Entitlement to distribution fees / Decision of the Federal Supreme Court of January 13, 2011

The Federal Supreme Court ruled that the fees a distributor of structured products (or collective investment schemes) receives from an issuer belong to the distributor and do not have to be passed on to the customer.

In its decision 6B_223/2010 the Criminal Division of the Federal Supreme Court had to decide whether a bank manager was guilty of having committed the criminal offence of unfaithful management pursuant to art. 158 of the Swiss Penal Code (ungetreue Geschäftsbesorgung). Between December 2006 and 2009 the bank manager transferred distribution fees of approximately CHF 1.5 million which were paid to the bank by the issuer of structured products to his (ultimately) personal bank accounts. In this context, the court had to reason out the preliminary civil law question whether a bank receiving distribution fees must pass them on to its asset management client for whose account the financial products were purchased.

This issue was controversially discussed in Swiss legal literature following a Federal Supreme Court decision of March 22, 2006 (FCD 132 III 460) where the court clearly stated that retrocessions an independent asset manager receives from the deposit bank of his client must be passed on to the client since such payments are directly connected with and immediately result from the asset manager’s contractual services to the client.

In the case at hand, the court reasoned that distribution fees – in contrast to retrocessions – are not paid to the bank due to a (asset management) mandate between the client and the bank but for services rendered by the bank to the issuer of a financial product. As a consequence, the court held that the bank is entitled to retain such fees.

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