The Frankfurter Allgemeine Zeitung reported yesterday that the German regulator, BaFin, has proposed to ban a financial product, the credit-linked note, completely for the first time. This, however, may only be the beginning. Currently, contracts for differences (CFDs) have also come under fire. The proposed ban on credit-linked notes could be followed by further prohibitions which might be imposed by BaFin. In an interview with the newspaper “Welt am Sonntag”, Elisabeth Roegele, head of BaFin’s new consumer protection department, did not exclude the possibility of such further prohibitions. Accordingly, CFDs and binary options, of which the European Securities and Markets Authority ESMA had also warned already, are currently being considered.
In some cases, retail clients speculating in these products and, thus, gambling on minimal price fluctuations of equities, currencies and commodities lost the money they invested without even having been aware of the risk beforehand. When the Swiss National Bank abolished the Euro minimum exchange rate at the beginning of 2015, many investors in CFDs suffered losses due to remargining obligations. Elisabeth Roegele blames the sellers for this as they tried to attract investors, for example, by offering extra payments. According to Elisabeth Roegele, these products had nothing to do with “traditional investments”.
Prohibitions of certain products, however, are only a remedy of last resort and have to be preceded by a thorough examination and consideration. At present, said Elisabeth Roegele, it was hoped that the ESMA warning reached the investors. She also warned about dubious equities promoted by way of stock market newsletters or e-mails. Alleged profit opportunities sounded fantastic, but prices collapsed as soon as a sufficient number of investors had bought them.
As one of the reasons of the proposed ban, Elisabeth Roegele named the highly complex structure which was hardly comprehensible for retail investors. Even their advisors often had difficulties in explaining the product. Currently, BaFin is examining statements and opinions given by issuers, associations and investors. A decision will be made thereafter.