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Federal Court of Justice confirms banks now obliged to disclose all commissions when advising clients

Under previous German case law, the courts have held that banks giving investment advice must make a disclosure if they receive part of the distribution fees mentioned in the prospectus.

Now in a recent decision1 the court has considered distribution fees which were not set out as such, but were paid out of the amount invested ("hidden" or internal commissions). Whether and under what conditions a bank must disclose to clients if it receives such commissions from the issuers has been a continuing subject of debate. It was already clear that if a commission was 15% or more then it had to be disclosed. For all other commissions, however, the position was less clear.

The Federal Court of Justice has now answered this question but has done so in one way for past transactions and in another way for future claims. The court held that up to that date banks would not be considered negligent for not disclosing such commissions, therefore could not be held liable (a very helpful clarification). However, for advice given from August 2014 onwards, the court declared banks must assume a contractual obligation towards their clients to disclose all commissions they receive from issuers, no matter what the amount, where the fees come from and what type of investment is involved. In reaching its decision, the court relied on a new law which came into force in August 2014, widening banks' related regulatory obligations. The court found that a general transparency principle guided banks' regulatory obligations to disclose all commissions and thus extended these to a direct contractual liability towards clients.


1. Judgment dated 3 June 2014, file No XI ZR 147/12.

Legal and Regulatory Risk Note