again addressing the significant investor protection concerns expressed at the time of the initial prohibition regarding certain CFDs. BaFin considers in particular contracts for difference with additional payments obligations to carry an incalculable risk of loss for retail investors. The same applies for CFDs without leverage limits or negative balance protection.

BaFin also warns that retail investors should not be distracted from the high risks associated with CFDs by initial credit, discounts, bonuses or other incentives. For the same reason, BaFin also considers a standardised risk warning of the high probability of loss to be indispensable.

Comments on the draft legislation may be submitted in writing until January 10, 2019.

The move happens less than a month after BaFin unveiled its plans to introduce a permanent ban on binary options.