BaFin

The Bundesanstalt für Finanzdienstleistungsaufsicht supervises banks, insurers and investment firms in Germany, working alongside the Deutsche Bundesbank on prudential matters. German authorisation carries MiFID passporting across the European Economic Area, and BaFin's reputation for procedural thoroughness is earned rather than assumed.

What authorisation requires

An investment firm needs capital under the Investment Firms Regulation, management whose professional suitability BaFin assesses individually, and organisational, risk and compliance functions with documented procedures. Client money is held under MiFID client asset rules with segregation and reconciliation.

German firms also fall under national deposit and investor protection arrangements determined by their legal form: a Wertpapierhandelsbank sits within the deposit guarantee framework, an ordinary investment firm within the investor compensation scheme.

Leverage and retail protections

ESMA product intervention applies: 30:1 on major currency pairs, 20:1 on non-majors, gold and major indices, 10:1 on other commodities, 5:1 on shares, 2:1 on crypto, with margin close-out at 50% and negative balance protection per retail account.

BaFin acted before ESMA on one point and has kept it: it prohibited the marketing, distribution and sale of CFDs with an additional payments obligation to retail clients in 2017, effectively mandating negative balance protection in Germany a year ahead of the European rule. It has separately restricted certain complex products where it judged retail comprehension inadequate.

If a broker fails

The Entschädigungseinrichtung der Wertpapierhandelsunternehmen compensates clients of a failed investment firm for money and instruments the firm cannot return, covering 90% of the claim up to a statutory ceiling per client. Cover for a firm authorised as a bank runs through the deposit guarantee scheme instead, at a higher limit.

Verifying an authorisation

BaFin publishes a company database of authorised institutions and, separately, warnings and enforcement notices about unauthorised business. Search the exact legal entity, and note whether the firm is authorised in Germany or merely passporting in from another EEA state — the compensation scheme that applies is the home state's, not Germany's, and for a passported firm that can mean a €20,000 Cypriot ceiling rather than a German one.