Germany’s financial regulator Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) has announced that it plans to restrict the marketing, distribution, and sale of Turbo certificates to retail investors based in Germany. The regulator said that it will issue a general administrative order to this end, on which it is now consulting the affected market participants.

The product intervention is based on a BaFin market investigation. In light of the findings, the supervisory authority has significant concerns regarding investor protection.

Turbos – also known as speeders or sprinters – are leveraged structured products, popular mainly with retail traders in certain regions of the EU (mainly The Netherlands and Germany). Turbos are exchanged traded leveraged instruments which provide an 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), enacted similar restrictions on Turbos back in 2021.

In the future, the marketing, distribution, and sale of Turbo certificates to retail investors based in Germany will only be possible under certain conditions. According to BaFin’s planned measure, the recipients – intermediaries, issuers, and providers – must comply with the following regulations:

• Recipients must provide a standardized risk warning. This must state that seven out of ten retail investors suffer losses when trading in Turbo Certificates. The risk warning must be included in every communication regarding the marketing, distribution, and sale of Turbo certificates.
• The recipients may not offer any bonus that incentivizes retail investors to trade Turbos. This applies to both monetary and non-monetary benefits. For example, order fees may not be reduced or waived for Turbo certificates, and there may not be any new customer bonuses. Non-monetary benefits such as preferential customer service or gifts are also prohibited.
• Recipients must complete an extended suitability assessment for Turbo certificates. A test is designed to convey the key product features. Retail investors must be able to 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.

Turbo certificates: significant concerns for investor protection

Based on its comprehensive market investigation into Turbo certificate, BaFin has identified significant concerns regarding investor protection. A majority of retail investors (74.2%) suffered losses while trading Turbo certificates. On average, they lost €6,358 each. Their total losses over a five-year period amounted to over €3.4 billion. In addition to the high investor losses, BaFin bases its concerns on the high complexity of Turbo certificates and the marketing and distribution practices associated with these products.

BaFin may restrict or prohibit the marketing, distribution, and sale of financial instruments if there are significant concerns about investor protection. This is governed by 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 said that it will accept comments on its planned product intervention measure until July 3, 2025.