{"id":30481,"date":"2006-11-21T00:14:38","date_gmt":"2006-11-20T23:14:38","guid":{"rendered":"https:\/\/www.fiala.de\/?p=30481"},"modified":"2026-06-22T21:42:44","modified_gmt":"2026-06-22T19:42:44","slug":"kick-backs-mifid-liability-banks-intermediaries-asset-managers","status":"publish","type":"post","link":"https:\/\/www.fiala.de\/en\/kick-backs-mifid-liability-banks-intermediaries-asset-managers\/","title":{"rendered":"Kick-backs and MiFID: Billions in Liability for Banks, Intermediaries and Asset Managers"},"content":{"rendered":"

“You only get rich by doing things you don’t desire.”<\/em> (Mahatma Gandhi, Indian politician, 1869 – 1948)<\/p>\n

Growing risks arising from kick-backs<\/h3>\n

Following developments in Switzerland, the issue of kick-backs is now increasingly giving rise to legal proceedings in Germany as well, whenever a client feels misled by their financial service provider or financial services institution. The courts generally find in favour of clients, so that claims for damages can be pursued with a relatively high prospect of success.
\nCredit institutions are, of course, the most likely targets of such claims, because they usually have a stronger credit standing than a cooperating independent asset manager.<\/p>\n

The allegation against the bank is then that unlawful commissions flowed to an asset manager or intermediary. These so-called kick-backs were subsequently concealed from the client. Judges frequently regard such conduct as fraudulent and as damaging to the client’s assets. More recently, this case law has also been extended to companies associated with intermediaries who are not themselves asset managers.<\/p>\n

Occasionally, financial services institutions argue that there is no duty of disclosure towards the client. Yet the numerous judgments handed down over the years – in particular those of the BGH (Federal Court of Justice) in civil, professional-conduct and criminal matters – show that the legal position in Germany is clear. The “surprise” expressed by German market participants at recent civil and criminal rulings from Switzerland can, at best, be taken as a sign that they have not been well advised themselves.<\/p>\n

Legal principles<\/h3>\n

A duty of disclosure applies where kick-back arrangements are in place.<\/p>\n

Kick-backs are payments (for example commissions or fee reimbursements) made to the manager in addition to the fees the client pays directly. It has recently become clear that this obligation affects not only asset managers in the narrow sense, but may also extend to intermediaries. It is also helpful to ask whether the client knows the total costs involved, including “overheads” and similar commissions: alongside the prohibition on concealed “kick-backs”, the transparency requirement towards the client must be observed.<\/p>\n

Obligation to surrender, or to agree otherwise: kick-backs must be surrendered to the client by the manager (or agent) in accordance with §§ 675<\/a>, 667<\/a> of the BGB (German Civil Code), unless the client has effectively waived this right. It follows from the transparency requirement that the client must also know the amount of money involved. A liability trap already arises from the fact that information not understood by the client due to inexperience may render a waiver ineffective or voidable.<\/p>\n

This also means that certain “portfolio commissions” and “service fees” (for example in the fund business, or in connection with occupational-pension brokerage or time-account management) are at stake. A duty of disclosure applies both to the asset manager (or intermediary) and to the bank.<\/p>\n

For asset managers, the legal basis for the duty of disclosure is Section 31(2) sentence 1 no. 2 WpHG (German Securities Trading Act). The bank – especially where a securities account is held there and the fees are “deducted” from the client – is likewise obliged to disclose. This too is borne out by years of countless judgments (for example BGH of 19.12.2000 – XI ZR 349\/99<\/a>; OLG Cologne of 20.2.2002 – 13 U 140\/00<\/a>; OLG Stuttgart of 16.2.2005 – 9 U 171\/03<\/a>; LG Stuttgart of 12.9.2003 – 8 O 128\/03<\/a>). This duty of disclosure exists in law independently of the manager’s (or agent’s) own obligation. The rule always applies: concealment may give rise to criminal liability for fraud or breach of trust (§§ 263<\/a>, 266 StGB<\/a> – German Criminal Code).<\/p>\n

And under the EC MiFID Directive?<\/h3>\n

Every investment services firm is required to inform the client about any repayment – even partial – of third-party costs charged to the client (“kick-back contracts”), as well as about the obligation under commission law to surrender these amounts. The firm is also obliged to disclose any agreed cash payments or other benefits of monetary value (for example research findings or service fees) that it receives directly or indirectly and that are economically connected with client transactions.<\/p>\n

MiFID provides, in Article 18, that the investment services firm must disclose to the client the general nature and\/or sources of conflicts of interest before transacting business on the client’s behalf, where the organisational or administrative arrangements for managing such conflicts are not sufficient. This is intended to ensure that any risk of harm to the client’s interests is effectively prevented. In addition, in order to avoid conflicts of interest, organisational precautions must already be taken pursuant to Section 32 WpHG (German Securities Trading Act) in conjunction with Section E of the Code of Conduct, so as to prevent the following sales or advisory practices:<\/p>\n

Churning<\/h3>\n

Recommendations trigger a disproportionate number of transactions, and the resulting costs are unreasonably high in relation to the capital invested and the achievable profit.<\/p>\n

Scalping<\/h3>\n

Recommending transactions to the client in order to influence the price with a view to one’s own proprietary trades. In particular, any misleading influence on the formation of clients’ views, or any deception of clients (for example through fictitious or arranged transactions), must be avoided.<\/p>\n

Front-running, parallel-running and cross-running<\/h3>\n

The conclusion of proprietary transactions on the basis of knowledge or expectation of a client order, which may result in disadvantages for the client.
\nOther conflicts of interest: for instance, by combining different investment services under one roof. These may also involve kick-backs. Where conflicts of interest cannot be avoided, the client must be informed accordingly.<\/p>\n

*by Johannes Fiala, Lawyer (Munich), Mediator (Univ.), MBA Financial Services (Univ. Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer (Univ. of Cooperative Education), Banker<\/p>\n","protected":false},"excerpt":{"rendered":"

“You only get rich by doing things you don’t desire.” (Mahatma Gandhi, Indian politician, 1869 – 1948) Undisclosed kick-backs increasingly expose banks, intermediaries and asset managers to billions in liability. German courts side with clients, and concealment may even amount to fraud or breach of trust.<\/p>\n","protected":false},"author":4,"featured_media":30479,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":"","rank_math_focus_keyword":"","rank_math_description":"","rank_math_title":""},"categories":[492],"tags":[506,552,181,743,812,500],"class_list":["post-30481","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-veroeffentlichungen-en","tag-bav-en","tag-bundesgerichtshof-en","tag-kick-backs","tag-kick-backs-en","tag-liability","tag-zeitwertkonten-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/posts\/30481","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/comments?post=30481"}],"version-history":[{"count":1,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/posts\/30481\/revisions"}],"predecessor-version":[{"id":30675,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/posts\/30481\/revisions\/30675"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/media\/30479"}],"wp:attachment":[{"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/media?parent=30481"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/categories?post=30481"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fiala.de\/en\/wp-json\/wp\/v2\/tags?post=30481"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}