Landmark decision of the Swiss Federal Supreme Court on third-party benefit

On 12 February 2026, the Swiss Federal Supreme Court ruled that financial institutions are not obliged to pass on the third-party benefits received in an “execution-only” relationship with clients, as opposed to a discretionary investment management relationship where payment to clients is mandatory unless a valid waiver has been obtained.

The Swiss Federal Supreme Court confirmed that the duty to return third-party benefits depends on whether they may generate a conflict of interest (i.e. that the financial institution favours its own interests to the detriment of the client).

Discretionary vs execution-only

According to the Swiss Federal Supreme Court, this risk exists in a discretionary investment management relationship where financial institutions make independent investment decisions and may be tempted to favour financial instruments that offer significant third-party benefits.

This conflict-of-interest risk is absent in a genuine execution-only relationship where clients select their own investments and the role of financial institutions is limited to executing clients' orders.

Decision at stake

In this case, the third-party benefits took the form of commissions paid by product providers under the terms of the distribution agreement. These commissions compensate distributors for their placement efforts and are usually calculated based on the assets under management at the fund level.

The Swiss Federal Supreme Court found that there was no risk of a conflict of interest since the client made all investment decisions independently, and had the necessary knowledge and experience. Furthermore, the financial institution (a bank) had no discretionary or advisory capacity. Furthermore, the receipt and amount of retrocessions depended on the client's decisions rather than the bank's actions, and there was no concrete evidence that the bank had chosen between platforms or brokers based on the level of third-party benefits. If this last point is discussed, it is essentially solved due to constatations of the court of first instance not contested before the Swiss Federal Supreme Court. From a practical point of view, providing clear information on costs and available brokers would eliminate any risk of being accused of favouring one broker over another, particularly if the client is able to choose the brokers.

Clarification on article 26 of the Financial Services Act (FinSA)

The Swiss Federal Supreme Court confirmed that, as a public law provision, Article 26 FinSA has no direct effect on private-law relationships. While Article 26 FinSA applies to all financial services, including execution-only services, it is also based on the notion of conflict-of-interest. In the absence of such a conflict, the application of Article 26 FinSA is irrelevant.

Key takeaways

Absent of potential conflict of interest, a mere enrichment based on third-party benefit is not subject to the duty of return. As a rule, an execution-only relationship, lacking advisory elements, will not trigger a duty to return third-party benefit.

EU regulation has adopted for many years a clear position on third-party benefits, which may be allowed provided that the benefit received is intended to improve the quality of the service provided to the client, and does not impair the investment firm's obligation to act honestly, fairly, and professionally in the best interests of its clients (art. 24 para. 8 MiFID II as specified by art. 11 Delegated Directive (EU) 2017/593 of 7 April 2016). The decision of Swiss Federal Supreme Court is an indication that Switzerland is following a similar approach, even if the decision focuses on monetary benefits, and does not specifically address the notion of quality improvement.

Outlook

This landmark decision confirms that the crucial conditions to establish a duty of restitution is based on the existence (or not) of a conflict of interest. Such existence is typically presumed in the context of an advisory relationship, particularly when the provider has a discretion on investments. In the absence of such conflict, the retrocession can be conserved by the financial institutions.

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