Guideline ruling on retrocession (Ruling 4A_508/2016)
Swiss Federal Supreme Court: Ruling 4A_508/2016 of 16 June 2017.
The claim to the return of retrocession has a limitation period of ten years. In their guideline ruling the Swiss Federal Supreme Court put an end to a vivid discussion that had been going on for years. Retrocessions are considered refunds or rather hidden commissions. The present case was about an international organization that had appointed a company to conclude contracts with insurance companies, which collected retrocessions and the question was whether the broker would have to hand over the retrocession even though a period of five years since the payment had elapsed.
By setting a limitation period of ten years, the ruling may have far-reaching consequences. Experts specializing in banking law think that the considerations of the Swiss Federal Court are of basic significance and should thus also be applied to banks’ commissions. The discussion about retrocessions gathered momentum after a Swiss Federal Supreme Court judgement in October 2012, when the Court decides that banks would have to pay back retrocessions to clients with asset management mandates. The question of whether the clients’ claim to retrocession expires after five or ten years had been left unanswered. At the time the banks had claimed that it was five years.
In the meantime the banks have entered settlements with asset management clients and have resolved the dispute amicably. The ruling of the Swiss Federal Supreme Court might help institutional bank clients that have been making their own investment decisions, so-called execution-only-clients. According to experts some of the cases pending with these clients have not been settled conclusively.