Background, measures taken and further information
The German Retail Investor Protection Act (Kleinanlegerschutzgesetz - only available in German) of 2015 gave BaFin the task of "collective consumer protection" and, among other things, granted it product intervention powers. With this tool, the marketing, distribution and sale of certain financial products can be restricted or even prohibited if these present a significant investor protection concern or a threat to the orderly functioning and integrity of the financial or commodity markets or to the stability of the whole or part of the financial system of at least one EU member state. BaFin can also use these powers if a derivative has detrimental effects on the price formation mechanism in the underlying markets. The powers also include the possibility of prohibiting or restricting a particular financial activity or practice.
BaFin's intervention can take the form of a precautionary measure, for example a measure taken even before a product has been marketed, distributed or sold to the end client.
The relevant legal basis is laid down in Article 42 of the Markets in Financial Instruments Regulation (MiFIR), which granted uniform powers of product invention both to national competent authorities and to ESMA and the EBA on 3 January 2018.
At national level, the scope defined under section 15 (1) sentence 2 of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG - only availble in German) also includes investment products and, for example, both independent agents and direct distributors.
An almost identical wording governing powers of product intervention can also be found in Articles 16 and 17 of the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs). National competent authorities and EIOPA can use these product intervention powers for insurance-based investment products.
In order to assess, for example, at what stage a financial or insurance-based investment product raises significant investor protection concerns, BaFin uses the lists of criteria in Article 21 of Commission Delegated Regulation (EU) 2017/567 and Article 1 of Commission Delegated Regulation (EU) 2016/1904.
Both lists include a non-exhaustive series of criteria such as the complexity and transparency of the product, the type of clients to whom the product is marketed or sold, the risk-return ratio, pricing and selling practices, as well as issuer-specific criteria such as the issuer's financial and business situation.
However, product intervention measures are only considered if the specified risks cannot be dealt with using other tools under supervisory law.
The three European Supervisory Authorities, ESMA, the EBA and EIOPA (the ESAs), which have comparable powers of intervention, can only use these powers under certain circumstances and preconditions. One key precondition is that the national competent authority has not already taken sufficient measures to eliminate the risks.
|General Administrative Act pursuant to section 4b (1) of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) regarding contracts for differences ("CFDs") dated 8 May 2017|
ESMA product intervention measures on binary options (applicable from 2 January 2019) and CFDs (applicable from 1 November 2018).