Contract provisions

Types of contract

Describe the various types of private banking and wealth management contracts and their main features.

Private banking contracts include management mandates, advisory agreements, securities account agreements, account agreements and mandates for transmission of orders.

By a management mandate a client gives to the asset management company the authority to administer, on his or her behalf and for his or her account, his or her assets in currency and financial instruments. The asset management company will take all investment decisions without having to consult the client and without obtaining his or her prior approval to any decision to invest.

An advisory mandate allows the client to receive personalised investment recommendations and advice based on his or her profile of risk against payment by the client of an advisory fee.

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.

Mandates for transmission of orders provide terms and conditions for transmitting orders.

The parties may choose the governing law subject to complying with 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 have an information and advice obligation towards their clients. However, it is an obligation of means.

According to case law, courts consider on a case-by-case basis the failure of a private bank regarding its obligations of vigilance, information and advice.

Regarding the vigilance obligation, financial institutions shall detect the apparent abnormalities affecting the client’s account activity.

Concerning the advice obligation, this 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 a period of between one and six months for contesting operations. Expiry of this period does not prevent the client from contesting 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 of 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 management mandate or mandate for transmission of orders, the financial institution shall be responsible if it has acted outside of its mandate.

Finally, concerning account agreements, the depository credit institution shall not be responsible for negotiations carried out on its clients’ behalf by the asset management company.

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 with regard to 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 be adapted to the client’s financial situation and experience in financial products. The authorised company shall provide the client with all relevant information.

The mandate shall include at least the following information:

  • the management objectives;
  • the classes of financial instrument that the portfolio may contain;
  • procedures for informing clients about the management of their portfolios;
  • the method for compensating the company; and
  • the 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 inherent in certain 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 furnish 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?

The general limitation period for civil claims in Monaco is five years as from 21 December 2013. A special limitation period is also provided for the claims of professionals against their clients for the services they render.

Private banking contracts usually provide between one and six months for contesting operations. Expiry of this period does not prevent the client from suing in court, but shifts the burden of proof concerning litigious operations onto the client rather than the financial institution.