Germany’s BaFin proposes new regulations for CFDs

9 December 2016

The German Federal Financial Supervisor Authority (BaFin) has put forward a set of proposed changes to the country’s laws regarding the sales of contract for difference (CFD).

The organisation said it intends to limit the marketing, distributional and sale of CFDs, with contracts that feature an additional payments obligation to no longer be offered to retail customers.

BaFin has published the planned General Administrative Act on its website and will invite comments on the draft before January 20.

“BaFin has investor protection concerns in relation to financial contracts for difference with an additional payments obligation for retail clients,” BaFin said in a statement on its website.

“If the difference to be paid by the retail client exceeds the capital they have invested, they must pay the difference amount from their other assets.”

The move comes after similar proposals were announced this week by the UK Financial Conduct Authority (FCA), after which several operators active in the UK market a suffered heavy drop in their share prices.

Elisabeth Roegele, chief executive of BaFin, added: “In the case of CFDs with an additional payments obligation, the risk of loss for the investor is incalculable. For consumer protection reasons, we cannot accept that.”

In response to the development in Germany, IG Group, which operates services in the CFDs market, said the proposal is “consistent with IG's recent introduction of Limited Risk Accounts, which guarantee that a client cannot incur losses in excess of the amount deposited in their account”.

IG added: “IG firmly believes in robust and proportionate regulatory oversight of the CFD sector in all the markets in which it operates; the company has operated and will continue to operate to the highest standards in the industry.

“IG will carefully consider the full implications of the BaFin announcement and will be seeking to meet with BaFin before responding to the consultation, in accordance with the timeline provided.”

Plus500, another operator that deals with CFDs, also responded to the proposals, saying that it does not expect the changes to impact its business.

The company said: “Plus500 welcomes the announcement made by BaFin as all accounts offered by the company have always had balance protection, meaning the client cannot lose more than the value of their account.

“The company therefore believes that any limitations imposed by BaFin in this respect will have no effect on its business.”

Related articles:

UK FCA proposes tighter rules for CFD products

Financial betting firms lose almost £2bn after FCA proposals