Politicians want less paperwork and better investment protection. This should eliminate the annoying obligation to record phone calls with the bank. Control of the gray market, on the other hand, is tightened – a lesson from the P&R bankruptcy.

P&R rented shipping containers - the bankruptcy hit 54,000 private investors

FIt is irritating for private investors: Why can they no longer buy many bonds from solid companies while risky warrants with the risk of total loss can easily be booked into the custody account? The reason for this contradiction is the EU-wide financial market rules that came into force in 2018 and were supposed to protect consumers. These are the EU directive Mifid 2 and the EU regulation Priip.

They contain countless rules for banks, stock exchanges and securities, some of which have a direct impact on private customers. The blocking of bonds is a pure formality that affected investors feel patronized by. It is also complained that banks have to record phone calls with their customers, which makes it difficult to buy securities over the phone.

The Federal Ministry of Finance now wants to respond to criticism from banks and investors and advocate the easing of individual regulations in the EU. Bank customers should be able to dispense with the recording of telephone calls by the bank and written cost information. The umbrella association of banks and savings banks, the Deutsche Kreditwirtschaft, welcomed on Wednesday that the federal government was taking customer complaints seriously. “The German legislator has recognized that the guideline has overshot the mark,” said Hans-Walter Peters, President of the BdB banking association.

Deutsche Obsession?

The Federal Ministry of Finance has sent a position paper to the EU Commission in Brussels, which contains proposals for changes to the, in some cases, bureaucratic securities rules. Until March 2020, Brussels will collect ideas from the EU member states to revise the regulations and the directive. The federal government will probably have to do a lot of persuading in Brussels and other member states. The Federal Ministry of Finance will probably have to do a lot of persuading in Brussels. Because many member states consider the aversion to telephone recordings to be a German obsession, as Germany’s top financial supervisor Felix Hufeld reported in June. The Bafin President himself would prefer to abolish the record-keeping requirement today rather than tomorrow, but doubts that this can be enforced in the EU.

The ministry also addresses the problems facing bank customers who want to buy bonds. “From our point of view, trading these products does not require any special investor protection,” says the paper. In the opinion of the Treasury Department, corporate bonds should not be treated like packaged financial products simply because they have a standardized termination clause. This is especially true for dollar bonds issued by American companies, which can no longer be purchased by private investors. Many companies reserve the right to repay their debts before the end of the term. This is not a risk for investors, who will only see their money earlier than planned.

According to a spokesman, the Stuttgart Stock Exchange therefore welcomes the position of the Federal Ministry of Finance because it would solve the problem with corporate bonds. According to a study by the Stuttgart Stock Exchange, of the 9,268 corporate bonds listed there on April 3, only 2,120 were tradable for private investors. More than three quarters of the bonds, on the other hand, were effectively blocked because the mandatory information sheets were missing or because the denomination exceeded 100,000 euros. Many companies deliberately issue their bonds with particularly high denominations in order to only appeal to institutional investors. Because then you don’t have to pay attention to the complicated EU rules.

The federal government wants to strengthen investor protection on the gray capital market, which includes holdings in shipping containers, forests, gold mines and the like. The Federal Ministry of Finance recently published a package of measures for such investment products in cooperation with the Federal Ministry of Justice and Consumer Protection.

The reason is the multi-billion dollar fraud by the investment company P&R, which sold more shipping containers to investors than there actually were. The damage to the 54,000 investors can amount to 3 billion euros. Now the two ministries want to create more transparency and strengthen the powers of the financial supervisory authority Bafin. Among other things, incomplete sales prospectuses are to be abolished, the sale of investments is to be restricted to supervised brokers and the use of funds by independent third parties is to be made mandatory.