Contract provisionsTypes of contract
Describe the various types of private banking and wealth management contracts and their main features.
Private banking contracts include discretionary mandates, advisory mandate, securities account agreements, account agreements and execution-only mandates.
- Discretionary mandates empower the asset management company to administer, on the client’s behalf and for his or her account, his financial assets (monies, financial instruments, undertakings for collective investment in transferable securities shares). The asset management company will take all investment decisions without the prior consent of the client.
- An advisory mandate allows the client to receive personalised investment recommendations and advice based on his or her profile.Clients shall deposit the funds or securities to be managed with a credit institution, which will have custody of the securities, keep the cash and securities account and keep accounts of transactions on the various markets.
- Execution-only mandates provide terms and conditions for the execution of orders on behalf of the client without any specific recommendations or suggestions other than the general duty of information.
The parties may choose the governing law subject to complying with the mandatory provisions of Monegasque law.
In practice, Monegasque law is usually chosen as the governing law in private banking contracts concluded in Monaco.
It should also be noted that where a banking or wealth management activity is directed in a foreign activity, the chosen governing law cannot be in contradiction with the consumer protection rules of the foreign country in which the client is domiciled. A few exceptions are, nevertheless, provided by article 70 of the Monegasque Private International Law Code.Liability standard
What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?
Financial institutions owe a duty of information and advice towards their clients. According to case-law, courts consider on a case-by-case basis the failure of a private bank regarding its duty of vigilance, information and advice:
- regarding the duty of due diligence, financial institutions shall detect the apparent discrepancies affecting the client’s account activity; and
- concerning the duty of advice, it may be lightened in the case of a sophisticated client or if the client expressly accepted the risks related to the contemplated transaction.
Private banking contracts usually provide for a period of between one and six months for challenging operations. The expiry of this period does not prevent the client from challenging the operations, but shifts the burden of proof onto the client rather than the financial institution.
Contractual limitation of responsibility, if any, will not be applicable in the case of gross negligence by the financial institution. Moreover, in the event of litigation, the court will decide on a case-by-case basis upon the application of the contractual limitation of responsibility.
In the case of a discretionary mandate, financial institutions shall be responsible if investment decisions have been made outside the scope of the agreed mandate.Mandatory legal provisions
Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?
A management mandate shall set out the service provider’s obligations towards the client. The agreements shall be drawn up in duplicate and signed by the client and the company. One copy shall be provided to the client.
Before the contract’s conclusion, the company must make enquiries about the client’s objectives, investment experience and financial situation. The proposed services must fit the client’s financial situation and experience in financial products. The authorised company shall provide the client with all relevant information (management objectives, classes of financial instruments that the portfolio may contain; nature and frequency of the client’s information, applicable fees, term of the mandate and the conditions for renewing or terminating it).
Where the mandate allows leveraged transactions, the client’s express consent must be given in a special agreement that indicates the conditions under which such transactions are to be carried out and how the client is to be informed of them. The mandate must state the risks attached to specific transactions.
Concerning accounts agreements, the parties must sign a written agreement in order to open an account. The depository credit institution shall not accept deposits or withdrawals of funds or securities on the asset management company’s initiative unless the client has issued a special power of attorney in writing, renewable for each transaction.
Concerning the reception and transmission of orders, any authorised company mandated to transmit orders with a view to their execution on financial markets by an intermediary authorised to take part in trading must be able to provide proof that each order has been given by the client. Authorised companies must inform their clients of the conditions for transmitting orders.Limitation period
What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?
Since 21 December 2013, the general limitation period for civil claims in Monaco has been five years. A special limitation period is also provided for claims brought by professionals against their clients for the services they render.
Private banking contracts usually provide between one to six months for challenging operations. After such a delay, clients remain able to file a claim, but the burden of proof is then shifted onto the client from the financial service provider.
Law stated dateCorrect on
Give the date on which the information above is accurate.
27 May 2020.