Bemühungen des europäischen Gesetzgebers für mehr Anlegerschutz
Rede von Frau RAin Bergdolt vor der Financial Service User Group (FSUG) der European Commission:
Dear Ladies and Gentlemen,
I am very pleased, that I get the chance to speak to you today. Let me just introduce myself to you in a few words. My name is Daniela Bergdolt. I am working as a lawyer in the field of capital market law with a special focus on the protection of small investors. Their interests have been close matters to my heart for decades now and in my opinion need special protection.
Consumer protection is a topic that is often discussed in Germany in a very emotional way. Having an eye on the trending discussion around TTIP it becomes visible. Arguments quickly reach a very fundamental level and gather around basic laws of the constitution being at danger.
In fact: The German system of consumer protection is a direct consequence of the basic economic principles, embedded in our constitution. The social market economy seeks to create a fair balance between risk and return. For consumer protection concerning the capital market this means that consumers – private investors in that field – need transparent information about the investment. To make a decision which ratio of risk and return is suitable to one‘s self, solid information is a vital need.
This transparent, solid base of information can be either provided by persons advising the private investors. Professional investment guides offer their services to private investors in order to help them finding those products on the capital markets corresponding with the personal needs of the persons seeking advice. I will tell you something about the German practice in that field. Different needs of consumers have developed different kinds of investment advisor. We will have a look onto that conception whether it is able to protect the consumer sufficiently.
On the other hand, the information can also be provided by the product itself so to say. I will show you an example – the German Pfandbrief – where the transparency needs are directly written into the legal text. Actually this is not working that bad.
The market of investment products knows different kinds of advising persons. They differ according to the range of services they offer and, in connection with this, to the legal duties, they need to comply with. The difference in duties also derives from the difference in expectations consumers have towards the different kinds of advisors. Those different advisors are „Anlageberater“ on the one side. They could be described as „investment counsels“. On the other side we have persons called „Anlagevermittler“, which could be translated as „investment broker“.
The difference is based on the personal needs of the consumer. Those consumers, who already have some experience in the field of capital market products need a different degree of information and protection in comparison to those who never had anything to do with the capital market and its products. It is not the intention of the German system of consumer protection to guard the consumer from every possible damage that awaits him when making decisions or getting in touch with enterprises. The intention is to provide the customer with all the information neccessary to liberally decide what‘s best for him. The general principle is the responsible consumer. All concepts and legal provisions need to have him as a role model in mind. Now, this is the point, where the different roles of advising persons come into play.
The „Anlagevermittler“ I mentioned before usually is the contact person for those, who already have certain knowledge or have heard something about a certain product. They are interested in an investment in this certain product and like to talk to a professional before to reassure, that the product really fulfills their needs and works the way, they expect it to from their view.
The degree of protection and information those future investors need, is, to gain some knowledge about the true nature of the product, they are interested in. The investor already has taken the decision that he probably likes to invest money in the chosen product. He does not seek advising, whether the product is appropriate and suitable for his needs and matches with his risk profile. He wants to decide this on his own. The Anlagevermittler is more or less advertising the product and wishes to convince the consumer to buy it. So the Anlagevermittler has to put straight, that he is not advising the consumer in a way that he gives advice considering the situation and the needs of the consumer.
As a consequence the legal duties of the Anlagevermittler are not very far reaching. He just has to put everything on the table consumers need to know about the product. They don‘t have to check, whether the product is appropriate and suitable to the consumer.
This is the main difference towards the Anlageberater. On top of the full information about the product he has to explore the personal situation of the consumer and advise him if the investment is suitable in the consumer’s personal situation.
Consumers seeking the advising of an Anlageberater usually have no own experience. The trust, consumers need to have in the advising is reflected in the legal duties. The Anlageberater is legally liable for the advise given. If it has not been based on the needs, the interests and the personal situation of the consumer, he has to fear legal actions by the consumer.
It is not always clear, whether the sale of an investment product has been an Anlagervermittlung or an Anlageberatung. Judges often have to decide depending on the circumstances of the certain situation, which role the advisor played and, as a consequence, which degree of legal duties he had to comply with.
For us lawyers representing investors, who have suffered a financial loss because of an incorrect advise it is very difficult to provide evidence. It already starts with the role of the advisor, whether he has been an Anlagevermittler or an Anlageberater in the certain situation. We have to rely on the information provided by our clients and only have their word as a testimony before the court.
Even though, the orientation of the legal duties to the needs of the consumer sounds good it often remains with the good sound in theory. Consumers often have a lot of trust towards the advisors in financial matters. Relying upon the advisors they sign advisory minutes unread, which practically confirm, that the advice met the legal needs. To overcome this by evidence in court is hard and judges often see the minutes as an evidence for information – too strong to overcome.
No law exists which can help the consumers against the blind trust they sometimes have in the other party. It is our job being consumer’s chairmen and to me personally it is a matter very close to my heart. We need to point out the need to insist on a proper advise and on advisory minutes that only include the topics that really have been discussed.
A legal framework, no matter if it takes place at national or the European level can‘t deliver anything and over-regulation can‘t be the final goal. In the end we need consumers knowing their alternatives and choices, ready to claim their rights towards those who don‘t act in their very own interest.
I‘m going to pick up the scenario of overregulation I just mentioned and bring forward a German approach towards covered bonds, where the tightrope walk between overregulation and consumer protection just worked out well. With the Pfandbrief Act, the Pfandbriefgesetz, Germany has chosen a way of strong regulation of a capital market product. In this case it showed off that it is exactly this strong regulation, which makes the Pfandbrief a highly interesting investment product for many private and institutional investors.
I like to give an input to the discussion, in how far an integrated European framework on covered bonds is reasonable by presenting the main parts, giving identity to the German Pfandbrief.
In its first chapters the Pfandbrief Act gives requirements to financial institutes, who wish to endorse covered bonds under the framework of this law. From the view of consumer protection it is worth mentioning that credit institutes need to prove, that they are able to monitor the risks connected with the covering transactions. There is a provision that the credit institutes need to set up a monitoring system (§ 27). Beyond this, reporting instructions are content of the law.
The product itself, the Pfandbrief is also part of legal regulatory provisions. There needs to be an excess-coverage relative to the cash-value by 2 % (§ 4). All covering values are to be laid down in a register, which is monitored by the Federal Financial Supervisory Authority (BaFin) (§ 5). The banks also have to name a trustee (§ 7), who is monitoring the covering values.
There are 3 classes of Pfandbriefe. Mortgage Pfandbriefe, public-sector Pfandbriefe and ship- or airplane Pfandbriefe. All other kinds of covered bonds do not fall within the regulation of the Pfandbrief Act.
The Act also regulates how the coverage of the bonds needs to be structured.
In the field of mortgages, the mortgage itself may only cover up to 60% of the value of the bond. The remaining value needs to be covered with other regulated instruments (§ 19). The real estate property, on which the mortgage is based, has to be situated in the EU, the EEA (EWR), the USA, Canada or Japan (§§ 13, 14)
There is a similar regulation for public debt bonds. The public debts can only be endorsed by the mentioned states or by those, whose creditworthiness is rated 1 by acknowledged rating agencies (§ 20).
For ship- and airplane Bonds there exists the same 60%-limit as for mortgages. In addition to that, the ship or the airplane needs to be insured by at least 110 % of its value.
A special regulation is the insolvency privilege. It is an additive security element for investors. In case the endorsing institute becomes insolvent, the covering values of the Pfandbriefe will not be treated as assets of the institute but form an own asset, which is not affected by the insolvency. This is a strong protective element for investors, because they do not have to carry the risk of the bank’s insolvency (§ 30).
So what do we see? Covered Bonds under the legislature of the Pfandbrief Act are a Capital Market Product, which meets the requirements of the responsible consumer. Especially the transparency provisions are helping consumers make their investment projectable. By means of high covering requirements the investment is also relatively secure.
Of course there is also a disadvantage connected to this structure of covered bonds. I am talking about the so called Asset Encumbrance. It is the effect of binding assets within the bank’s balance, which are used as coverage for the bonds. The consequence is, that, in case of insolvency those investors, who hold Pfandbriefe are economically in a better position than those creditors without Pfandbriefe.
However, this disadvantage should not lead to a softening of the insolvency privilege of Pfandbrief holders in the course of a future harmonization of the European law on covered bonds. It is probably the insolvency privilege together with the strong covering requirements, which has led to the fact, that Pfandbriefe are now mentioned in the same breath as government securities from the experience of the global financial crisis.
A consequent consumer protection on the Capital Market is hard to achieve.
It can be reached by a legislation that promotes transparency and appropriate securities. As the example of the Pfandbrief Act shows, the market will honor good transparency by high ratings and a good reputation.
But no legislation can provide 100% security. Consumers must not be given the image, that financial decisions do not bear any risk. This can‘t be the objective of a legislator having in mind the responsible consumer.
But those consumers, who enter the capital market with open eyes and an open mind and rely on the laws protecting consumers, must have the guarantee not to find themselves in a situation not foreseeable. For me, this must be the heading of European Consumer Protection.
Thank you for your attention.