Financial Regulator BaFin to Shield Investors from Turbo Certificates
The German Federal Financial Supervisory Authority (BaFin) has announced plans to impose stricter regulations on a type of financial instrument known as Turbo-Zertifikate, following widespread losses among private investors. These securities, which amplify price fluctuations due to their high leverage, have been linked to significant financial losses for retail investors.
Between 2019 and 2023, BaFin's findings reveal that German investors suffered collective losses of over 3.4 billion euros while trading Turbo-Zertifikate, with the average loss per customer amounting to 6,358 euros. The complexity of these financial instruments and their marketing practices have drawn criticism for potentially misleading investors.
In response to these concerns, BaFin has proposed two key measures to enhance investor protection. First, retail investors will be required to answer at least six questions about Turbo-Zertifikate before making a purchase, ensuring a basic understanding of the risks involved. Second, restrictions may be imposed on the sale and marketing of Turbo-Zertifikate, based on BaFin's authority under the MiFIR regulation and the Wertpapierhandelsgesetz. This could include limiting or banning certain practices deemed harmful to investors.
The final regulations are still under development, with BaFin currently seeking feedback from stakeholders until July 3, 2025. The implementation process will be shaped by this consultation, as the authority aims to improve understanding of Turbo-Zertifikate among retail investors and reduce the potential for abusive marketing practices.
In summary, BaFin's proposed regulations aim to protect private investors from the risks associated with Turbo-Zertifikate by ensuring that retail investors are adequately informed about these complex financial instruments and by imposing restrictions on their marketing and distribution.
In the proposed regulations by BaFin, retail investors may be required to answer questions about Turbo-Zertifikate before purchasing, demonstrating a basic understanding of the financial risks involved in investing. This is part of an effort to enhance investor protection and reduce the use of potentially misleading marketing practices related to these Turbo-Zertifikate, which have been a significant source of financial losses in the business and investing sector.
