Germany: Disclosure Requirement On Profit Margins And Commissions

Last Updated: 5 December 2012
Article by Jan Kraayvanger, Dr. Jochen Seitz, Thorsten Voss and Thomas Lesser
Most Read Contributor in Germany, September 2016

Originally published 30 November 2012.

The disclosure requirement on banks' remuneration in the sales of securities is the subject of numerous, sometimes contradictory decisions of German courts. The Federal Supreme Court (Bundesgerichtshof, BGH) took the opportunity to deal with this issue in various decisions, most recently in June and October 2012. The following sections will provide you with a summary of the BGH's most current jurisdiction, which is in particular relevant for the sale of certificates.

Principle: No disclosure requirement on profit margin

Credit institutions regularly execute customer orders on the purchase of securities as dealing on own account with fixed price or on a commission basis (No. 1 paragraph 1 Special Conditions for Dealings in Securities). Pursuant to current BGH jurisdiction, banks are, in both cases, apart from two exceptions not required to disclose their profit obtained.

Fixed-price transaction

When conducting a fixed-price transaction, credit institutions are not obliged to disclose their profit margin. It is irrelevant if the transaction is a proprietary trading (purchase or sale of financial instruments on the bank's own account as a service to others, cf. Section 2 paragraph 3 sentence 1 no. 2 German Securities Trading Act (Wertpapierhandelsgesetz, WpHG)) or a proprietary business (purchase and sale of financial instruments on the bank's own account that are no service for others, pursuant to Section 2 paragraph 3 no. 2 sentence 1 WpHG, cf. Section 2 paragraph 3 sentence 2 WpHG). The only decisive factor is that the bank acts as the seller (BGH, decision of October 16, 2012, XI ZR 367/11, margin no. 29). It is then obvious for the customer that the bank pursues its own (profit) interests, and no specific reference in this regard is required (cf., inter alia, BGH, decision of October 16, 2012, XI ZR 367/11, margin no. 27; BGH, decision of March 22, 2011, XI ZR 33/10, margin no. 38; BGH, decision of September 27, 2011, XI ZR 178/10, margin no. 40). This applies irrespective of whether the bank recommends its own or external investment products (inter alia, BGH, decision of October 16, 2012, XI ZR 367/11, margin no. 27). It is irrelevant in this context whether the bank purchases the investment products before or after the advisory meeting with the customer. There is no disclosure requirement for the bank, even if it pays a lower price for the purchase of the securities than it invoices the investor when reselling the product, provided that the value of the securities is not affected (inter alia, BGH, decision of September 27, 2011, XI ZR 182/10, margin no. 39). Furthermore, it is irrelevant how the bank realizes its profit interests during a sales transaction. It is particularly insignificant whether a bank receives a "commission" or a "discount" from the issuer for the sale of the securities (BGH, decision of October 16, 2012, XI ZR 367/11, margin no. 28).

Commission-based transaction

For the commission-based transaction as well, there is no disclosure requirement on the commissions received by the bank (BGH, decision of June 26, 2012, XI ZR 355/11, margin no. 27; BGH, decision of October 16, 2012, XI ZR 367/11, margin no. 32). Frequently, it is left to chance whether the purchase of securities is effected on a (purchase) commission basis for the investor, or as a fixed price transaction (BGH, decision of June 26, 2012, XI ZR 355/11, margin no. 49). Provided that the investor only pays the price for the securities, which is equivalent to the nominal value, but does not have to pay commission or other charges to the bank, the commission-based transaction is, from the investor's economic perspective, identical to the fixed-price transaction (BGH, decision of June 26, 2012, XI ZR 355/11, margin no. 49). The bank's intention to make a profit is obvious in the context of commission-based transactions as well, so that no disclosure in this regard is required (BGH, decision of June 26, 2012, XI ZR 355/11, margin no. 27).


There are two important exceptions from the principle that disclosure requirements on commissions do not exist: the disclosure requirement on kick-backs, and that on internal commissions.


Kick-backs are commissions paid by the issuer to the bank. The issuer pays the commissions from commissions that are openly disclosed to the investor, such as agio or administration fees. These must be disclosed, as otherwise the interest of the advising bank in the recommendation of the specific product would not be evident to the investor (inter alia, BGH, decision of October 16, 2012, XI ZR 367/11, margin no. 34; BGH, order of March 9, 2011, XI ZR 191/10, margin no. 25; BGH, order of August 24, 2011, XI ZR 191/10, margin no. 4).

However, independent investment advisors that are not bound to a bank are not subject to the disclosure requirement on kick-backs. Without being asked accordingly, they are not obliged to provide an explanation on a commission expected from an investment. For the investor, it is obvious that investment advisors receive sales commissions from the issuer (BGH, decision of March 3, 2011, III ZR 170/10, margin no. 20).

Internal commissions

Internal commissions are undisclosed sales commissions that are covertly contained in the securities purchase or set-up costs. The existence and amount of internal commissions must always be disclosed if they have an influence on the value of the investment purchased by the investor, as they might cause a misconception on the part of the investor (BGH, decision of September 27, 2011, XI ZR 178/10, margin no. 42; BGH, decision of February 12, 2004, III ZR 359/02).

Please click here to read this article in German.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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