Retrocessions in “execution only” relationships: the Swiss Supreme Court confirms its landmark ruling and applies it to remunerations related to in-house structured products

On 21 December 2005, a client (the “Client”) opened an "execution only" account with a Swiss bank (the “Bank”). A sophisticated external advisor (the “EAM”) was granted a power of management over the account. Upon the EAM’s instructions, the Bank executed several Dual Currency Deposit (“DCD”) transactions – structured products combining a cash deposit with the sale of a currency option – between May 2009 and February 2010. The DCDs were issued by an affiliate of the Bank. In relation to each of the DCD transactions, the Bank received distribution fees from the product issuer.

The business relationship between the parties ended in March 2011.

In September 2017, upon the Client’s request, the Bank disclosed to the Client that it had received a total of USD 518,612.62, EUR 369,698.28 and CHF 322,933.89 in retrocessions (distribution fees) in connection with the DCD transactions. The Client claimed restitution of these amounts which the Bank refused.

The second instance cantonal court, as well as the Swiss Supreme Court in the decision addressed here, rejected the Client’s restitution claim.

The outcome of this case hinges upon two main legal questions:

(a)     How should the bank-client contractual relationship be legally characterized, namely the question as to whether the relationship was a pure “execution only”, respectively an advisory or discretionary management (as per the Client’s assertion)?

(b)     What are the prerequisites for a duty to pass retrocessions on to the client under Art. 400(1) of the Swiss Code of Obligations (“SCO”) in an “execution only” relationship?

In an “execution only” relationship, the bank’s sole obligation is to execute the client’s specific investment instructions.

That being said, the Supreme Court emphasized that, under Swiss law (Art. 18 SCO), the contractual characterization does not depend solely on the written agreement executed by the parties and therefore an “execution only” relationship on paper could, for example, be re-characterized as an advisory relationship if, on the facts and circumstances of the case:

• the bank provides information and/or advice on a specific investment on the client’s request and the bank realises that the client is unaware of the risks involved in that transaction; or
• the bank contacts the client to recommend certain investments, whilst the client’s knowledge and experience do not enable him or her to assess and bear the risk of such an investment, which the bank knows or should know.

Such recharacterization into an advisory relationship is possible even if the bank is not remunerated for the advice provided (precisely because, on paper, the relationship is structured as an “execution only” relationship).

In the case at hand, it appears that the first component of these two prerequisites was met, as the Bank had provided to the client’s representative (the EAM) proposals for investments in DCDs on the representative’s request, respectively had offered new investments when a product reached maturity. That being said, the Court held that the client's representative (the EAM) had the relevant knowledge and expertise (which was therefore attributed to the Client) to assess and decide on the investments. Consequently, the Court refused the recharacterization as an advisory relationship.

Relying on its landmark ruling of 12 January 2026[1], the Swiss Supreme Court reaffirmed that the prevention of conflicts of interest is the central criterion – not merely an additional element – for determining whether a financial benefit received by the agent from a third party (i) is intrinsically linked to the performance of the mandate (and thus subject to restitution to the client except if the latter has validly waived such restitution claim) or (ii) was merely received on the occasion of the mandate without an intrinsic connection to it (and thus not subject to restitution).

In an “execution only” relationship, the agent has no discretion over the client's assets, provides no investment advice, and his role is limited to executing orders. Absent any ability to influence the execution of orders, the bank is not in a situation of conflict of interests and any retrocession (or similar remuneration, such as distribution fees) is not subject to the duty of restitution of Art. 400(1) SCO.

The Court nevertheless specified that it is not possible to categorically exclude all conflicts of interest in an “execution-only” relationship solely by virtue of its legal nature. A holistic assessment must be carried out in light of the specific facts and circumstances, taking into account the concrete contractual obligations, in order to determine whether the relevant retrocessions create a risk of conflict of interest.

[1]      For further information on this landmark ruling (matter n° 4A_149/2025), please refer to our Legal Insight published on 18 February 2026; see as well our article in French on the direct and indirect remuneration of financial service providers (Rémunération directe et indirecte du prestataire de services financiers) published by the Swiss Association of Asset Managers: www.vsv-asg.ch/fr).

In the decision summarized here, the Swiss Supreme Court has consolidated the principles established in its landmark ruling of 12 January 2026 (4A_149/2025) and applied them to a new factual scenario involving in-house structured products. The decision is helpful in that it confirms that the "conflict of interests" criterion is the central and decisive test for determining whether retrocessions are subject to restitution under Art. 400 SCO.

That being said, a case-by-case assessment remains necessary: the mere “execution only” label does not automatically exclude any restitution claim. Rather, the absence of conflict of interests must be established based on the concrete facts and circumstances of the relationship. This applies in two dimensions: (i) the existence of a true “execution only” relationship (as opposed to an advisory relationship) and (ii) the lack of conflict of interests in the “execution only” relationship because the financial service provider does not have any discretion upon rendering its services.

In the case at hand, the fact that the Client was represented by an EAM was certainly a key fact to support the position that the Bank was acting in a mere “execution only” capacity.

Taking one step back, the following points are worth noting:

• Waiver of restitution right: In the case at hand, the waiver of the right to restitution of retrocessions set forth in the Bank’s general terms and conditions had been declared invalid by the Court of First Instance (because it lacked specificity and had, apparently, not been updated since the initiation of the banking relationship in 2005). This turned out to be irrelevant for the outcome of the case, insofar as the Supreme Court ruled that no restitution was owed by the Bank due to the execution only nature of the relationship and absence of any conflict of interests.
• Advisory relationships: This ruling should also be read in conjunction with a decision of the Geneva second instance court (Cour de justice) of 10 March 2026[2], in which the court focused on the actual relationship between the parties rather than the mere contractual classification. The court held that the existence of an "advisory relationship" is not, in itself, a sufficient basis for a restitution claim: the client must demonstrate that the investments giving rise to retrocessions were effectively made on the bank's recommendation, as opposed to being executed on the client's own initiative. In short, the label matters less than the substance.
• Structured products: This decision addresses the topics of retrocessions received in the context of (in-house) structured products. This decision could be seen as a cautionary signal as the complex remuneration flows generally present in the context of structured products, in particular in-house products (e.g., distribution fees, strategy or product advisory fees, transaction fees and spreads, etc.), are likely to generate additional legal debate in the future given the regulator's focus on this topic (see the recent FINMA Communication 03/2026[3]).
• In-house products: The case originated from financial products issued by an affiliate of the Bank (and thus an in-house financial product), where the Bank was receiving certain commissions from the issuer (in the case at hand, distribution fees). Even though the decision was rendered in a civil law context, the topic of the remuneration in the context of in-house financial products (be it structured products or collective investment schemes) sits very high on the agenda of FINMA (see the Explanatory Report on the FINMA Circular 2025/02[4]).
• Best execution: As far as conflicts of interest are concerned, the decision briefly touches upon the topic of “best execution”, but the Court quickly dismisses this argument raised by the Client. That said, in situations where the financial intermediary (typically a bank) has a “choice” when executing a client instruction (for example, the choice of trading venue), the topic of "best execution" could gain traction, both from a civil and a regulatory (Art. 18 of the Swiss Financial Services Act) perspective. Swiss banks should in particular address this through an appropriate internal policy that also reflects the EU dimension of the topic, at least for banks serving EU-based clients.

[2]     Matter n° ACJC/439/2026 of 10 March 2026

[3]     For further information on this FINMA Communication, please refer to our Legal Insight published on June 22, 2026.

[4]     This document is available here. Please refer in particular to Section 4.3.4.