Outline, In this chapter, we discuss problems related to kickback payments in financial transactions. After a short introduction into the nature of kickback payments, we identify these problems and briefly address solutions that have been discussed under German law (section 2). We then turn to EC legislation, in particular Directive 2004/39/EC on Markets in Financial Instruments (the MiFID Directive) and subsequent instruments that are meant to elaborate this Directive and demonstrate the way in which the Directive addresses kickback payments as ‘inducements’ (section 3). While the new rules have been the subject of heated debate between the banks and consumer groups, the German implementation of EC legislation is, at first glance, scandalously bank-friendly (section 4). In contrast, we propose to use findings from research on behavioural finance to interpret the law correctly and to propose a stricter reading of the EC rules on inducement and implementing legislation (section 5). We also discuss whether more stringent national rules on kickback payments are still allowed following the adoption of the MiFID Directive (section 6). Finally, we return to the general issue of deciding between procedural and substantive mechanisms to protect customers of investment services against unconscionable transactions (section 7). Kickback payments in financial transactions and related problems Kickback payments First of all, what are kickback payments? Here we are looking at investors who use a bank or any other investment firm (for simplicity's sake, we will refer to banks) to get advice with regard to investment decisions – such as the purchase of stocks, shares in investment funds or other investment instruments.