1. Introduction
The German Federal Financial Supervisory Authority (BaFin) has recently taken action to enhance investor protection in the market for leveraged financial products, specifically so-called "Turbo Certificates". These measures, set out in a general administrative act, introduce significant restrictions on the marketing, distribution, and sale of Turbo Certificates to retail clients in Germany. The European Securities and Markets Authority (ESMA) has since reviewed BaFin's intervention, providing important context for market participants operating across the EU. ESMA's publication outlines the key aspects of BaFin's act, the underlying rationale, and ESMA's reaction.
2. Background: Turbo Certificates and Investor Risks
Turbo Certificates, also known as knock-out products, turbos or mini futures, are leveraged financial instruments typically issued as unsecured bearer debt securities by banks and securities firms. They enable investors to participate in the price movements of an underlying asset - such as equities, indices, commodities or future contracts - with a multiple of the invested capital. In regulatory terms under EU law, Turbo Certificates are classified as financial instruments within the meaning of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II) (Article 4(1)(15) in conjunction with Annex I, Section C), that synthetically track the underlying's price movements with leverage. A defining feature is the "knock-out" mechanism: if the underlying touches or crosses a pre-set barrier price, the certificate terminates immediately, typically resulting in a total loss of the invested amount, even if the barrier is only breached briefly or the underlying subsequently moves in the anticipated direction over the longer term. As a result, these products can offer substantial returns but they are also associated with significant risks, including the potential for rapid and total loss of the invested amount. The complexity and leverage inherent in Turbo Certificates have raised concerns about their suitability for retail investors, particularly in volatile market conditions.
BaFin's intervention follows an extensive market survey which was conducted in 2024. BaFin published key findings from the survey in a publication on its website on 21 May 2025 indicating that approximately 74% of retail clients incurred losses when trading Turbo Certificates between 2019 and 2023 (i.e. during the COVID pandemic). The average loss per investor was about EUR 6,358, with aggregate losses estimated at over EUR 3.4 billion. BaFin grounds its measures in the combination of high product complexity, occasionally aggressive marketing practices and, in many cases, insufficient investor understanding. The objective is to strengthen investor protection by placing greater emphasis on transparency, investor education and risk assessment within distribution channels.
3. BaFin's General Administrative Act: Key Provisions
In response to these concerns, BaFin issued its general administrative act introducing product intervention measures under Article 42 of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (MiFIR) read together with Section 15 of the German Securities Trading Act (Wertpapierhandelsgesetz). These provisions empower BaFin to limit or prohibit the distribution of specific financial instruments where they present significant risks to retail investors. BaFin's intervention reflects a growing trend among European regulators to address the risks associated with complex and leveraged products, particularly in light of increased retail participation in financial markets. BaFin also published a consultation setting forth the rationale for the measures.
3.1 Three key protective measures
BaFin is ordering three key protective measures applicable to all addressees (intermediaries, issuers and providers) who sell Turbo Certificates to retail investors in Germany:
Enhanced mandatory risk warning: The addressees are obliged to display a standardised risk warning, which can be found in Annex I of the general administrative act. This must clearly state that seven out of ten retail investors suffer losses when trading Turbo Certificates. The risk warnings must be clearly visible in every communication relating to the marketing, distribution and sale of Turbo Certificates. Intermediaries, issuers and providers must ensure that third parties who advertise Turbo Certificates on their behalf also include this risk warning in their communications relating to Turbo Certificates.
Prohibition of purchase incentives: The addressees are prohibited from offering small investors any kind of advantage in connection with the distribution, sale or marketing of Turbo Certificates that could induce them to trade in Turbo Certificates. This prohibition covers both monetary and non-monetary advantages. For example, order fees may not be reduced or waived for Turbo Certificates, nor may new customer bonuses be granted. Analysis tools, tutorials, training courses or the provision of stock market prices are not considered prohibited benefits.
Knowledge test: Before retail investors purchase Turbo Certificates, they must answer at least the six multiple choice questions provided by BaFin on trading these products in Annex 2 correctly. This is to verify that retail investors understand how the products work. This knowledge test must be repeated at least every six months. It should also be noted that the new measure does not affect the obligation to carry out the necessary appropriateness assessment within the meaning of Article 25(3) of MiFID II. BaFin emphasises that its measure are not to be understood as a supplement to, or adjustment of, the appropriateness assessment, but rather as a separate instrument for the protection of retail investors. Even experienced investors must pass the knowledge test before they are allowed to purchase further Turbo Certificates. Only professional clients are exempt from this obligation and may continue to trade without completing the test. Investors who do not pass the test initially are temporarily prohibited from purchasing Turbo Certificates but may retake the test immediately.
3.2 Implementation Deadline and Extraterritorial Effects
The measures of BaFin have explicit extraterritorial effects as they are binding on all firms marketing, distributing, or selling Turbo Certificates to retail clients in Germany, regardless of their country of establishment. The extraterritorial effect ensures that foreign market participants also comply with the requirements when operating in the German market, thereby supporting consistent application of investor protection principles.
Relevant firms must implement the new measures by 16 June 2026 at the latest. 1
1 Following a consultation, the original deadline was extended from three months to eight months to give institutions sufficient time to integrate the knowledge queries and risk warnings on turbo certificates into their trading systems from a technical and organisational perspective.
4. ESMA's Review and Reaction
Under MiFIR, national competent authorities such as BaFin are required to notify ESMA of proposed product intervention measures. ESMA's role is to assess whether such measures are justified, proportionate, and consistent with EU law, and to ensure that they do not create undue barriers to the functioning of the internal market.
Following its review, ESMA did not object to BaFin's general administrative act. In its opinion, ESMA acknowledged the specific risks posed by Turbo Certificates to retail investors in Germany and recognised BaFin's right to impose stricter national measures as justified and proportionate in view of local market conditions. ESMA also emphasised the importance of consistent application of product intervention powers across the EU, while allowing for national discretion in response to particular risks.
BaFin also informed ESMA that it has consulted national competent authorities in three other Member States, including the Dutch Authority for the Financial Markets (AFM) who pointed to the similarities between turbos and contracts for differences (CFDs) and advised BaFin to consider including leverage limits in its measures. BaFin responded that, in its view, leverage limits would be redundant with the knock-out threshold and would constitute an unreasonable restriction on market makers. ESMA expressed concerns that BaFin's measures may not fully address the investor protection concerns and may have a more limited impact compared to having leverage limits imposed and therefore recommends that BaFin closely monitors the impact of its measures.2
ESMA continues to monitor the implementation of product intervention measures across Member States to ensure a high level of investor protection and the smooth functioning of the internal market.
5. Implications for Market Participants
Market participants offering Turbo Certificates to retail clients in Germany must ensure full compliance with BaFin's general administrative act. This includes reviewing product features, marketing materials, and distribution arrangements to ensure alignment with the new requirements. Firms operating on a cross-border basis should also be mindful of the potential for divergent national measures within the EU, and the need to adapt their offerings accordingly.
ESMA's acceptance of BaFin's measures provides regulatory certainty for the German market while signalling the potential for similar national interventions in other Member States where comparable risks are identified.
6. Conclusion
BaFin's general administrative act on Turbo Certificates marks a significant step in the regulation of leveraged products for retail investors in Germany. ESMA's supportive response highlights the importance of robust investor protection measures, while maintaining a harmonised approach across the EU. Market participants should take prompt action to ensure compliance and monitor further regulatory developments in this area.
2 See No. 86 and 87 of the ESMA public statement.
