The protection of consumers collectively has been one of BaFin's responsibilities for a number of years. Since 2015, BaFin's supervisory objective of collective consumer protection has also been laid down in law. In order to meet this objective, BaFin established a department for issues relevant to consumer protection at the beginning of 2016.

No patronising

In principle, consumers should be able to act under their own responsibility and take decisions on the basis of adequate information without being told what to do. For this reason, BaFin campaigns for a transparent, comprehensible offering of financial and insurance products and financial services. The information that providers make available – whether in compliance with legal requirements or on a voluntary basis – must be presented in such a way that it meets the needs and knowledge requirements of consumers. This is the only way the knowledge gap between consumers and providers can be closed.

In addition, BaFin proactively raises awareness of the different types of financial and insurance products and financial services and the risks associated with them – for example on its website, www.bafin.de, in the BaFinJournal, in brochures as well as at trade fairs and Börsentage.

New instruments

If adequate collective consumer protection cannot be provided by requiring transparency, providing information and raising awareness alone, BaFin uses its new supervisory instruments for preventing and correcting deficiencies laid down in the German Retail Investor Protection Act (Kleinanlegerschutzgesetz). They allow it to issue orders to prevent or remedy deficiencies related to consumer protection if general clarification is called for in the interest of consumer protection. In serious cases, it can even restrict or altogether prohibit the distribution of products or certain sales practices – notably in cases where investor protection or the proper functioning or integrity of the financial markets is at risk.

For example, in summer 2016, prompted by its own market investigation, BaFin considered the prohibition of the distribution of what have up until now been referred to as credit-linked notes. These types of notes are highly complex products: the interest rate and repayment of the cash amount invested are dependent on the credit risks of the reference company. It is normally difficult for retail clients to estimate whether a credit event will occur in relation to the underlying reference liability. The associations of the affected issuers and distributors responded to the planned prohibition with a comprehensive voluntary undertaking. On this basis, BaFin announced in December 2016 that it would postpone its planned ban and examine the effect of the voluntary undertaking.

In the middle of December, BaFin announced its intention to impose restrictions on the marketing, distribution and sale of contracts for difference (CFDs) in order to protect retail investors. The sale to retail clients of contracts entailing an obligation to make additional payments should then no longer be permitted, because they are unable to calculate the risk of loss. If the difference the investor has to settle exceeds their invested capital, they have to settle the difference from their other assets. Comments on the relevant draft general administrative act could be submitted until 20 January 2017. No decision had been taken on this issue by the time of going to press.