Since the Retail Investor Protection Act (Kleinanlegerschutzgesetz) came into force, collective consumer protection has also been legally fixed as a supervisory objective of BaFin.

In order to achieve this objective and be able to fulfil the wide range of tasks of collective consumer protection efficiently and effectively, BaFin has modified its organisational structure. At the turn of 2016, the new Consumer Protection Department commenced operations with a total of seven divisions. Although it is part of the Securities Supervision Directorate in Frankfurt am Main, its focus will not be investor protection, but rather all topics relevant to consumer protection which are within the remit of BaFin. This means that it will also deal with the protection of bank customers and insurance holders. Therefore, the department is divided between the BaFin locations in Frankfurt am Main and Bonn.

Divisions of the new Consumer Protection Department

• Policy Issues, Consumer Protection Forum and Consumer Advisory Council
• Consumer Trend Analysis and Consumer Education
• Competence Centre for Consumer Protection relating to Banks, Complaints
• Competence Centre for Consumer Protection relating to Insurance, Complaints
• Supervision of Compliance with Rules of Conduct, Investor Protection Private and Foreign Banks
• Supervision of Compliance with Rules of Conduct, Investor Protection Savings Banks & Cooperative Banks
• Supervision of Violations of Consumer Protection Law, Product Intervention

Transparency

Consumers should always be able to make independent and informed decisions without being treated condescendingly. BaFin therefore endeavours to ensure that the range of financial products, insurance products and financial services on offer is transparent and comprehensible. This is intended to put consumers in a position where they can understand the functioning and risks of products and services and can evaluate their actual costs correctly.

The content and form of the information made available by providers, whether it is legally required or voluntary, must be designed in such a way that it satisfies the needs and knowledge requirements of consumers. Only then will consumers be able to keep pace with the informational advantage which providers enjoy.

Education

The new Consumer Protection Department also provides specific education about the different types of financial products, insurance products and financial services as well as the risks associated with them. In recent weeks, consumers have been able to access information about the functioning and risks of the most important types of banking products, securities, investments and insurance products in "Finanzwissen auf einen Blick" ("Financial education at a glance" – only available in German) on the BaFin website. This is intended to provide consumers with initial orientation as to whether they should consider a certain product and also facilitate comparisons without recommending any particular products or courses of action.

Furthermore, the Consumer Protection Department holds talks for consumers at conferences and similar events, as it did at the Invest fair in Stuttgart in April 2016 for example, where members of staff also acted as contact persons for consumers.

Supervision of violations of consumer protection law and product intervention

If it is not possible to provide sufficient protection of consumers as a whole by means of transparency, information and education alone, BaFin will use the new supervisory instruments granted to it by the Retail Investor Protection Act to prevent and rectify irregularities. This is also the task of the new Consumer Protection Department.

This means that BaFin can issue orders on the basis of section 4 (1a) of the Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG) in order to prevent or rectify irregularities if it becomes apparent that a general clarification is advisable in the interests of consumer protection. On the basis of the new section 4b of the Securities Trading Act (Wertpapierhandelsgesetz – WpHG), BaFin can even restrict or fully prohibit certain sales practices and the sale of products in serious cases – specifically, if investor protection or the functioning or integrity of the financial markets is jeopardised (product intervention).

Analysis of consumer trends

In order to identify developments which are relevant to consumer protection on time, it is necessary to monitor the market effectively and comprehensively and to evaluate the findings in a structured manner. The Consumer Protection Department will therefore methodically gather, analyse and evaluate qualitative and quantitative information about market activities from internal and external sources (see interview). In addition, it will conduct risk-orientated investigations in order to gather information in a targeted manner. For example, BaFin is currently investigating the degree to which issuers are selling credit-linked notes to retail clients and whether they provide sufficient disclosure of the risks.

It is hoped that the findings here will assist in the early identification of developments which could result in risks or irregularities. This will make it possible to implement adequate countermeasures preventively rather than reactively. The findings from the analysis of consumer trends provide vital momentum for the work of the Consumer Protection Department and the supervisory divisions.

Handling of complaints

The handling of consumer complaints will also fall within the auspices of the new Consumer Protection Department. The complaints which consumers submit to BaFin about banks, insurance undertakings or investment services providers yield important information about which topics and problems are affecting consumers.

Furthermore, complaints about the business practices of one institution could reveal faults in the system which affect the collective interests of consumers. Complaints are therefore also an important impetus for detecting irregularities.

Supervision of compliance with rules of conduct

Supervision of compliance with rules of conduct at banks, savings banks and cooperative banks in accordance with the WpHG is a further task of the Consumer Protection Department. The term "rules of conduct" refers to all obligations to the customer which the supervised undertaking must fulfil in its provision of services. In particular, this includes the statutory requirements for investment advice minutes, the product information sheet pursuant to the WpHG and the appropriateness of investment recommendations.

In addition to ongoing supervision and complaints that the supervised undertakings file through the employee and complaints register, on-site visits by BaFin are particularly important sources for detecting contraventions of business conduct obligations.

Further tasks

The new Consumer Protection Department is also the point of contact for the financial market watchdogs of consumer organisations and for cooperation with the Office for the Prevention of Unfair Competition (Wettbewerbszentrale), German industry's self-regulation institute with the task of enforcing laws against unfair competition. The Office for the Prevention of Unfair Competition organises events dealing with consumer protection and the meetings of the Consumer Advisory Council which advises BaFin in the fulfilment of its tasks from a consumer standpoint.

BaFin is also committed to further developing collective consumer protection and actively formulating consumer standards on a European and international level. For example, it is currently involved in drafting a uniform administrative practice for consumer protection regulations which will entail the implementation of the European Markets in Financial Instruments Directive II (MiFID II).

"Establish an early warning system for violations of consumer protection law"

Interview with Carsten Müller, Head of the Consumer Trend Analysis and Education Division

Mister Müller, you are in charge of the new division which is tasked with consumer trend analysis. BaFin has already been analysing consumer trends for years. What has changed?

Until now, analyses of consumer trends were the task of the individual directorates and were carried out with differing levels of intensity. This task has now been centrally consolidated into our division. Working on the basis of the expertise from the directorates, we will develop a comprehensive methodology for investigating consumer trends, gather internal and external data and evaluate it in a structured manner from the standpoint of consumer protection. In this way, we will be able to identify early on which topics are relevant to consumers and where problems might be looming. Our objective is to create an early warning system for any violations of consumer protection law which may arise. This is because we don't just want to react; we want to take appropriate measures proactively and preventively so that irregularities don't arise to begin with.

What kinds of internal and external data sources do you want to draw on?

Findings from ongoing supervision of institutions are important sources of information, as are those from market supervision. We will also assess consumers' written and telephone complaints about supervised institutions and undertakings. And we will carry out our own investigations into market activities, supplementing them with external investigations where necessary – in the form of surveys for example.

Examples of external data sources include findings and studies of other actors involved in consumer protection, for example the consumer organisations, the financial market watchdog, the ombudspersons and dispute resolution entities as well as the Bundesbank's assessments of consumer behaviour.

In addition, we will also keep a close eye on what is happening abroad and the trends that are evident there. To this end, BaFin will maintain very close contact with the other national and international supervisory authorities and continue to develop networks. This includes our commitments to international working groups.

Consumer education is another task of your division. Why is educating consumers so important?

We want consumers to be able to act independently when they are making decisions about investing or saving money, or taking out insurance or a loan. This, however, requires that sufficient and audience-appropriate information be made available to them so that they can compare and assess financial products, insurance products and financial services. Only when these conditions are met is an independent, informed and qualified decision at all possible.

What measures are you planning in the area of consumer education?

We will continue to produce information sheets and brochures about particularly important topics and to publish expert articles in the BaFinJournal. Furthermore, our website is an important platform for educating consumers. All the most important topics are brought together in the consumer section. We will continue to develop this on an ongoing basis. The financial education section has recently been put online and provides an easily understandable overview of important financial products.

Furthermore, we will participate in expert fairs, targeting those which are relevant to consumer affairs. Here we will be able to make our competencies in consumer protection known and provide a point of contact to consumers. And finally, we are currently exploring different paths and possibilities to enable us to improve the financial education of consumers.