BaFin Plans Restrictions on Turbo Certificates for German Retail Investors

Germany's financial regulator, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), has announced its intention to restrict the marketing, distribution, and sale of Turbo certificates to retail investors based in Germany. The regulator stated it plans to issue a general administrative order to this effect and is currently consulting with affected market participants.

This product intervention is a result of a BaFin market investigation. Based on its findings, the supervisory authority has expressed significant concerns regarding investor protection. Turbo certificates, also known as speeders or sprinters, are leveraged structured products that are particularly popular with retail traders in certain regions of the EU, primarily the Netherlands and Germany. These are exchange-traded leveraged instruments that provide indirect (long or short) leveraged exposure to an underlying asset, such as a stock index or company stock, with the potential loss limited to the amount paid for them. BaFin's counterpart in the Netherlands, the Dutch Authority for the Financial Markets (AFM), implemented similar restrictions on Turbos back in 2021.
Under BaFin's planned measure, the marketing, distribution, and sale of Turbo certificates to German retail investors will only be permissible under specific conditions. Recipients of the order - including intermediaries, issuers, and providers - must comply with the following regulations:
They must provide a standardized risk warning stating that seven out of ten retail investors suffer losses when trading in Turbo Certificates. This warning must be included in every communication related to the marketing, distribution, and sale of Turbo certificates.
Recipients are prohibited from offering any bonuses that incentivize retail investors to trade Turbos. This applies to both monetary and non-monetary benefits, meaning, for example, order fees may not be reduced or waived, and new customer bonuses are not allowed. Non-monetary benefits like preferential customer service or gifts are also prohibited.
Recipients must complete an extended suitability assessment for Turbo certificates. This involves a test designed to convey key product features, requiring retail investors to correctly answer at least six questions about trading in Turbo certificates before they are permitted to purchase them. The test must be repeated every six months.
BaFin's concerns for investor protection are based on its comprehensive market investigation into Turbo certificates, which found that a majority of retail investors (74.2%) incurred losses while trading these products, with average individual losses of €6,358. Their total losses over a five-year period reportedly amounted to over €3.4 billion. In addition to these high investor losses, BaFin cited the high complexity of Turbo certificates and associated marketing and distribution practices as reasons for its concerns. BaFin is authorized to restrict or prohibit the marketing, distribution, and sale of financial instruments if there are significant concerns about investor protection, under Article 42 of the European Markets in Financial Instruments Regulation (MiFIR) and Section 15, Paragraph 1, Sentence 2 of the German Securities Trading Act (Wertpapierhandelsgesetz) in conjunction with Article 42 of MiFIR. BaFin stated it will accept comments on its planned product intervention measure until July 3, 2025.