Retrocessions: ‘landmark’ rulings of the Swiss Federal Supreme Court

Some years ago the highest Swiss court, the Federal Supreme Court, has ruled in 2 ‘landmark’ decisions that if a Bank or Asset Manager purchases an investment product (an investment fund, a structured product, equities, bonds etc.) from a financial products provider for a client portfolio and receives in return a commission from the provider of this investment product, the Bank or Asset Manager has an obligation to distribute/pass on this commission directly its client.

  1. The Swiss Federal Supreme Court, 22. March 2006, (BGE 132 II 460): retrocessions received by Asset Managers from Banks belong to the clients of the respective asset management mandates.
  2. Swiss Federal Supreme Court, 30. October 2012, (BGE 138 II 755): this ruling extended the duty of restitution; not only Asset Managers are bound to restitute the retrocessions received from Banks, but also the Banks have to pass on hidden commissions they receive from financial product providers to clients with discretionary mandates (since inducements for distributing investment products were likely to skew the incentives of a Bank, such payments qualify as benefits received in connection with the agreement and were, thus, covered by the duty to account for profits).

Almost every purchase or transaction that a Bank or Asset Manager executes  for its clients (purchases of ‘house’ or third party equity funds, brokerage, structured products, fixed income, cash management etc …), leads to a commission paid to the Bank or Asset Manager. It is estimated that the sum of all these charges are about 0.5% -2%+ (depending on how the investment portfolio has been completed) per year, calculated on the total assets under management.

The previously cited judgment of the Swiss Federal Supreme Court dates from 30. October 2012. This means that the claim against the Swiss Bank/ Asset manager must be submitted at the latest before the end of October 2017. The window for submitting claims is closing soon (5 years from the time when one could reasonably know that one may have a claim against a Swiss Bank / Asset Manager). This is due to the Swiss statutory limitation period of five years. Swift action should be taken in order to reclaim any retrocession!

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