BaFin to Implement Permanent CFD Measures, Mirroring ESMA

The measures will come into effect once ESMA’s temporary regulations expire.

Less than a month after the Federal Financial Supervisory Authority in Germany, more commonly referred to as BaFin, announced that it was introducing permanent restrictions on binary options, the regulator has today announced that it would do the same for contracts-for-differences (CFDs).

According to a statement published by the German watchdog, restrictions on the marketing, distribution and sale of financial CFDs to German retail clients “will continue to apply in future.”

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Specifically, BaFin’s measures will apply once the temporary product intervention measures of the European Securities and Markets Authority (ESMA) expire, which may occur at the beginning of August.

Once this occurs, “the level of protection in Germany will be aligned with the European standard by means of BaFin’s General Administrative Act,” the statement said.

BaFin has outlined in a general administrative act the maximum permissible leverage, negative balance protection, a requirement for risk warnings, restrictions on the incentives offered to trade CFDs and has confirmed that contracts with an additional payments obligation are to remain prohibited.

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“In taking this step, BaFin is once again addressing the considerable investor protection concerns expressed at the time of its initial prohibition regarding CFDs with an additional payments obligation, which was imposed in May 2017,” the German regulator said.

BaFin: CFDs still carry an “incalculable risk”

The German watchdog still believes that these CFDs carry an “incalculable risk” for retail investors and state that losses aren’t just limited to the client’s capital investment, but can also include the entirety of their assets and multiples of the invested capital.

BaFin’s permanent regulations reflect that of ESMA’s, as the leverage limits and negative balance protection will continue to apply in the same context. The regulator believes this is necessary to continue to protect retail investors.

To refresh, the leverage restrictions for CFDs are as follows: CFDs on major FX pairs have a 30:1 leverage, indices, non-major currency pairs, and gold can be traded with a 20:1 leverage, while other commodities and non-major indices have a 10:1 gearing. Brokers can offer individual equities at a 5:1 leverage and cryptocurrencies at 2:1.

Earlier this month, BaFin also announced that it would continue to prohibit binary options in Germany on a permanent basis, should ESMA stop renewing its temporary measures, which it did at the beginning of July. It is likely the European regulator will not renew its CFD restrictions which are set to expire in August, as many European authorities have implemented their own permanent national regulations.

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