Ministerial Draft Tightens Regulations on Marketing Financial Products to Small Investors

The Federal Ministry of Finance has presented a ministerial draft of a Kleinanlegerschutzgesetz (Small Investor Protection Act) that aims to tightens regulations in existing laws for the marketing of financial products to small investors, creating more transparency in financial investments, including in renewable power. In January 2014 the renewable energy group Prokon filed for insolvency. The company had raised major amounts of money from retail investors promising high rates of return.

The draft contains in particular provisions

  • specifying and extending the obligations concerning the publication of a prospectus
  • on additional information concerning personal links of the issuer
  • stipulating the obligation to provide certain information following the end of the public offer
  • introducing a minimum duration of the financial investment
  • intoducing a product governance process
  • tightening accounting obligations

According to a proposed amendment of Section 12 para. 3 Vermögensanlagegesetz (Investment Protection Act), advertisements have to contain the following warning that has to be highlighted in printing: “Financial investments involve considerable financial risks and may lead to the total loss of the investment. Generally the higher the return, the higher the risk will be.”

Besides, the draft gives financial watchdog BaFin greater powers to restrict or prohibit product related advertising for and sales of certain complex products so as to protect investors against aggressive advertisement and sales of product that are difficult to oversee.

Source: Federal Ministry of Finance

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