German regulator opens door to shutting down 'risky' products

Clamping down?

German Finance Minister Wolfgang Schaeuble left the door open to banning some financial products as the coalition parties vied to show their determination to clamp down on investments deemed to be risky for consumers.

Schaeuble said in an e-mailed response to questions that he has directed the Bafin financial regulator to formulate rules to step up supervision of products traded on unregulated markets.

Any new rules “won’t remove the burden on investors to exercise caution themselves,” Schaeuble said in the e-mail sent by his ministry in Berlin yesterday. “But transparency and traceability must be increased. Whether the measures under discussion should include bans on certain products in the gray market remains to be seen,” he said.

Schaeuble’s comments reflect a drive by Chancellor Angela Merkel’s government to toughen its stance on the accountability of financial products in Europe’s biggest economy. The remarks by Schaeuble, a Christian Democrat like Merkel, don’t go as far as his Social Democratic Party cabinet colleague, Justice Minister Heiko Maas, who has openly backed a ban if necessary.

Germany is showing greater resolve to protect small investors in the wake of last month’s insolvency of Prokon Regenerative Energien GmbH, a clean-energy developer that raised 1.4 billion euros ($1.9 billion) by selling profit- participation rights to about 75,000 small investors. Schaeuble cited Prokon as one of the reasons behind him asking Bafin to draw up new rules on supervision.

Promised Returns

Prokon, which owns 314 wind turbines and has employed about 1,300 people, promised investors returns of 6 percent by generating sales from its power plants.

The Federation of German Consumer Organizations demanded action last month after Prokon filed for bankruptcy protection. The insolvency also prompted calls for regulation of the so- called gray capital markets, where loan agreements and trading practices are less strictly controlled than the official stock market.

Maas, the justice minister, has asked Bafin to determine whether “specific financial products” constitute an excessive risk for consumers. Certain products should be on offer in a limited way or subject to limits on advertising, his ministry cited Maas as saying on Jan. 24. It didn’t say to which products he was referring.

The actions should stretch “up to and including a ban,” Maas said. “That hasn’t existed up to now.”

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