The German Derivatives Association (DDV) and the German Banking Industry Committee (DK) propose principles for the issuance and distribution of credit-linked notes

The German Derivatives Association (Deutsche Derivate Verband – DDV) and The German Banking Industry Committee (GBIC) have proposed that their members adopt principles for the issuance of credit-linked notes for distribution to retail clients. In doing so, the organisations address the concerns of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). On 28 July 2016, BaFin issued a draft general administrative act on prohibiting the sale of credit-linked notes to retail clients.

GBIC and the DDV affirm that, in their opinion, the prerequisites for introducing the proposed prohibition have not been met. Nevertheless, they take the concerns expressed relating to investor protection very seriously. Among the principles presented to BaFin, therefore, only simply structured credit-linked notes are to be issued for distribution to retail clients in Germany. The previous German product description of “Bonitätsanleihe” is to be replaced by “bonitäts-abhängige Schuldverschreibung” (the product will still be referred to as a credit-linked note in English). Issuers are to select only companies with a sufficiently high credit rating as the reference entity. Stringent requirements are also laid down with respect to product distribution: for example, credit-linked notes are not to be distributed to retail clients in the lowest two risk tolerance categories. In addition, retail investors are to be provided with more extensive information when investment advice is provided for this product.

The recommendation of GBIC and the DDV is addressed to banks in Germany that issue or distribute credit-linked notes. The institutions are to implement the principles from 1 January 2017. This will establish a uniform market standard which, in the opinion of GBIC and the DDV, will eliminate the concerns expressed by BaFin.

contact:

Alexander Heftrich
Deutschen Derivate Verband
Phone: +49 (69) 244 33 03 – 70
Mobil: +49 160 805 30 34
heftrich@derivateverband.de