Erscheinung:23.07.2019 | Topic Consumer protection Press release | 23 July 2019
BaFin maintains restrictions on retail trading with financial contracts for difference
Restrictions on the marketing, distribution and sale of financial contracts for difference (CFDs) to retail clients in Germany will continue to apply in future. By a general administrative act, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has stipulated that contracts with an additional payments obligation are to remain prohibited. Germany’s supervisor has also specified maximum permissible leverage, negative balance protection, a restriction on the incentives offered to trade CFDs and a requirement for risk warnings.
In taking this step, BaFin is once again addressing the considerable investor protection concerns expressed at the time of its initial prohibition regarding CFDs with an additional payments obligation, which was imposed in May 2017. BaFin considers these contracts for difference in particular to carry an incalculable risk of loss for retail investors. Losses are not limited to the client's capital investment but instead may encompass the entirety of their assets and can amount to multiples of the invested capital. In order to further reduce the risks for retail investors, the leverage limits and other negative balance protections stipulated by ESMA will also continue to apply in Germany. In BaFin’s view, standardised risk warnings are essential as well. The supervisor also maintains that retail investors must not be encouraged to enter into the risks associated with CFDs through initial credit, discounts, bonuses or other incentives.
Restrictions have applied to trading with CFDs for retail investors in Germany since May 2017 and in the European Union as a whole since August 2018 on the basis of a temporary product intervention measure issued by ESMA. Upon expiry of this measure, the level of protection in Germany will be aligned with the European standard by means of BaFin’s General Administrative Act.
Press contact:Anja Schuchhardt
Phone: +49 (0) 228 / 4108 - 3262
E-mail: Anja.Schuchhardt@bafin.de
At a glance:Trading restrictions in detail
| Retail investors may only be offered CFDs with the following leverage limits: | |
|---|---|
| for CFDs on currency pairs with US dollars, euros, Japanese yen, pound sterling, Canadian dollar or Swiss franc as the underlying | 30:1 |
| for CFDs on all other currency pairs | 20:1 |
| for CFDs on selected standard indices (DAX30, EURO STOXX 50 etc.) | 20:1 |
| for CFDs on gold | 20:1 |
| for CFDs on all other commodities excluding gold and all other equity indices | 10:1 |
| for CFDs on cryptocurrencies | 2:1 |
| for CFDs on shares and for all other CFDs | 5:1 |
Offerers must also ensure that CFDs are automatically closed in the event of significant negative price performance. This protective mechanism takes effect when the value of a CFD equals less than half of the investor’s initial margin (margin close-out rule).
Offerers must also guarantee that investors cannot lose more than the value of their initial margin (negative balance protection). Retail investors are therefore not required to make additional payments.
If offerers advertise CFDs to retail investors, they must expressly state how many private customers lose money with the products (risk warnings).
