BERLIN, April 12 (Reuters) - Germany plans to improve protection for small investors by imposing stricter regulations on companies marketing financial products to the public, the finance ministry said on Saturday.
Confirming an earlier newspaper report, a spokeswoman for the ministry said work was in progress on a bundle of measures to protect small investors in often complicated investments, while not freeing them from all risk.
Risks were highlighted by the insolvency in January of German wind park operator Prokon, which had raised 1.4 billion euros mainly from retail investors by offering so-called profit-participation certificates through advertising campaigns on German prime-time television.
“We cannot and do not want to take all risks from the investors, but the grey capital market too should be fair,” the spokeswoman said, referring to financial products that are sold to retail investors but are often loosely regulated.
Die Welt newspaper reported on Saturday that Finance Minister Wolfgang Schaeuble’s staff was working on a 10-point paper, which will give financial watchdog Bafin far greater powers and mentions the Prokon case as an example of aggressive promotion.
“... it is also part of the social market economy that all must abide by rules and that the profit of one doesn’t consist of cheating on the other,” Die Welt newspaper quoted a ministry paper as saying.
“Bafin will get the right to publish on its website supervisory measures against providers of grey-market products and to point out providers that have not, or insufficiently, complied with Bafin’s requests for information.”
Securities prospectuses should only be valid for one year and include more information, such as personal links to other companies and maturity dates of previous financial securities.
If companies do not comply, Bafin would have the right to impose a sales ban for private investors, or if the offence is less serious, a ban on advertising the financial product.
“Especially in the case of a recently insolvent wind park operator, the aggressive promotion, which aimed particularly at small, private investors, was not appropriate for the complex product design and therefore proved critical,” according to the ministry paper.
Consumer groups accused Prokon of attracting investors with promises of potential returns of at least 6 percent a year without giving sufficient warning of the risks. Its insolvency dealt a blow to thousands of retail investors who had hoped to profit from Germany’s shift from nuclear to renewable energy sources such as wind and solar.
Gerd Billen, deputy minister of justice and consumer protection, was quoted on Thursday by Sueddeutsche Zeitung newspaper as saying he favoured giving Bafin greater powers to investigate providers if there were grounds for doubt and to potentially fine them and limit the sale of a product to professional investors. (Reporting by Thorsten Severin and Annika Breidthardt; Editing by Susan Fenton)