FRANKFURT, July 28 (Reuters) - Germany’s financial watchdog, Bafin, plans to ban the sale of credit-linked notes, a type of structured financial product, to retail investors to protect consumers in a market worth 6.3 billion euros ($7 bln), it said on Thursday.
“Structured products linked to credit risks can be a useful investment alternative for institutional investors but we do not believe they belong in the hands of retail clients,” Bafin’s head of securities supervision, Elisabeth Roegele, said in a statement.
Bafin, which has lacked the power to impose heavy fines commonly used by U.S. or British financial regulators, was recently given additional powers in the area of consumer protection.
The main issuers of credit-linked notes are banks LBBW, Deka Bank, HVB and DZ Bank, who together make up about 90 percent of the market, according to data from German derivative association DDV. The notes represent about 10 percent of the overall certificates market in Germany.
Roegele said she was aware the move would create problems for the industry but said the notes were complex products and retail investors were generally unable to assess the level of risk and likelihood of being repaid.
“Precisely because the certificates market here in Germany is of great significance and its reputation and credibility are of central importance, we have to intervene with individual products,” she said.
The DDV said it would oppose Bafin’s plans, saying the notes were an established product class and banning them should be seen as a last resort.
Issuers and consumers have until Sept. 2 to comment on the plans. Notes already sold would not be affected by the ban.
To see Bafin's announcement, click on: bit.ly/2acOw7t
$1 = 0.9016 euros Reporting by Jonathan Gould and Alexander Huebner; Editing by Susan Fenton