German Federal Supreme Court rules on mis-selling claim against direct bank providing execution-only services

On 19 March 2013, under file No XI ZR 431/11, the German Federal Supreme Court clarified the circumstances in which an investor may have a mis-selling claim against a ‘direct bank’ (in other words, a bank holding an account for the deposit of securities on an execution-only basis only).

No implied advisory agreement generally exists between an investor and a direct bank. Incorrect advice by an independent adviser instructed by an investor cannot be attributed to a direct bank. Only the financial institution that has the closest relationship to an investor has a duty to enquire as to investment experience. A direct bank may, however, be liable if it is aware or should have been aware that an investor is receiving negligent advice. The burden of proof is on an investor to show this knowledge…

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