Retrocession reclaim with Liti-Link: A practical example

Using this practical example, we want to show you how banks avoid court rulings. Liti-Link has encountered numerous similar cases where banks refuse to pay retrocessions and make the process as difficult as possible. This case study will demonstrate how banks evade court judgments. Retrocessions are a persistent issue in the Swiss banking sector. As early as 2006, the Federal Supreme Court in Lausanne ruled that retrocessions fundamentally belong to the bank customers. Since then, the highest court has reaffirmed and clarified this principle in seven additional judgments. Despite this, the questionable business model of Swiss banks remains unknown to many investors. Banks continue to refuse to pay the retrocessions owed to their customers, citing various inadequate waivers.

The behavior of banks is easy to understand. A study by Finalix AG shows that in 2012 alone, around CHF 4.2 billion, or 12.4% of the added value in the banking sector, was generated through the business model of retrocessions.

However, reclaiming retrocessions can be worthwhile! Here, we report on the case of one of our clients, for whom Liti-Link was able to reclaim retrocessions amounting to approximately CHF 500,000 from a Swiss major bank.

The former client of the Swiss major bank commissioned Liti-Link AG in July 2019 to reclaim retrocessions. After the Geneva-based bank refused to pay the retrocessions collected, citing various waivers and the existence of an execution-only relationship, Liti-Link AG filed a lawsuit with the Zurich Commercial Court on 04.09.2020.

After an exchange of documents between the parties, a settlement hearing took place in October 2021. In this hearing, the Commercial Court reviewed the case. The judge deemed all the waivers presented by the financial institution invalid and inadequate. It was also reaffirmed that the obligation to surrender retrocessions depends not only on a conflict of interest but also on the intrinsic connection between the mandate and the payment of retrocessions, and therefore, even in execution-only mandates, there is an obligation to surrender the retained retrocessions.

Contrary to the Commercial Court's legal opinion, the bank and its lawyers maintained their position. Consequently, Liti-Link AG and the Swiss bank could not reach an agreement before the Commercial Court. While the Liti-Link team, together with our lawyers, focused on initiating another lawsuit, the same bank decided to fully refund the retrocessions three weeks after the settlement hearing, thus rendering the procedure moot and the case dismissed as resolved. This allowed the Swiss financial institution to avoid another negative ruling regarding retrocessions.

Although approximately CHF 500,000 was refunded, the damage incurred by the private bank is evidently manageable. A judgment, particularly in connection with execution-only mandates, would likely have drawn the attention of several investors to the issue of retrocessions. Despite the clear assessment during the settlement hearing by the Zurich Commercial Court, the same bank insists on its legal position regarding further claims acquired by Liti-Link, which were also assigned by existing or former clients. Thus, initiating further proceedings to enforce the retrocessions owed to clients will be unavoidable.