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Nature of claims

Common causes of action

What are the most common causes of action brought against banks and other financial services providers by their customers?

The most common source of claims against banks and other financial services providers is the alleged misselling of financial products. Misselling is not a cause of action in itself. Claims are usually brought under the concept of breach of contract. Ever since 1979, the German Supreme Court for Civil and Commercial Matters (BGH) has applied the doctrine that where a customer approaches a bank with a view to being advised on acquiring a financial product, the bank and the customer will ipso facto implicitly enter into an ‘advisory’ or ‘consulting agreement’ (see VII ZR 259/77). Under such an implicit advisory agreement, the bank has a duty to give advice that benefits both the customer and the financial product. This means that the bank is under a contractual duty to identify the needs of the customer as well as his or her willingness and capability to assess and to accept the risks involved. The bank then has to identify a financial product that is adequate for those needs and risk levels or has to give advice on the financial product that reflects these needs and risk levels, or both. These duties apply regardless of whether the bank is the direct counterparty of the customer or whether the bank acts only as a broker and the costumer acquires a third party’s financial product.

In addition, claims can arise in relation to misleading information in listing particulars and prospectuses or other published information (or delay to such a publication), which are actionable under the Securities Trading Act (WpHG).

Further, banks and financial services providers are subject to regulatory duties, which are enforced by the the Federal Financial Supervisory Authority (BaFin) as the national German regulator. Detailed rules are set out in the Ordinance to specify the Rules of Conduct and Requirements of Organisation for Financial Service Providers (WpDVerOV), which include an obligation to ensure that communications with customers are clear, fair and not misleading (section 4 of the WpDVerOV). However, breaches of such statutory duties are generally not actionable per se by a ‘private person’.

Non-contractual duties

In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?

Aside from the contractual claims described above, banks and financial institutions may be subject to tort claims in cases where they provide incorrect information or advice. In general, however, and different from claims brought under the doctrine of the advisory contract where simple negligence will suffice, claims brought under tort require that intent to harm be demonstrated. This is true for the tort of ‘intentional infliction of economic damage in violation of bonos mores’ under section 826 of the Civil Code (BGB), as well as for the tort of ‘violation of a protective law’ under section 823(2) of the BGB. Under section 823(2) of the BGB, the violation of any statute may result in a damage claim, provided that the statute in question is one that is meant to protect the rights of an individual, namely, a ‘protective law’.

The statutory duties owed to the regulator under the provisions of the WpHG do not constitute such protective law. This has been established in a number of decisions handed down by the BGH over the course of the years. Accordingly, the traditional view was that these duties also do not come into play indirectly, for example, by defining the scope of any contractual duties owed under the doctrine of the advisory contract. On the contrary, the BGH had repeatedly stated that the contractual duties follow their own regime and may, depending on the individual situation between the parties, exceed the scope of the regulatory duties or stay behind them.

However, in a 2014 landmark decision (XI ZR 147/12), the BGH held that, irrespective of the above, ever since the beginning of 2014, EU and German law had developed into a web of regulations so tightly knit that customers could expect the bank to abide by the relevant rules, including those that call for full transparency in customer dealings. As a result, the contractual relation between bank and customer has been shaped by the substance of the bank’s regulatory duties. The exact scope and limitations of this new concept are still developing.

Statutory liability regime

In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?

Yes. Misleading statements or omissions in prospectuses are actionable under sections 21 et seq of the Securities Prospectus Act (WpPG), as well as under the Capital Investment Code (VermAnlG), the Investment Act (InvG, up until the entry into force of the KAGB in July 2013) and the Capital Investment Act (KAGB). Misstatements in ad hoc notifications or omissions therein are actionable under sections 37b and 37c of the Securities Trading Act (WpHG).

The WpPG applies to shares that are traded in a regulated stock exchange market. The VermAnlG covers investments that are not governed by the WpPG but rather bonds in trust assets, other closed-end funds or registered bonds. The InvG has been integrated into the KAGB, which governs any collective investment undertaking that raises capital from multiple investors in order to invest the capital in accordance with a predetermined investment strategy for the investors’ benefit, unless this undertaking is an operating company outside of the financial sector. While each regime has its specifics, all three of them contain a liability regime in case a prospectus is incorrect or incomplete.

To rely on the regime of the WpHG, the claimant investor has to demonstrate that:

  • the financial institution omitted to publish an ad hoc notification (section 37b of the WpHG) or issued incorrect information in an ad hoc notification (section 37c of the WpHG);
  • the financial institution invested in a financial instrument after the omission and still held it when the information become public or invested in a financial instrument before the insider information that was omitted came into existence and divested it after the omission; or
  • the misstatement or omission caused some form of damage.

The investor does not need to show that the financial institution acted intentionally or was grossly negligent. While this is a prerequisite for the financial institution’s liability, the burden of proof is reversed under the WpHG.

In the context of claims based on sections 37b and 37c of the WpHG, or on the WpPG, it should be added that these claims may form the basis for model case proceedings under the Capital Market Investors’ Model Proceeding Act. If a total of nine claimants group together, they can file a request that overarching issues with relevance for each individual litigation be tried and decided by the competent court of appeals. These issues include, for instance, whether an ad hoc notice was published in a timely manner. The court of appeals will, however, not ultimately award damages to the individual claimants; this will be reserved for the individual trial courts.

There is no specific statutory regime that governs incorrect periodic financial disclosures such as year-end accounts or quarterly financial reports. However, where these are wrong, this may give rise to claims under the principles of market manipulation. Where the mistake is discovered but not corrected, this may cause claims under the principles of ad hoc notifications pursuant to the WpHG.

Duty of good faith

Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?

Where a customer approaches a bank with a view to taking an investment decision, a separate contractual relationship will arise. Under this contractual relationship, the bank owes duties of good faith and fair dealing, as it would under any other contract (see question 1). The specific scope of these duties is, however, in flux, all the more so since it is not yet entirely clear what effects the 2014 decision mentioned above will have on the regime of contractual duties (see question 2). At this point, the position may be summarised as follows: in addition to owing advice that is adequate with a view to both the customer and the financial instrument in question (see question 2), a bank is under a duty to disclose all factors that may be relevant for the customer when making the investment decision. As a result of this and of the indirect effects of the regulatory duties on the contractual regime under the 2014 decision, the bank is under a duty to disclose all circumstances material to the investment decision. This includes any circumstances that might create a conflict of interest for the bank when advising the customer. The bank is, therefore, under a duty to be transparent about, for example, kickbacks and provisions paid by third parties.

Fiduciary duties

In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?

Fiduciary duties will arise as part of the aforementioned implicit advisory contract where the customer approaches the bank with a view to being advised on making an investment decision. As an exception to this general rule, no such advisory relationship will arise where the customer is not seeking advice but merely instructs the bank to complete the transaction (‘execution-only’). Nonetheless, even in these circumstances, the bank still owes duties of care.

Separately, fiduciary duties will arise where the bank expressly accepts the position as a fiduciary (eg, as a trustee in complex financial transactions). Fiduciary duties may also arise, but to a lesser extent where the bank provides more mundane banking services such as maintaining a checking account.

Master agreements

How are standard form master agreements for particular financial transactions treated?

Standard form master agreements, such as the International Swaps and Derivatives Association (ISDA) Master Agreement, or, its German-law equivalent, the German Master Agreement for Financial Derivative Transactions (DRV), published by the Association of German Banks (BDB), can be entered into by the bank and its customer and will then govern the contractual relationship.

Because of the venue clauses contained therein, German courts have not had much opportunity to consider the ISDA Master Agreement. They have, however, occasionally had to deal with the DRV, which provides for non-exclusive jurisdiction of the courts at the location of the bank’s branch office that signed the agreement (often German courts when a German bank is involved). When courts have had to deal with the DRV, most issues that arose have concerned clauses 7, 8 and 9, which deal with termination, compensation and damages payment and the final payment.

In this context, one decision needs to be highlighted in particular. In a judgment of 9 June 2016 (IX ZR 314/14), the BGH held that the close-out netting provisions in clauses 8 and 9 of the DRV are not to be applied in cases where the netting is triggered because the counterparty has fallen into insolvency (which is an automatic termination event under clause 7(2) of the DRV). The court held that in such a case the close-out netting provisions of the German Insolvency Code (InsO) override the contractual netting stipulations in the DRV. The main consequence is that the date for the close-out netting is different. While under the DRV, in case of insolvency, the close-out netting amount is calculated at the date of the filing for insolvency; under the InsO, the amount is calculated on the second working day following the opening of the insolvency proceedings.

Following the BGH’s decision, the BaFin issued a general order to effectively ignore the court’s ruling and to continue applying the DRV clause-out netting provisions as before. This general order was binding on all banks and financial institutions regulated by BaFin and expired at midnight on 31 December 2016. Before the expiry of the BaFin’s general order, the German legislators amended section 104 of the InsO in order to allow contractual close-out netting to take effect already before the formal opening of the insolvency proceedings and to allow the parties to shape the methodology for calculating the netting positions, crucially by agreeing that the close-out netting amount is calculated at the date of the filing for insolvency.

Limiting liability

Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?

Banks can limit their liability by way of contract. There are, however, statutory restrictions to how far these limitations may go. In particular, banks, like any other contractual party, cannot pre-emptively exclude liability for intent. Additional restrictions apply where banks wish to limit their liability in standard terms and conditions or master agreements subject to German law. In these instances, liability for gross negligence cannot be excluded and, in both instances, applies to business-to-customer and business-to-business transactions alike.

Freedom to contact

What other restrictions apply to the freedom of financial institutions to contract?

If financial institutions repeatedly use pre-formulated business terms, the German statutory regime of standard business terms applies. Under this regime, financial institutions are subject to a number of restrictions. In the business-to-consumer context, these restrictions are stricter than in the business-to-business context. The BDB published, and regularly updates, model standard business terms (banking conditions) that take account of German law and standard business terms. The banking conditions may still be subject to scrutiny by the courts.

German law provides for a catalogue of clauses that are prohibited in business-to-consumer standard business terms. For example, liquidated damages clauses are inoperable if the liquidated damage exceeds the loss to be expected in the ordinary course of business, or the consumer is not expressly given the opportunity to demonstrate that no damage has occurred, or that the damage is considerably lower than the amount of liquidated damages.

In terms of contractual penalties, clauses in business-to-consumer standard business terms are inoperable when the financial institution is promised a contractual penalty in case of non-acceptance or late acceptance of the contractual performance, payment default or in case the contractual partner withdraws from the contract.

Litigation remedies

What remedies are available in financial services litigation?

Depending on the nature of the claim, remedies can be specific performance, damages, rescission and injunctive relief. In cases of breach of contract, damages, including loss of profit, are usually claimed. The claimants seek to be placed in a position as if they had never entered into the contract with the financial institution. Injunctive relief may also be available, depending on the nature of the claim.

Limitation defences

Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?

Two recent developments are worth mentioning in this context. Both relate to the interruption of the statutory limitation period.

The first development relates to the interruption of the limitation period by obtaining an ex parte payment order. The payment order is generally available in cases of a payment claim. The payment order will be rendered on an ex parte basis and can be challenged only once it has been served. Under German law, an application for a payment order is not admissible if the payment claim is dependent upon a consideration or performance by the applicant that is still outstanding. This becomes relevant particularly in misselling cases in which the investor, if it is requesting to be put in the position it had been in without the alleged misselling, usually has not yet returned the investment to the financial service provider or bank (which is ultimately required). If, in the application for the issuing of a payment order, the applicant knowingly omits that this consideration or performance by the applicant is still outstanding, this will not interrupt the limitation period. Based on the principles of good faith, the applicant who knowingly makes a false statement in the application cannot rely upon the effects on the payment order (BGH, 23.6.2015, XI ZR 536/14).

The second development relates to conciliation proceedings, which offer another possibility to interrupt the limitation period. Conciliation proceedings have been introduced by the legislator as an alternative dispute resolution (ADR) tool to settle disputes out of court. They are cheaper and, provided that the other side agrees to participate, usually less time-consuming than litigation. Since conciliation proceedings can be commenced on the basis of a relatively short description of the underlying dispute, they have been a popular means for private litigants to interrupt the limitation period in mass-claim misselling cases. In fact, many law firms used to submit numerous essentially identical applications for the commencement of conciliation proceedings to conciliators on the last day prior to the limitation period expired. In a landmark decision dated 18 June 2015, the German Federal Supreme Court decided that pro-forma applications for conciliation do not suspend the limitation period for misselling claims if the applications are too generic and do not contain details of the financial product concerned, the amount invested, the advice given and of the relief sought by way of the application. The cases determined by the BGH related to private investors who had used model form applications for conciliation that had been drafted by lawyers and offered to the wider public, which have been adopted by a significant number of investors (BGH, III ZR 189/14).

Procedure

Specialist courts

Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?

German procedural law does not generally provide for such a specialist court to hear financial services disputes. However, at the district court level, as well as at the court of appeals level and at the BGH, often certain chambers are specifically assigned to financial services disputes. The requirements for cases to be heard in these chambers differ. While the judges sitting in these chambers are not specialists in the sense that they have to meet special requirements that would distinguish them from other judges, the chambers have developed a special expertise in financial services disputes.

Procedural rules

Do any specific procedural rules apply to financial services litigation?

In general, German law does not provide for specific procedural rules to apply to financial services litigation. There is one exception in the field of group actions, where a model plaintiff will be chosen to represent a group of claimants. This entails a number of very specific alterations to standard civil procedure.

Arbitration

May parties agree to submit financial services disputes to arbitration?

Yes, where the arbitration agreement was entered into in a business-to-business context, in other words, between banks and professional or institutional customers or corporates. However, contrary to other industries, arbitration is not common in the banking industry. Pursuant to section 37h of the WpHG, with respect to investment services, ancillary services or financial futures and forward transactions, consumers cannot enter into an arbitration agreement before the dispute arises; private individuals will be able to do so only where they are acting not as a consumer but as a commercial party under the German Commercial Code. Non-compliance with section 37h of the WpHG may result in the denial of recognition and enforcement of an arbitral award.

Out of court settlements

Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?

There are no specific ADR provisions for financial disputes. On a voluntary basis, a number of banks offer non-mandatory conciliation proceedings to settle a dispute out of court. For further discussion of the general provisions, refer to Getting the Deal Through: Dispute Resolution 2018, question 34.

Pre-action considerations

Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?

No. There is no pretrial discovery, disclosure or pre-action communication under German procedural law. For further discussion of the general provisions, refer to Getting the Deal Through: Dispute Resolution 2018, question 4.

Unilateral jurisdiction clauses

Does your jurisdiction recognise unilateral jurisdiction clauses?

Yes. Unilateral jurisdiction clauses are generally recognised in Germany.

This holds true for clauses that allow for a choice between two or more state courts. There are two limitations to this general rule:

  • under German law, only commercial parties, corporate bodies under public law and special funds under public law can enter into a venue clause prior to the emergence of a dispute; and
  • if the beneficiary of the unilateral jurisdiction clause is the defendant party, the claimant has to request the defendant to opt for one jurisdiction within a reasonable timeframe prior to initiating the proceedings in order to pre-empt the defendant’s right to choose the venue at a later stage. If, upon request, the defendant does not react within the timeframe, it may be estopped from doing so at a later stage. Where such a jurisdiction clause is contained in the standard terms, the aforesaid has to be expressly provided for in the clause.

Unilateral jurisdiction clauses that allow a claimant party to choose between litigation and arbitration (‘split jurisdiction clauses), are also generally recognised in Germany. This also holds true if the split jurisdiction clause is incorporated in standard business terms.

Split jurisdiction clauses are often used by financial institutions in cross-border transactions with counterparties seated outside the European Union; in particular, seated in jurisdictions where no enforcement treaty is in place that would ease the enforcement of German court decisions. In these situations, financial institutions can benefit from the opportunity to enforce an arbitral award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Care must be taken because some jurisdictions may find that split jurisdiction clauses violate the principles of public policy and will therefore refuse recognition and enforcement of the arbitral award.

Disclosure

Disclosure obligations

What are the general disclosure obligations for litigants in your jurisdiction? Are banking secrecy, blocking statute or similar regimes applied in your jurisdiction? How does this affect financial services litigation?

There are no general disclosure obligations in German civil proceedings. Still, the principle of banking secrecy is relevant in the contexts of a bank’s employee’s right to refuse to give evidence. In general, employees of banks are entitled to refuse to give evidence on facts that fall under the banking secrecy; namely, facts that the bank became aware of because of, or in the context of, the relationship to its client. Banking secrecy usually encompasses the name and address of a client.

However, the BGH only recently allowed one exception from this general rule in a case where the holder of a trademark demanded that a bank provide name and bank account details of a bank client who obviously used the bank account for payments connected to the infringement of the trademark (I ZR 51/12 - Davidoff Hot Water II). This case is not strictly related to financial services litigation, but rather has its background in intellectual property law.

Protecting confidentiality

Must financial institutions disclose confidential client documents during court proceedings? What procedural devices can be used to protect such documents?

In answering this question, one has to distinguish two scenarios. In the first scenario, the bank would be requested by one of its clients to disclose confidential client documents. Insofar as these documents pertain specifically to the client, the bank has to disclose the confidential information; subject to a procedural or material duty of disclosure.

If, in the second scenario, the bank is a third party to the proceedings, disclosure of documents can only be requested if a specific document can be identified and the requesting party can convince the court that the document is relevant for the dispute. The law is usually narrowly construed and not frequently applied by German courts. Even if the requirements are met, a bank can invoke banking secrecy and refuse to provide documents provided that the specific document falls under the principle (district court of Bonn, 10 O 486/13).

Disclosure of personal data

May private parties request disclosure of personal data held by financial services institutions?

Private parties may request disclosure of their own personal data from financial service institutions under the German Data Protection Code. A request can be denied because of factual impossibility and if a special interest cannot be manifested.

Data protection

What data governance issues are of particular importance to financial disputes in your jurisdiction? What case management techniques have evolved to deal with data issues?

Under German procedural law, there is no disclosure or discovery. Parties are expected to provide all the evidence that they rely on. There are, however, limited means for a party to request document production. In such cases, banking secrecy may, in theory, be an issue to be considered (see question 17).

Interaction with regulatory regime

Authority powers

What powers do regulatory authorities have to bring court proceedings in your jurisdiction? In particular, what remedies may they seek?

The basic principle in Germany is that the regulator will take regulatory measures by issuing an order. This order may then be challenged by the addressee before the German courts, often the administrative courts. The orders are often directly enforceable. This enforceability is not suspended if the order is challenged in the courts. However, a bank may apply for a stay of enforceability.

Under the applicable laws, in particular the WpHG and the German Banking Act (KWG), the regulator is authorised to take any measure necessary to protect the financial markets. The regulator can, among other things:

  • prohibit the trade of individual or several financial instruments (section 14(1) of the WpHG);
  • suspend the trading of individual or several financial instruments (section 14(1) of the WpHG);
  • prohibit or restrict the marketing, distribution and sale of specific financial instruments or structured capital contributions, financial instruments or structured capital contributions with specific features (section 15 of the WpHG);
  • prohibit or restrict a specific form of financial activity or financial practice (section 15 of the WpHG);
  • impose measures that are appropriate and necessary in order to remove or prevent deficiencies that impair the regular conduct of trade with financial instruments, investment services or ancillary services (section 6(1) of the WpHG);
  • impose measures that are appropriate and necessary in order to enforce the requirements and prohibitions under the WpHG (section 6(2) of the WpHG);
  • impose measures for the improvement of equity capital and liquidity (section 45 of the KWG);
  • impose measures in cases of structural deficiencies (section 45b of the KWG);
  • appoint a special representative and empower him or her to carry out specific duties within the financial institution (section 46c of the KWG); and
  • impose measures if the financial institution’s fulfilment of its obligations towards its creditors is at risk (section 46 of the KWG).

Disclosure restrictions on communications

Are communications between financial institutions and regulators and other regulatory materials subject to any disclosure restrictions or claims of privilege?

As noted in question 14, there are no general disclosure obligations in civil proceedings in Germany. At the same time, however, financial institutions cannot generally invoke claims of privilege with respect to such communication. However, to the extent that the communications pertain to banking secrecy, the bank may legitimately refuse to make such information available. The employees of BaFin are generally bound by a statutory confidentiality obligation. There are exceptions to this rule; for example, in cases of criminal investigations.

Disclosure requests directed at BaFin under the Freedom of Information Act have largely been dismissed so far (a prominent decision by the court of Kassel, 6 A 1071/13 and 6 A 1598/13).

In light of the European Court of Justice’s (CJEU) decision of 19 June 2018 (Case C-15/16), it remains to be seen whether the German courts will hold this position. The CJEU held that not all information relating to a supervised entity and communication with the BaFin, as well as the entire file, including the correspondence with other supervisory bodies, per se, qualify as professional secrets and therefore are exempt from disclosure. This just applies to information held by BaFin that is not public and the disclosure of which is likely to affect adversely the interests of the person who provided the information or of third parties, or the proper functioning of the system for monitoring the activities of investment firms. As regards the interpretation of the term business secret, which bars disclosure of information, the CJEU rules as follows:

‘[I]nformation held by the competent authorities that could constitute business secrets, but is at least five years old, must, as a rule, on account of the passage of time, be considered historical and therefore as having lost its secret or confidential nature unless, exceptionally, the party relying on that nature shows that, despite its age, that information still constitutes an essential element of its commercial position or that of interested third parties.’

Since the CJEU was approached for a preliminary ruling only, it is now for the German courts to apply these principles to the individual case.

Private claims

May private parties bring court proceedings against financial institutions directly for breaches of regulations?

No. A party may bring a claim if the party’s individual rights have been breached (eg, under a contract or by way of tort). As mentioned in question 1, the breach of regulatory duties may be reviewed and adjudicated indirectly, but there is no ‘private enforcement’ of regulatory duties as such.

More broadly speaking, German law allows for consumer protection organisations to sue businesses for certain market misuses under, for example, the Unfair Competition Act or under the law on standard contract terms and conditions. However, these powers do not extend to genuine matters of banking regulation.

In a claim by a private party against a financial institution, must the institution disclose complaints made against it by other private parties?

No general disclosure obligations exist, whether pre-trial or over the course of a litigation. Therefore, there is no general procedural duty for a financial institution to disclose complaints made against it by other private parties.

Enforcement

Where a financial institution has agreed with a regulator to conduct a business review or redress exercise, may private parties directly enforce the terms of that review or exercise?

Generally, they may not. The actions taken by BaFin are not taken in the interest, or on behalf, of third parties such as private customers. Findings of fact in any formal measure taken by BaFin also do not have any binding effect on the German courts when dealing with claims brought by individual customers.

In practical terms, however, a customer can seek to indirectly rely on such findings by introducing evidence of such formal measures and the underlying findings as support for the allegations of breach of contract or tort. In theory, where such evidence is not available in the public domain, the claimant may wish to rely on the limited scope of document production allowed under German procedural law. Such attempts have been made in various instances but have been handled differently by different courts. There is no definitive authority on this issue yet.

Changes to the landscape

Have changes to the regulatory landscape following the financial crisis impacted financial services litigation?

The proliferation and intensification of the regulatory framework has prompted German regulators to make use of their powers more often, and more frequently, by way of formal orders (rather than by way of informal requests). This has, in turn, spiked an increase in formal challenges. As a result, the caseload of formal challenge procedures in the courts has increased.

As regards non-regulatory disputes (ie, between market participants), the increase seems to have no impact on the caseload. Claimants do, however, rely more heavily on the regulatory framework in order to substantiate shortcomings on the part of banks. In light of the 2014 decision mentioned in question 2, we expect this to be a trend for the future.

Complaints procedure

Is there an independent complaints procedure that customers can use to complain about financial services firms without bringing court claims?

There is no generally applicable complaints procedure available for customers.

However, private individuals may take recourse to the ombudsman of German private banks, provided that the bank in question participates in this scheme. The procedure is free of charge for the private individual who has to file their complaint in accordance with specific formal and substantive requirements. If the bank and the complainant cannot reach an amicable solution, the ombudsman is entitled to hand down a conciliation award. Any conciliation award with a value of up to €10,000 will be binding upon the bank. Any award exceeding the threshold of €10,000 will not bind the bank. The complainant, on the other hand, is not bound by the conciliator’s decision and may therefore bring an action before the courts.

A number of comparable conciliation proceedings have been put in place for other financial services providers such as publicly owned banks, savings banks or the bank ombudsman, for assets and investments funds. In terms of a more general (and anonymous) complaint mechanism, it is worth noting that in July 2016, BaFin established a whistleblower platform for the reporting of violations of supervisory provisions.

Recovery of assets

Is there an extrajudicial process for private individuals to recover lost assets from insolvent financial services firms? What is the limit of compensation that can be awarded without bringing court claims?

Yes. There are several funds, state-regulated as well as self-regulated, that award compensation for lost assets from insolvent banks and financial services firms.

Most prominently, with regard to private banks, private individuals receive compensation for their lost deposits of up to €100,000 from the state-regulated bank compensation fund (EdB). Lost deposits of up to €500,000 will be compensated if the deposit was made in connection with specific personal circumstances; for instance, the sale of private property, a wedding or a severance payment.

In addition, under the auspices of the BDB, most German private banks have established a self-regulated scheme for the protection of private bank deposits. Under this scheme, which applies for any claims exceeding the statutory compensation of €100,000, a customer’s deposits are secured up to 20 per cent of the bank’s equity capital. The total amount will therefore differ depending on the individual bank. Customers generally have no actionable claim against the scheme for the protection of private bank deposits.

As regards publicly owned banks, such as development banks, a separate fund has been established (EdÖ). The compensation awarded for lost deposits is generally capped at €100,000 per individual or bank. Under specific circumstances, the EdÖ grants compensation of up to €500,000.

If a security trading company (such as a security trading bank, financial service provider or investment trust) is unable to honour its liability arising out of security transactions, a private individual can get compensation of up to 90 per cent of its claim, up to a maximum amount of €20,000 from the state-regulated securities trading companies’ compensation fund.

In general, there is no limit of compensation that can be awarded without bringing court claims. Except for funds that do not provide an actionable claim, the grounds for a compensation claim as well as the amount to be compensated can become litigious. The civil courts will be competent to hear such disputes.

Updates & Trends

UPDATE & TRENDS

Updates & Trends

Updates and trends

In times of low interest rates, German courts have been faced with the question of lawfulness of negative interest rates imposed by German banks on certain types of cash deposits. One bank imposed a negative interest rate by unilaterally changing its terms and conditions. This unilateral change to an existing client relationship was found unlawful by a court of first instance (Landgericht Tübingen, 4 O 187/2017). It is worth noting that the court did not rule on the admissibility of negative interest rates in new client relationships. It remains to be seen whether the courts of appeal will follow this line of reasoning.

On a more general level, the German legislator introduced a declaratory model action that will be available from 1 November 2018 onwards. While this newly introduced model action has been enacted in the aftermath of the Volkswagen emissions scandal, it is not restricted to specific industries. Therefore, it may potentially be relevant for financial institutions as well (eg, concerning allegedly inadmissible bank charges). The underlying idea is the following: in cases of atomised damages in which numerous consumers were potentially harmed, overarching issues which are relevant for all potentially harmed consumers will be decided in a model action. The outcome of this model action will be binding for all customers who filed a claim and, or notified their potential claims (ie, the declaratory model action requires an opt-in of potential claimants). While the overarching issues will be decided with binding effects on all customers who opted in, every claimant still needs to litigate their individual claim in a separate proceeding.