More protection planned for small investors

In recent years it has been shown that the legal protection of small investors is not enough. The Bundestag is now discussing how risks can be identified more easily in the future. A ban is also planned.

From Eva Lamby-Schmitt, ARD capital studio It was a shock for investors and experts alike when three companies in the P&R group of companies went bankrupt – completely surprising. 54,000 investors feared for their money . Together they had invested more than three billion euros. The billion-dollar bankruptcy of the container rental company P&R has shown: That Small Investor Protection Act of 2015 is not enough. The protection of investors must be further strengthened, according to the federal government’s draft law, which the Bundestag is discussing for the first time today.

Facilitate risk assessment

The main thing is more transparency, explains Sarah Ryglewski, Parliamentary State Secretary at the Federal Ministry of Finance. “By publishing documents on the BaFin website on which investors base an investment decision,” she explains. In this way, private investors should be able to better assess the risks in the future. In addition, advisors and investment brokers are to be supervised by the Federal Financial Supervisory Authority (BaFin). “That is a clear step and has not been the case so far,” says Ryglewski, “so we also say here: In future, sales may only be permitted by supervised consultants and intermediaries.”

Prohibition of “blind pools” planned

A certain form of investment is to be banned completely in the future: so-called “blind pools”. This is a form of investment in which it has not yet been determined which specific investment objects will be financed with the investor’s money. “That is simply not suitable for private investors because they do not know what they are investing in and the possible risk is not really clear either,” says Ryglewski. “In the future, no more money may then be collected from private investors through publicly offered investments.” The ban on blind pools is the right step, says Stefan Loipfinger, an analyst at investmentcheck.de. But in his opinion the draft law is not enough to protect investors from fraud. “In future, the legislature will prevent providers from being allowed to sell products themselves. But it does not prevent investment brokering from taking place,” says Loipfinger.

The use of funds is to be monitored in the future

But at least: A case like the one at P&R, in which the company used the investors’ money for purposes other than intended, is no longer possible with the new law, explains Loipfinger. “Because there has to be a control of the use of funds who checks that an investor’s money actually flows into the investments, as stated in the prospectus.” For Stefan Schmidt from the Green parliamentary group in the Bundestag, the new draft law is a step in the right direction. “However, you have to look at this in detail again to see whether the measures are really sufficient or whether – from my Greens perspective – you don’t even have to go a little further.” In the end – everyone agrees – it is important that investors are well informed and advised on their behalf. The FDP member of the Bundestag Florian Toncar is calling for less bureaucracy. “More paper alone is not the solution. It is more that we talk about the quality of information, that we make it clearer and uniform for all product categories.” Clear information – that is exactly what well-informed investors need.