A tribunal in Madrid (Court nº 51) has declared void two structured products sold by Banco Sabadell for failures around disclosure and suitability at the point of sale under the Markets in Financial Instruments Directive (Mifid) rules. The products, which were sold to a retail investor, include a buy or sell options contract - Contrato de Compra Venta de Opciones (CCVO) linked to a basket of stocks (Telefonica, Santander and Arcelormittal) sold in November 2010 for €70,000, and a structured deposit in which the client invested €280,000.

The bank sold a 'high risk complex product' as a 'safe and profitable' investment without the relevant disclosures, according to Juan Ignacio Navas (pictured), partner at Navas & Cusí, the law firm defending the retail investor. The court decision pointed at Mifid guidelines regarding the disclosure of 'impartial, clear and non-deceptive' information, as well as the appropriate 'risk disclosure'.

Banc Sabadell acknowledged during the hearing that the products were complex but claimed that a full disclosure had been provided at the point of sale. However, the bank could not prove that a 'suitability test' had been provided. The court ruling also noted that a previous decision by the Supreme Court in 2013 required financial institutions to provide 'extra good faith and diligence' when recommending complex products and that the suitability test should be used to match the 'risk profile' of the end investor and the investment product being recommended.

The ruling also noted that the duty to disclose the product and risk information should be done actively. The onus of providing the right information is on the financial institution selling the product, according to Navas. 'Without expert knowledge, clients will not know what specific information [they] should require from the sales person,' and the end client 'should trust the bank will not omit any relevant information', according to the ruling.

The ruling refers to another from the Supreme Court in 2016, in which the judge stated that it is 'not enough to provide a mere illustration of the obvious', and that the bank is obliged to inform the client of any potential risks with 'simulations and possible scenarios'.

The ruling concluded that the investor had no knowledge or financial experience to understand the risks of the product, which included risk of capital loss. The judge declared the products void for lack of transparency and ordered Banc Sabadell to redress the client with €45.889 and pay the legal costs.

Banc Sabadell is a leading provider in Spain, with over 500 structured products marketed: 27 are still live, including 12 structured capital-protected funds, 10 structured notes, three structured deposits, an open-ended structured pension plan, and a CCVO linked to a basket comprising the Eurostoxx 50 and the Ibex 35.

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