In the ten principles it has published today, the industry, as represented by the DK and the DDV, commits itself to improving transparency and investor protection in the issue and distribution of credit-linked notes (previously called Bonitätsanleihen in German and in future to be called bonitätsabhängige Schuldverschreibungen). It will restrict both the product range and distribution to achieve this. The principles are the industry's reaction to BaFin's plans, announced on 28 July 2016, to prohibit the retail distribution of certificates linked to creditworthiness risks. The reasons BaFin gave for this included the products' complexity, unclear pricing and misleading name in German.

"We will be watching very closely over the next six months to see if the self-commitment provides sufficient protection for retail investors investing in credit-linked notes," stressed Elisabeth Roegele, Chief Executive Director responsible for consumer protection at BaFin. If this protection cannot be completely assured, BaFin will restart product intervention, but until then, it has suspended it, explained Roegele. In view of the industry's comprehensive self-commitment, the purpose of the planned ban – to significantly improve investor protection – can be achieved in a comparable manner, she said.

Credit-linked notes will in future only be issued with a minimum denomination per unit of €10,000, according to the new self-commitment. It will no longer be possible to invest smaller sums, meaning that credit-linked notes will no longer be a typical product for retail investors. Moreover, credit-linked notes will only be allowed to be sold to investors with a risk tolerance category of 3 and above in order to ensure that only those retail investors who are willing to accept risk invest in this sort of product. It will no longer be allowed to recommend these products to clients with no or a very low level of risk tolerance while providing investment advice. This will ensure that retail investors are not offered products which do not correspond to their risk profile. In addition, the DK and DDV have committed to higher quality standards as regards the reference entities acting as underlyings. Credit-linked notes with several reference entities as underlyings may only be offered if they actually achieve a spreading of risk for clients. The industry also only wants to sell credit-linked notes to retail investors which guarantee a sufficient creditworthiness of the reference entities (investment grade).