The client explained that he was a conservative investor with the goal of preserving capital, as stated in his client profile. He was a consultation client of the bank. However, since he did not question the advice and simply followed it, the relationship was more of an asset management one. He had asked the bank about an investment in a so-called “Sukuk”, an interest-bearing bond issued in accordance with Islamic law, which can be used to circumvent the ban on interest payments. He received a list of suitable investment proposals from his relationship manager. During the subsequent advisory conversation, his client advisor recommended that he invest USD 200,000 in the Sukuk of a government-controlled Asian airline. He followed this investment recommendation and issued a corresponding purchase order, which was executed by the bank.

The investment subsequently lost value and eventually became non-performing. He realised that the recommendation was far too risky and therefore did not match his client profile. In contrast to a request for a Bitcoin investment, the bank did not point out the high risks of the investment to him and did not warn him. The bond did not even have a rating.

The bank never supported him thereafter. He was never proactively informed about the possible courses of action available to him during the difficult period following the loss of value of the investment. The bank did not assist him with the sale of the bond and did not execute his limited orders. He had also issued an unlimited sales order which was ignored by the bank. The resulting loss was very heavy for him as a pensioner, since he was dependent on the money for his livelihood.

The bank had breached its duty of loyalty to him and was therefore liable to compensate him for the loss he had incurred, which he estimated at the entire investment amount of USD 200,000. He supported his allegations with a multi-page list of complaints against the bank, which was very detailed in its formulation.

In its statement to the Ombudsman, the bank explained that, according to the client profile, the client had freely available assets of over USD 1 million. His risk appetite was described as “balanced” and he was classified between the lower “conservative” and the higher “equity” levels. He had not ticked the box “liquidity” and had therefore indicated that he did not want to invest in liquid assets only and that he was willing to tolerate a limited level of volatility.

The client was a graduate of an American elite university and had worked in leadership positions at reputable financial service providers for 25 years. According to the information in the client’s profile, he had, among other things, knowledge and experience in Islamic bonds, trading products, financial transactions, loans and syndicates. He was registered as an advisory client. However, there was no written advisory agreement. The transaction in question was “execution-only” and was completed without any advice from the bank.

The list mentioned by the client only contained a number of investment ideas for the bank’s general clientele. The clearly visible disclaimer referred, among other things, to the liquidity risk of the investments. It was also made clear there that the investment ideas were merely suggestions and not tailored to the individual needs of a client. The list also included Sukuks with ratings. The client had approached the bank with the wish to invest USD 200,000 in a high-yielding Sukuk. After consulting the list, he had instructed his client advisor to invest this amount in the sukuk of the state-controlled Asian airline. He made this decision independently. The consultation meeting alleged by the client did not take place. The Sukuk selected by him would have been compatible with his client profile, however. The client was undoubtedly aware of what he was doing. The bank had no reason to question the client’s conscious and unambiguous decision to invest.

The client always had access to the information available at the bank regarding the development of the Sukuk and was able to contact his relationship manager at any time for questions. A sales order issued by the client without a limit could not be executed by the bank, since the investment was completely illiquid for a certain period of time and could not be sold. The sales orders subsequently placed by the client with a limit were not executed because the limits were not reached. The bond still had a market value. However, this was modest. The client also received income. The amount of damage claimed by the client, USD 200,000, was too high. Finally, the bank stated that the client had acquired the bond before the COVID-19 pandemic, which could not have been foreseen. The loss of value of the bond was a common investment risk that had to be borne by the client. The bank was therefore not willing to compensate him and, in direct contact with the client, only offered certain special terms and conditions for the future in order to reach an amicable settlement of the dispute. The client had rejected this offer.

In this case, the Ombudsman was faced with the problem that the parties’ accounts of the facts differed on some points that were essential to assessing the case. The Ombudsman may not question the credibility of the parties and cannot conclusively clarify such differing accounts of the facts with evidentiary procedures. Assuming this, he had to find that the client’s information regarding his client profile did not correspond to the documented situation. Based on the documents, the Ombudsman also shared the bank’s view that the list mentioned by the client merely contained general investment ideas and that it was clearly stated that these were not individual investment recommendations tailored to a specific client. The list contained a number of Sukuks with sometimes high ratings, but which nevertheless promised lower returns than the selected Sukuk.

The question of whether the investment was acquired based on investment advice or merely “execution-only” would have been important for assessing the case, since the two different contractual relationships also entail different rights and obligations. If the investment was merely purchased on an execution-only basis, the bank was only required to execute the client’s order to purchase in accordance with the instructions. In certain cases, it would have had a duty to warn the client, e.g. if it had known or should have been able to recognise that the client was not aware of the risks associated with the investment. The Ombudsman was able to understand that the bank had not issued a warning in the specific case because of the client profile and the client’s professional background. The client had not disclosed his professional background to the Ombudsman.

The Ombudsman was also able to understand the bank’s argument that, in the context of investment advice, which it disputed, the recommendation of the specific Sukuk was not to be objected to. However, in the Ombudsman’s view, the client should have been made aware of the high amount invested in relation to his other disposable assets during an investment advisory discussion.

The parties also differed in their accounts of events relating to the loss of value and the sale efforts. The bank offered to document its account with the available evidence. The Ombudsman also had to point out to the client that the monitoring of the custody account and services related to notional securities would not automatically have been part of the advisory relationship he claimed. These would have had to be agreed separately with the bank. Finally, the Ombudsman shared the bank’s view that, in the present case, a normal investment risk had materialised which had to be borne by the investor as a rule. The Asian airline that issued the Sukuk was experiencing economic difficulties due to the Covid pandemic and had to be restructured, which resulted in a loss of value of the bond. This event affected the entire investor community and was not predictable at the time of purchase of the bond in 2017.

Given these circumstances and the bank’s persistent refusal to pay the client any compensation, the Ombudsman had to close the case with a clarifying response. After some time, the client contacted the Ombudsman again and explained that the notice sent to him was unbalanced and one-sided. He requested a reappraisal of the case. He confirmed the bank’s statement that he had worked in management positions at large financial institutions for many years, but pointed out that he had not been active in the investment sector. The Ombudsman informed him that the additional information in the final decision would not change anything and that the case would not be reopened.