“Whether in relation to supervisory law or regulatory issues – we have to ensure that such matters are also always considered from the consumer perspective right from the start,” said Christian Bock, who has been BaFin’s Investor and Consumer Protection Officer since 1 July. This function was newly created in order to give greater weight to consumer protection at BaFin.

One of the Investor and Consumer Protection Officer’s key tasks is to advise BaFin’s Executive Board on investor and consumer protection issues. This will see him attending the meetings of the Executive Board when these issues are discussed. He can also encourage the Executive Board to address certain investor and consumer protection issues. Furthermore, the officer advises the members of the Executive Board in the context of their participation in the bodies of the European financial system wherever investor and consumer protection interests are to be discussed.

More proactive consumer protection

“I am convinced that expanding investor and consumer protection is one of the ways to allow us to regain lost trust and achieve a positive turnaround in our public image,” said Bock. To do this, he explained, BaFin will have to become more proactive, especially when it comes to identifying new issues that are relevant to consumers.

Bock expects future market monitoring activities to bring improvements: as part of the current reform to modernise BaFin, the authority has been given the ability to conduct mystery shopping exercises. Starting in 2022, mystery shopping is expected to become a regular feature of BaFin’s supervisory toolkit. "We will use this tool extensively whenever it makes sense for us to do so,” said Bock. “It will allow us to observe the market with an even greater focus, identify undesirable developments at an early stage, and respond accordingly.” BaFin is currently conducting the first field test.

Sharp tools for consumer protection

The mystery shopping tool will supplement the portfolio of measures for preventing and eliminating violations of consumer protection law that have been available to BaFin since 2015, when the authority was granted the legal mandate for collective consumer protection. BaFin can issue orders that are appropriate and necessary for eliminating or preventing such violations if general clarification appears to be necessary in the interests of consumer protection. In serious cases, BaFin can restrict or completely prohibit the distribution of products and certain distribution practices (product intervention). It has already used these tools on several occasions, most recently in July 2021, when it banned Terraoil Swiss AG from marketing, distributing and selling its shares to investors in Germany.

In June, BaFin published a general administrative act that requires credit institutions to inform customers with premium-aided savings plans (Prämiensparverträge) about ineffective interest rate adjustment clauses and to either guarantee a recalculation of interest or offer a contractual amendment with an effective interest rate adjustment clause that reflects the ruling by the Federal Court of Justice (Bundesgerichtshof). However, as more than 1,100 credit institutions filed objections to this general administrative act, clarification by an administrative court is currently pending, and the institutions do not have to comply with the obligations under the general administrative act until the court has issued its ruling.

In most cases, though, the tools are preventive in nature: “As a rule, providers back down quickly so they can avoid BaFin imposing tough measures,” said Bock, drawing on his experience. If BaFin has serious investor protection concerns about a financial instrument, it informs the providers and gives them an opportunity to comment. This often involves complex product terms or investment constructs, a lack of transparency about the product design or the product information, illiquidity – meaning that it is difficult to sell the investment again – difficult economic circumstances at the issuer, or a bad risk/reward profile for the financial instrument being offered. After being contacted, the providers almost always react to BaFin’s comments either by trying to meet investor protection requirements or by abandoning their planned product issuances.

Improving consumer knowledge

BaFin informs consumers about the various types of financial and insurance products and financial services on offer, also highlighting the associated risks. This information is provided on the BaFin website, in brochures and in BaFinJournal. Additionally, experts from BaFin regularly give talks and take part in digital meet-ups, for example. The most recent digital meet-up took place on 7 October as part of World Investor Week, a week-long global campaign for investors. Christian Bock takes consumer education personally: “I’m going to invest a lot of energy in the project to further reduce the knowledge gap between the financial industry and consumers,” he said.

To help consumers make independent, informed decisions, BaFin also works to make sure that the financial and insurance products and financial services on offer are transparent and understandable. BaFin ensures that the information is structured in such a way that it is appropriate to the knowledge and needs of consumers.

Supervision of compliance with rules of conduct

Another important element of consumer protection is supervision of compliance, by banks, savings banks and cooperative banks, with the rules of conduct under the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG). The rules of conduct refer to all obligations that the supervised entities have to comply with when they provide their services to clients. In particular, these include the statutory requirements for the suitability assessment and the suitability statement as well as information about the costs incurred in a securities transaction and any inducements.

Alongside BaFin’s ongoing supervision and the complaints that supervised entities have to report via the Employee and Complaints Register, on-site visits by BaFin are particularly important sources of information about violations of rules of conduct.

Handling thousands of complaints

BaFin also handles complaints it receives from customers of banks, insurance companies and investment service providers. These complaints provide BaFin with important information about which issues and problems are of concern to consumers. Additionally, complaints about a company’s business practices can reveal violations of consumer protection law in the system that affect collective consumer interests. Eliminating such violations is one of BaFin’s core duties in the area of consumer protection.

BaFin received almost 20,000 complaints in total in 2020, around 9,400 of which related to credit institutions and financial services providers, almost 7,600 to insurers and more than 2,400 to securities transactions, investment companies and financial corporations. This figure is likely to be exceeded in 2021.

Complaints from customers of banks again reflected the entire range of products and services offered by institutions. A particularly large number of complaints concerned two topics that are also a focus for BaFin and the general public: interest rates on long-term variable-rate premium-aided savings plans (Prämiensparverträge) and the decision by the Federal Court of Justice that customers must give their express agreement for any changes to general terms and conditions to be effective.
Insurance policyholders frequently complained about the time taken to process claims and the amount of insurance benefits, especially in the area of life and non-life insurance. This predominantly concerned problems related to surplus participation. As regards private health insurers, one focus of complaints was on premium adjustments in both comprehensive health insurance and private long-term care insurance.

Trading disruptions at various online brokers triggered a wave of several thousand complaints in the first quarter. Many of the complaints about capital market participants additionally related to administration and customer service, order execution and client information. Among other things, consumers criticised the time it took to process securities account transfers and securities transfers, and that they were unable to access securities during the transfer. Others complained about the allegedly faulty or late execution of their securities orders or felt that the fees had been misrepresented.

Direct consumer helpline

The Consumer Protection Officer is not responsible for direct contact with consumers. Consumers with questions about financial topics can call the toll-free BaFin consumer helpline on 0800 2 100 500. The hotline also helps consumers that want to complain about an insurance company or a credit institution. This facility for contacting BaFin directly is very popular with consumers: since the beginning of 2021 alone, the consumer helpline received around 13,800 calls (as at 31 August).

It should be noted that BaFin’s statutory mandate only covers collective consumer protection. This means that BaFin protects consumers as a whole, but cannot advocate for individual consumer interests. That is the task of ombudspersons, arbitration bodies and courts. More detailed information is available on BaFin’s website, where consumers can find information about what they can do if they feel they have not been treated fairly by a company.

Point of contact with market watchdogs and the Centre for Protection against Unfair Competition

The Consumer Protection Directorate also maintains contact with the market monitoring and financial markets consumer policy teams at the Federation of German Consumer Organisations (verbraucherzentrale Bundesverband – vzbv) and the German consumer associations (Verbraucherzentralen), and is the point of contact for cooperation with the German Centre for Protection against Unfair Competition (Wettbewerbszentrale), a self-regulatory industry organisation established to enforce laws against unfair competition.