In Germany, banks, financial services providers and insurance companies are only allowed to conduct business if they have official authorisation. Nevertheless, even if BaFin has granted a company authorisation to conduct business, it does not automatically mean that the products they offer are recommendable. Furthermore, securities and other investments may be offered to the public if a prospectus or information sheet that has been approved by BaFin has been published in advance. This, however, does not necessarily mean that the prospectus or the information sheet for the product on offer is legitimate. BaFin merely checks prospectuses to verify their completeness, comprehensibility and consistency (i.e. that they are free of contradictions). In some cases, companies are not required to publish a prospectus or an information sheet.

As a general rule, you should consider your investment objectives and assess your financial capabilities prior to investing. You also should not allow yourself to be put under pressure. Take the time you need to weigh up the pros and cons of each offer before investing your money. Even if you obtain advice, do not make your decision immediately.

Which offers require particular caution?

Cold calling

Have you received an unsolicited phone call from someone offering an investment opportunity? Do not accept it under any circumstances. Such unsolicited calls, referred to as “cold calling”, are expressly prohibited for investment firms and other companies.

Some callers claim to be employed by seemingly reputable online trading platforms. Once you have transferred an initial amount, you will often be asked to invest larger sums. Attempts to get your money back will often prove futile.

Fraudsters that have stolen your data often go on to pose as good Samaritans that can help you to recoup your lost money. Many of them claim to be working on behalf of or even to be employees of legitimate authorities, such as BaFin.

E-mail/internet

Has an offeror you do not know e-mailed you recommending shares? Have you received market letters that you never requested? Or have you come across a “secret tip” online that you should supposedly act upon? Such offers are usually the work of scammers that use fictitious success stories in order to profit from selling shares in worthless companies to investors.

Social media

Have you come across posts, videos or other content where the creator shows off their wealth and encourages you to mimic their approach while referencing an investment tip or invitation to an investment seminar? All of these things should set alarm bells ringing. Anyone who believes and acts upon what they see on social media without scrutiny not only risks financial losses – they also risk losing their invested capital in its entirety.

Time pressure

Are you being hurried? Is the offeror luring you in with an exclusive opportunity that requires you to make a quick decision? This is a common trick and you should not fall for it. Never let anyone rush you or put you under pressure. If an offer is legitimate, it will still be available tomorrow.

High returns with extraordinary prospects

Are you being promised exceptionally high interest rates? Promises of returns that significantly exceed market norms may also indicate that an offer is fraudulent. The general rule is: the higher the profits promised, the greater the risk that you will lose your invested capital. You can find out what levels of returns are in line with market norms in the business section of most major newspapers as well as on the website of the Deutsche Bundesbank.

You should also carefully scrutinise recommendations relating to companies presented as having extraordinary growth potential. Penny stocks (listed shares with prices in cents) are particularly susceptible to speculation and manipulation due to their low prices and high trading volumes.

Unclear product

Does the offeror find it difficult to explain their product? You should always make sure you have all the relevant information before making a decision. Only purchase things that you really understand. The general rule is that the more complex a product is, the more financial trading experience you ought to have.

You should therefore research the product for yourself and not be taken in by impressive branding or sleek graphics.

Unclear exit options

Find out how and when you will get your invested capital back. You should be particularly cautious with contracts spanning several years if there is no option for early termination or if such termination will result in significant financial disadvantages for you.

Contracts spanning several years without any early exit option should only be concluded with offerors whose integrity you have verified beyond doubt. Even if you are able to revoke or terminate a transaction at any time within a particular timeframe, you should still maintain a critical mindset. Such rights do not automatically protect you from financial losses. Find out what you would actually be repaid should you exercise such an option.

In the case of securities transactions, you should find out about possibilities to dispose of the securities before the maturity date. It is often important to know if there is a liquid market for the product concerned.

Transferring funds abroad

Are you being told to transfer money to another (non-European) country? Be very careful. Many investors have lost their money in this way. You may no longer be able to ascertain whether and how your money has been invested. In some cases, the companies receiving the money did not invest it as agreed or did not invest it at all, or the companies themselves did not even exist.

Trial investment

Are you being encouraged to invest a small amount initially on a trial basis? Has your research failed to yield any information about the company? Has this lack of information been countered with claims that it is a young company with promising business ideas? If so, the supposed “secret tip” is probably a scam. Before long, the offeror will be telling you about the immense success of the investment and asking you to invest larger sums. Your trial investment’s “success” is intended to entice you into investing more money.

Pyramid schemes

In a pyramid scheme, someone convinces you to invest in a supposedly lucrative business opportunity. In reality, however, the money is not invested and is instead used for distributions or repayments to previous investors. It is usually impossible for investors to recognise such a pyramid scheme. Glossy prospectuses are often provided to make the investments and returns seem authentic. Any such scheme is bound to collapse sooner or later.

Offerors domiciled in other countries often target German investors with products that are merely a facade for pyramid schemes. Such companies are usually set up by Germans using foreign company forms and registered offices in other countries in order to evade the German authorities.

Promises of returns that far exceed the market norm are a common warning sign for pyramid schemes.

Orders issued without authorisation

Sometimes unauthorised persons are able to execute securities trades without the securities account holder knowing. They do so in order to boost prices. This mainly occurs in the area of liquid foreign assets traded on the open market (regulated unofficial market). You should therefore be cautious if any unsolicited and unfamiliar party asks you to divulge your data and tells you about a supposed bargain or profits that have allegedly been generated.

Never give your bank account number, securities account number, international bank account number (IBAN), bank identifier code (BIC), personal identification numbers (PINs) or passwords to any unauthorised or unknown persons. Do not provide any unknown parties with any securities statements or other securities account documentation. This is particularly important in the case of callers that claim to be investment advisers, brokers or BaFin employees..

High costs and commissions

Find out what proportion of the invested amount will be used to cover costs, fees and commissions. This can be found in the mandatory information offerors have to provide. Investment firms are not only required to disclose the total costs to investors, they must also inform investors about all costs that will be incurred and how they will affect returns. Inducements have to be disclosed separately. Investment firms may present the costs in summarised form but are required to provide you with a listing of the individual items if you request it.

Particular caution is required in the case of forward transactions and the day trading that is often associated with this. Large fees can be charged for each transaction. The offeror therefore has an interest in a large number of transactions being executed. The fees are often so high that it is near impossible to achieve gains on the bottom line. In many cases, such costs quickly drain away the capital initially invested.

Grey capital market

Not all companies that operate on the financial market are subject to controls or state supervision. Offerors that do not require authorisation from BaFin and have to fulfil only a small number of statutory requirements are operating within a market segment referred to as the grey capital market. Investors should only put their money into offers on the grey capital market if they are familiar with the company concerned and are convinced that it will be able to meet its obligations. As stated, such offerors are not subject to supervision by BaFin.

A diverse range of offers can be found on the grey capital market. Offerors are constantly developing new investment opportunities. It is possible to find, for example, equity holdings, participation rights and other hybrid forms of bonds, order bonds, crowdfunding offers, loans with subordination agreements, direct investments (e.g. wood, precious metals, mines and animals), gold and precious metal plans as well as sale-and-lease-back agreements.

Unclear relationships

Can you determine who your contractual partner is going to be? Are there any warning signs? Check the names of the offeror and the products by searching for them online. Local consumer centres are often able to provide information. Do not do business with providers that fail to provide you with clear information. Do not place your trust in names simply because they sound reputable or websites merely because they look legitimate. If you do not understand the contractual framework of the offer, keep well away from it.

Offerors in other countries

Is the offeror a foreign company (with the company form “Ltd” or “Corp.” for example) that does not itself operate within Germany? Untrustworthy German offerors often establish a company in another country so that they can sell investment products from their supposed foreign headquarters. This makes it more difficult for German supervisory authorities and prosecutors to track them down.

Such arrangements mean it is very difficult to enforce civil law claims against those responsible. Companies that claim to operate internationally also project a certain status online. However, if you cannot find any sources of information about the offeror (such as news items or articles) other than their company website, it is advisable to exercise caution. For example, you could try searching for their company address online. If you enter this into a search engine or map platform, you will often find that a large number of companies are listed under the same address. The option to display photos on map platforms often quickly reveals that the registered office is not the prestigious headquarters described by the company. It might merely be a letterbox company. A company that misleads you about the scope of its business operations should not be trusted with your money.

Calls from call centres

Some call centres phone people en masse to persuade them to make investments. Their methods are pushy and aggressive. One approach they use is that shortly after you have invested, you will be asked to provide additional capital due to an unforeseen event. You will be told that if you want to get your money back, you will have to acquire additional products first so that the amounts can be paid out later. Additional payments will thus be repeatedly demanded from you without any money ever being paid out.

Another approach is that someone will tell you to purchase recommended shares yourself using your securities account. You will be asked to provide evidence of the purchase in order to settle the anticipated gains. In reality, the person providing the tip will use your securities statement as evidence of mediation in order to receive commissions from those operating behind the scenes.

Advertisement using BaFin’s name

Don’t be lulled into a false sense of security by offerors that advertise themselves as being supervised by BaFin. You should look into how far-reaching such supervision actually is. You should understand exactly what it means if BaFin has granted authorisation to a company or has approved a prospectus. Prior to publication, BaFin indeed approves prospectuses for securities (e.g. shares, bonds, certificates) and other investment products (e.g. participation rights, registered bonds and limited partnership interests) and thus permits their public offering. However, BaFin only examines whether the prospectus includes all statutory minimum information and is formulated in a way that is comprehensible. In addition, it ensures that the prospectus does not contain any contradictory statements. BaFin only checks whether an information sheet contains the statutory minimum information in its entirety and in the sequence required by law.

BaFin is not responsible for assessing the integrity and solvency of the issuer or for monitoring the product in question. The prospectus examination is not a seal of approval and is not the same as an authorisation to conduct business – even if the offeror suggests otherwise. Seeking to attract investors with an approved prospectus and thus give the impression that authorisation has been granted by BaFin is a particularly common practice among companies on the grey capital market. Advertising in this manner is expressly prohibited.

How is your investment safeguarded?

If your bank or securities trading firm has difficulties meeting its payment obligations, deposit guarantee schemes and investor compensation schemes provide a guarantee – up to a certain amount – for your bank balances and any payments you are due to receive. The former protects customer deposits and the latter protects payments you are due to receive from securities transactions.

Statutory deposit guarantee

If a bank becomes insolvent, the statutory deposit guarantee safeguards its customers’ funds. The guarantee primarily covers account balances, time deposits and savings deposits of up to €100,000 per customer and per institution – not per account. In the case of joint accounts, each account holder has a separate claim. Under certain circumstances, the maximum sum for a period of six months can increase to as much as €500,000. The deposits of customers at savings banks (Sparkassen), state banks (Landesbanken), state building and loan associations (Landesbausparkassen) and cooperative banks (Genossenschaftsbanken) are indirectly protected in their full amount by the cross-guarantee schemes of such institutions. In addition, institutional protection schemes are recognised as an equivalent form of deposit guarantee scheme. This means that customers also have a statutory compensation claim – as is the case with the statutory compensation schemes.

Voluntary deposit guarantee schemes

Alongside the statutory deposit guarantee schemes, banking associations have set up voluntary deposit guarantee schemes. Under these schemes, however, customers are not legally entitled to compensation.

Investor compensation schemes

Funds owed to investors in connection with securities transactions (e.g. distributions or proceeds from the disposal of securities) are covered by investor compensation schemes. These schemes protect the claims you have against your bank for the return of securities or funds that it holds in custody for you in connection with securities transactions. The compensation claim is limited to 90% of the amount of the liability concerned and the equivalent value of €20,000.

Investor compensation schemes will not pay you any damages if, for example, your insolvent bank has misadvised you. You will thus not be compensated for any lost profits or for losses incurred due to a misguided investment strategy.

Bonds, bearer bonds and order bonds are not protected. These guarantee schemes also do not apply to investments in which you acquire part of a company, e.g. by purchasing a share or a participation in a silent partnership. Such investments mean that you participate in both the profits and the losses of the company. Before investing your money, you should always check whether your contributions will be protected if the company is no longer able to repay the money.

Resolution – an exceptional case

If a failing institution is systemically important and therefore should not become insolvent, it will undergo an orderly resolution process. As in an insolvency process, losses are distributed among the institution’s owners and creditors. This is referred to as a “bail-in”.

During a bail-in procedure you, as a private investor, may also participate in losses – be it in the role of shareholder, holder of relevant capital instruments or creditor. You are a shareholder if you have shares in the bank concerned in your securities account. You are a holder of relevant capital instruments if you have invested in the institution’s Additional Tier 1 instruments or Tier 2 instruments. Examples here include subordinated debt securities and subordinated loans. You are a creditor if, for example, you have a debit account at the bank or hold debt securities such as index certificates from the institution.

The deposits covered by the statutory deposit guarantee are excluded from any such bail-in. Furthermore, any liability that results from the resolution process may not exceed the losses that you would be required to bear had the bank undergone a normal insolvency proceeding.

Where can you find out more about offerors?

From BaFin

BaFin’s database of companies provides access to lists of companies that have received authorisation from BaFin. If BaFin determines that unauthorised business is being conducted, it has extensive powers to ensure that the companies responsible cease and wind up the business operations in question. BaFin publishes its orders to cease and wind up business operations here. Please bear in mind that even if a company is supervised by BaFin, it is still possible that you will lose your money. Therefore, before making any investment, you should carefully check whether a right to repayment is set out in the contract.

From consumer centres

Information on investment topics is provided by the Federation of German Consumer Organisations (Verbraucherzentrale Bundesverband e.V.) as well as local consumer centres. They also often provide lists with the names of untrustworthy offerors.

A number of economic and financial magazines also regularly publish lists naming untrustworthy offerors and products.

From the issuer or offeror

Prospectuses or information sheets for securities and other investment products will contain the essential information about the issuer and the product on offer. Such documentation also contains an in-depth description of the risks that you should be aware of before investing your money. You can find information about the documents that have been submitted to BaFin for securities and other investment products in the prospectus database on the BaFin website.

What can BaFin do for you?

BaFin’s responsibilities as an integrated authority

BaFin supervises banks, financial services providers, insurers and Pensionsfonds as well as German asset managers and investment funds. It also monitors securities trading to detect insider trading and market manipulation and is Germany’s national resolution authority.

As an integrated authority, one of BaFin’s tasks is to ensure the functioning, stability and integrity of the German financial market. Bank customers, insurance policyholders and investors should be able to trust the financial system. For that reason, BaFin seeks to ensure that market participants comply with the relevant laws. BaFin also works in the area of collective consumer protection. For example, in the event of significant concerns relating to investor protection, it can restrict or even prohibit the sale of a product.

Submitting a complaint to BaFin

If you believe that you have been poorly advised on purchasing securities or other investment products and have lost money as a result, or if an offer seems suspicious to you, please contact us. If your complaint is about a company that is subject to our supervision, we will contact the company concerned and investigate the matter further if there are indications that your complaint might be justified.

However, BaFin cannot issue legally binding decisions on disputes in individual cases. In civil cases, the clarification of matters and assessment of evidence is the responsibility of the courts. Only a court of law may issue legally binding decisions on matters of dispute or order companies to pay a fine.

BaFin’s arbitration board

BaFin has set up an arbitration board. It deals with disputes relating to the German Investment Code (Kapitalanlagegesetzbuch – KAGB) as well as banking business and financial services in cases where no recognised private dispute resolution entity is responsible.

If you are dealing with a consumer law dispute that relates to the provisions under the KAGB concerning investment funds and their management companies, it may be possible to bring the case before the recognised private dispute resolution entity of the German Investment Funds Association (Bundesverband Investment und Asset Management e.V.).

The ombudsman scheme for disputes concerning material assets and closed-end funds (Ombudsstelle für Sachwerte und Investmentvermögen) may be a suitable point of contact for disputes relating to closed-ended funds.

You can view a list of consumer dispute resolution entities and gain further information on dispute resolution here.

Consumer helpline

BaFin has also set up a consumer helpline which is available Monday to Friday from 8.00 a.m. to 6.00 p.m. at 0800 2 100 500 or +49 (0) 228 299 70 299 (for calls from abroad).

Notifying the public prosecutor's office

As a general rule, if you believe that a fraudulent offer is being made to you or that you have fallen victim to scammers, you should report it to the police or public prosecutor's office as quickly as possible.