Swiss Supreme Court clarifies the legal regime applicable to retrocessions in execution-only relationships

1. Background: Two decades of debates

The obligation of reimbursement of retrocessions is based on Article 400 of the Swiss Code of Obligations (CO), which requires an agent to account for and surrender the sums received in connection with the performance of a mandate. It results from the loyalty obligation of the agent towards the principal (Article 398 §2 CO).

The Swiss Supreme Court consistently held that retrocessions must be returned to clients in the context of discretionary asset management mandates, unless the client validly waived this restitution right. The validity of such waiver, based on the client's informed consent, gave rise to numerous court decisions that have evolved toward a broader approach of the information's content the banks must provide in order to serve as a basis for a valid waiver of the client's restitution claim.

However, the Swiss Supreme Court had repeatedly left open the question of whether the obligation of reimbursement also applied to execution-only relationships, where the bank:

• has no discretionary authority over the client's assets;
• provides no investment advice; and
• merely executes orders placed by the client.

Cantonal courts and legal scholars were divided. Some argued that all retrocessions must be returned, irrespective of the type of mandate, under the non-enrichment principle provided for in the law of mandate. Others held that the absence of decision-making power on the part of the bank in execution-only relationships excluded any relevant conflict of interest and, as such, any obligation to return retrocessions.

The judgment of January 12, 2026 resolves this controversy.

2. The Court's core reasoning: Conflict of interest as the decisive criterion

The Swiss Supreme Court held that the duty to reimburse retrocessions presupposes the existence of a risk of conflict of interest.

In discretionary asset management mandates, courts concluded that a risk of conflict of interest is inherent to the relationship, as the bank decides independently, within the framework of the strategy defined in the contract, how to invest the client's assets and, with that, could choose products generating higher retrocessions for the bank, to the detriment of the client's interests. The restitution obligation serves to prevent this structural conflict.

By contrast, in an execution-only relationship the bank acts solely as intermediary, executing clients' orders without having an influence on the product selection.

Accordingly, the Swiss Supreme Court held that there is no structural or functional conflict of interest triggering the restitution mechanism under Article 400 CO. The mere fact that a bank receives compensation from a third party is not sufficient; what matters is whether that compensation is intrinsically linked to a conflict of interest arising from the contract with the client.

Therefore, the decisive criteria is the conflict of interest, which has to be examined through a comprehensive review in light of the specific circumstances, taking into account the contractual obligations of the bank towards the client.

3. Impact on the bank's information duty from a regulatory perspective

The Swiss Supreme Court further states that the outcome of the decision would not be different should the case be subject to the Swiss Financial Services Act (FinSA), the Swiss equivalent to EU Directive 2014/65/EU (MiFID II), which was not yet in force at the time of the facts.

The Swiss Supreme Court specified that the application of Article 26 FinSA (Compensation from third parties) would depend upon the existence (or absence) of a conflict of interest. In light of that, we are of the view that Article 26 FinSA does not have a bearing on the duty (or not) of reimbursement of retrocessions, which is exclusively governed by civil law (Article 400 CO). The information on retrocessions provided by Article 26 FinSA applies to execution-only relationships, irrespective of the absence of conflict of interest in such relationships.

As such, the distinction between civil law and regulatory approaches in terms of the level of information to be provided to the client depending on the type of mandate in place may be outlined as follows:

Is the financial service provider required to inform its client about the existence of retrocessions?

4. Conclusions

With its decision of January 12, 2026, the Swiss Supreme Court has resolved one of the last open fundamental questions concerning retrocessions in the Swiss banking industry. By making the risk of conflict of interest the decisive criterion, the Swiss Supreme Court has adopted a coherent, economically sound, and legally principled solution.

The decision strengthens legal certainty, clarifies the scope of Article 400 CO, and confirms that the legal treatment of retrocessions depends primarily on the bank's role (if any) in the investment decision.

In doing so, the Swiss Supreme Court not only settles a long-standing debate but also reinforces the certainty and predictability of the Swiss financial legal framework, which comes closer to acknowledged legal concepts in the European Economic Area (EEA, including the European Union).

However, Swiss banks offering services to clients based in the EEA also have to take into account MiFID II (as further detailed in level 2 measures and transposed into national laws), as local courts in the EEA could consider under certain circumstances that these rules are applicable on the basis of the legal framework protecting consumers (so-called "Lugano Convention risk"). As far as execution-only relationships are concerned, the EEA approach to retrocessions remains stricter than the Swiss approach (even taking into account the latest Swiss Supreme Court decision), to the extent that, as a matter of principle, retrocessions may only be kept by the investment firm if they are "designed to enhance the quality of the relevant service to the client" (see Article 24 (9) (a) MiFID II). In addition, certain EU Member States go beyond the MiFID II threshold, which may amount, in practice, to a retrocession ban in relation to the provision of investment services to retail clients.

Finally, this decision of the Swiss Supreme Court does not impact execution-only relationships entered into with Swiss pension funds. These are indeed subject to specific provisions of pension fund regulations, which provide that any retrocession or similar financial benefit must be returned to the pension fund.

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Legal Note: The information contained in this Smart Insight newsletter is of general nature and does not constitute legal advice.