Germany’s BaFin publishes General Administrative Act to limit marketing, distribution, sale of CFDs

Maria Nikolova

Brokers can no longer offer CFDs with “an additional payments obligation” to retail clients.

Germany’s Federal Financial Supervisory Authority (or BaFIN) has just made a step towards turning into reality what was merely a consultation paper in December last year. Today, the regulator issued a General Administrative Act, restricting the offer of contracts for difference (CFDs) to retail clients.

The document, issued today, gives CFD brokers three months to adjust their business models to the new requirements, that is, they have until August 10, 2017, to comply.

As previously reported, the regulator is restricting the marketing, distribution and sale of CFDs with additional payments obligation. These will no longer be available to retail clients in response to concerns of unlimited losses and substantial risks that investors face when the difference to be paid exceeds the capital they have invested, as investors must pay the difference amount from their other assets.

While the German regulator insists that such a measure would enhance investor protection, FinanceFeeds has examined the matter in detail too, with such a step seen as a means to encourage the b-book execution model.

The restrictions introduced by BaFin fit well into the European regulatory landscape, with a number of European countries seeking to reshape the rules for leveraged CFDs, Forex and toxic financial products like binary options. France, thanks to the Sapin II law, has introduced a ban on the advertising of high-risk financial products. The ban applies to all sorts of sponsorships and partnerships resulting in advertising of such products, with football deals particularly affected. The Netherlands is also seeking to implement such a ban, whereas the Central Bank of Ireland is considering a harsher approach with regards to CFD offering in order to enhance investor protection too.

Are CFD brokers ready to comply with BaFIN’s new requirements? In its press release, accompanying the General Administrative Act, BaFIN says that some providers already offer CFDs without an additional payments obligation or have, due to the planned General Administrative Act, announced that they will in future offer such products.

One company that has reiterated its co-operation with the German regulator on the new rules is CMC Markets. In a number of filings with the LSE earlier this year, CMC Markets has stated that it is engaging fully with regulatory bodies and that it is “supportive of a clear and consistent regulatory approach that all providers have to follow to ensure client interests are best served”.

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