BGH classifies advice on interest rate swaps as investment advice
The Bundesgerichtshof (BGH, Federal Court of Justice) confirmed and further specified key principles regarding a bank’s advisory duties in relation to interest rate swap agreements in its judgment of 9 June 2026 – XI ZR 231/23. The central issue was whether advice on interest rate swaps intended to hedge or limit existing interest rate risks is to be classified as investment advice or as financing advice.
The XI. Zivilsenat (Eleventh Civil Senate) clarified that advice in connection with hedging existing interest rate risks by means of interest rate swap agreements constitutes investment advice. The duties developed for investment advice therefore apply.
Background to the legal dispute
The claimants sought damages from the defendant bank for what they considered to be defective advice in connection with two interest rate swap agreements. They had previously each taken out a variable-rate, bullet foreign-currency loan in Swiss francs from a Sparkasse.
Claimant 1 had taken out a loan of CHF 2.61 million with a term until 30 September 2017. Claimant 2 had entered into a loan of CHF 1.56 million with a term until 31 October 2017. After Claimant 2 requested information about possible interest rate hedging, a customer adviser at the Sparkasse referred him to the defendant bank.
The defendant bank subsequently provided advice. The claimants each entered into an interest rate swap agreement. The swap agreements had a term from 6 January 2011 to 6 January 2021 and provided that the claimants were to pay fixed interest of 1.78% p.a., while the defendant was to pay variable interest based on the 3-month CHF LIBOR BBA without a spread.
Alleged disclosure deficiencies
The claimants argued that they had not been sufficiently informed about two points:
- the initial negative market value of the interest rate swap agreements,
- the lack of alignment between the terms of the swap agreements and the terms of the foreign-currency loans.
The defendant bank had structured a margin into both swap agreements. As a result, from the claimants’ perspective, the agreements had an initial negative market value at the time of conclusion. In addition, the swap agreements ran longer than the underlying foreign-currency loans.
Claimant 1 sought payment of a total of EUR 515,319.94 plus interest. Claimant 2 sought payment of a total of EUR 313,368.36 plus interest. In addition, both sought, as joint creditors, reimbursement of out-of-court legal fees and indemnification against future obligations under the swap agreements, including any obligations arising from collateral provided in connection with the swap agreements.
Course of proceedings before the Landgericht, Oberlandesgericht and BGH
The Landgericht (Regional Court) largely upheld the claim. The appellate court, the Oberlandesgericht Frankfurt am Main (Higher Regional Court of Frankfurt am Main), dismissed the claim in its entirety on the defendant’s appeal. By way of the appeal on points of law allowed by the Bundesgerichtshof, the claimants sought reinstatement of the judgment of the court of first instance.
The claimants’ appeal on points of law was successful. The BGH did not make a final decision on the merits itself, because in its view the dispute was not yet ready for decision.
View of the appellate court
The appellate court had assumed that an advisory agreement had at least been concluded implicitly between the parties. However, it classified this agreement not as an investment advisory agreement, but as a financing advisory agreement.
In its reasoning, the appellate court relied on the fact that the claimants had not invested funds. The interest rate swap agreements had not required any capital outlay upon conclusion and, in its assessment, had been part of a financing concept. In economic terms, they were intended to convert the existing variable-rate foreign-currency loans into synthetic fixed-rate loans.
On this basis, the appellate court denied any duty to disclose an initial negative market value. It also assumed that any claims were in any event time-barred. In the alternative, it held that the defendant had sufficiently informed the claimants about a relevant conflict of interest by providing information on inducements, or in any case had acted under an error of law excluding liability.
Assessment by the Bundesgerichtshof
The Bundesgerichtshof considered this reasoning to be legally erroneous in decisive respects. It clarified that, according to the settled case law of the XI. Zivilsenat, advice on interest rate swap agreements to hedge or limit existing interest rate risks is to be classified as investment advice.
From an economic perspective, financing advice exists where the procurement of financial resources is concerned and the recommended financial product is solely part of a financing concept. In the case of interest rate swap agreements of the type at issue here, however, the BGH held that there is no temporary provision of capital. Rather, the subject matter is the exchange of interest payments on agreed settlement dates.
Interest rate swap agreements as financial futures transactions
The BGH emphasised that interest rate swap agreements are financial futures transactions and therefore financial investments. By entering into such an agreement, the parties allocate monetary risks between themselves. In a fixed-rate payer swap, the customer, as payer of fixed interest, bears the risk that the fixed-rate payments owed by the customer will exceed the variable interest payments owed by the bank.
According to the case law, the fact that it is not yet certain at the time of conclusion whether payment obligations will arise and in what amount is precisely typical of a financial futures transaction. The BGH therefore rejected the assumption that there was no capital outlay. Such an outlay may arise during the term of the agreement if the contractual settlement results are to the customer’s detriment.
No classification as raising capital
According to the decision, even a possible payment by the bank to the customer in the event of favourable interest rate developments does not turn the swap agreement into a financing instrument. In the BGH’s assessment, such a payment is not contractually agreed capital raising, but the result of the interest rate position entered into developing favourably for the customer.
External financing is characterised by capital being provided for a specific period and repaid later. Payments under a swap agreement lack this feature. They are not structured as a temporary provision of capital, but are based on the contractually agreed exchange of interest payments.
Hedging purpose does not change the classification
In the BGH’s view, advice on an interest rate swap agreement does not become financing advice simply because the swap is entered into to hedge an interest rate risk associated with a loan. A hedging swap also does not concern the raising of capital, but instead changes an existing risk position.
In the case decided, the issue was not to provide the claimants with new financial resources. Rather, the aim was to influence the variable interest rate risks resulting from the foreign-currency loans. According to the BGH, this was not sufficient to classify the swap agreement as an exclusive element of a financing concept.
Disclosure of the initial negative market value
A key aspect of the decision concerns the advisory bank’s duty to disclose an initial negative market value of a swap agreement. The BGH confirmed its previous case law: if the advising bank is also the counterparty to the recommended swap agreement, it must, within the framework of an existing advisory agreement, generally inform the customer of an initial negative market value structured into the agreement.
The reason lies in a serious conflict of interest that is not readily apparent to the customer. In a swap transaction, the bank is not only acting as adviser to the customer, but is also the customer’s contractual counterparty. Gains on one side may be the mirror image of losses on the other side.
Structural conflict of interest of the bank
In a swap agreement recommended by the bank and concluded with the bank itself, the bank assumes a dual role. As adviser, it is obliged to safeguard the customer’s interests. As contractual counterparty, it pursues its own economic interests arising from the transaction.
The initial negative market value arises because the bank prices its margin and further costs into the contractual structure. As a result, the customer must first overcome this negative starting value before the agreement can become economically advantageous for the customer. In the event of an immediate close-out, the customer would have to bear a loss equal to this negative market value.
According to the case law, it is precisely this risk structure, deliberately designed to the customer’s detriment, that must be disclosed. The customer should be able to recognise the amount that would have to be spent at the time of conclusion in order to close out the risk position assumed through the swap.
Exception for connected underlying transactions
At the same time, the BGH confirmed a limitation of this disclosure duty. There is no duty to provide information about the initial negative market value where the advising bank recommends swap transactions that serve to hedge opposing interest rate or currency risks arising from connected underlying transactions.
According to the case law, such connectedness exists only under certain conditions. Viewed economically, a variable-rate loan existing with the advising bank must at least in part be converted into a synthetic fixed-rate loan, or a fixed-rate loan existing with the advising bank must be converted into a synthetically variable-rate loan.
In the case decided, the BGH denied such connectedness for two reasons. First, the defendant bank was not a party to the foreign-currency loans; these had been taken out with a Sparkasse. According to the decision, the fact that both institutions belonged to the Sparkassen-Finanzgruppe was irrelevant. Second, the swap agreements ran longer than the foreign-currency loans, meaning that after the loans ended an open interest rate and currency risk position remained.
Inducements do not replace disclosure of market value
The BGH also criticised the appellate court’s assumption that the disclosure of inducements constituted sufficient information about the initial negative market value. According to the decision, a distinction must be made between inducements and negative market value.
The contractual documents contained notices stating that the defendant received inducements from third parties and granted inducements to third parties. In particular, a one-off inducement to the Sparkasse amounting to 0.47% of the reference amount was mentioned. In the BGH’s view, this was not sufficient disclosure of the initial negative market value.
Calculation of the initial negative market value
The initial negative market value describes the value of the swap agreement at the time of conclusion that could be realised at that time by closing it out in the market. It is determined using financial mathematics, taking into account the expected future fixed and variable interest payments. These cash flows are discounted to the valuation date.
This market value becomes negative if the bank structures costs and profit margin into the contractual parameters. It follows that, at the outset, the customer economically assumes a position that is already valued unfavourably from a market perspective.
Disclosure of commissions is not sufficient
According to the BGH’s decision, notification of inducements is not a substitute for information about the initial negative market value. Inducements to or from third parties do not explain the amount that the customer would have to spend at the time of conclusion to close out the risk position assumed through the swap.
The conflict of interest requiring disclosure does not arise solely from the bank’s general intention to make a profit. Nor does it arise only from the specific amount of individual cost or margin components. Rather, what is decisive is the special risk structure of the swap agreement, which according to the case law may be deliberately designed to the customer’s detriment.
No tenable error of law by the bank
In the alternative, the appellate court had assumed that the defendant had been under an error of law regarding its duties, excluding a breach of duty or fault. The BGH also considered this to be legally erroneous.
Under § 280 Abs. 1 Satz 2 BGB (German Civil Code), the bank subject to the disclosure duty bears the burden of pleading and proof that it is not responsible for a breach of duty. It must therefore plead and prove that it acted neither intentionally nor negligently.
Burden of pleading lies with the bank
The BGH found that the defendant had not argued that it had been subject to an error of law excluding fault. Rather, it had claimed that it had adequately informed the claimants. The appellate court therefore was not entitled, without corresponding submissions, to assume such an error of law in favour of the defendant.
Moreover, according to the settled case law of the XI. Zivilsenat, an unavoidable error of law regarding the duty to disclose the initial negative market value is not possible in case constellations of this kind.
Limitation of the asserted claims
The BGH also criticised the appellate court’s statements on limitation. It is true that claims for damages due to defective advice in connection with interest rate swap agreements are subject to the regular three-year limitation period under § 195 BGB (German Civil Code). However, for the commencement of the limitation period, § 199 Abs. 1 BGB (German Civil Code) requires consideration of when the claim arose and when the creditor obtained knowledge of the circumstances giving rise to the claim and of the identity of the debtor, or would have obtained such knowledge but for gross negligence.
A claim for breach of a disclosure duty under an investment advisory agreement generally arises upon conclusion of the agreement to which the advice relates. The question of whether there is knowledge or grossly negligent lack of knowledge requires an assessment of the specific circumstances of the individual case.
Knowledge of negative market value cannot be inferred from inducements
The appellate court had inferred from the disclosure of inducements and the negotiations regarding their amount that the claimants had knowledge of the initial negative market value. The BGH considered this contradictory.
Since information on inducements specifically does not constitute proper information about the initial negative market value, knowledge of such information cannot automatically be used to infer knowledge of the negative market value. The limitation assumed by the appellate court could therefore not stand on this reasoning.
Gross negligence due to term mismatch not sufficiently established
The appellate court had further assumed that the claimants had been grossly negligent since 2011 in lacking knowledge of the longer term of the swap agreements. It relied, among other things, on the fact that the claimants had signed the individual trade confirmations.
The BGH clarified that signing a document without reading it does not automatically establish grossly negligent lack of knowledge. What is decisive is a comprehensive assessment of the individual case. Factors to be taken into account include the comprehensibility and prominence of the notices, the course and content of the advisory meeting, the time of signing, the customer’s level of education and experience, and any possible relationship of trust with the adviser.
In the BGH’s view, the appellate court had not sufficiently taken essential circumstances into account. The lack of congruence between the terms did not result solely from the individual trade confirmations. These contained information on the term of the swap agreements, but not on the terms of the foreign-currency loans. A deviation could therefore only be identified by considering both contractual relationships together.
Business experience does not replace knowledge of swaps
According to the decision, Claimant 2’s business experience and the economic significance of the transaction also did not automatically justify the assumption of gross negligence. Under the case law, professional qualifications alone do not allow conclusions to be drawn as to knowledge and experience with financial futures transactions.
The appellate court had made no findings that Claimant 2 had actually acquired knowledge and experience with swap transactions of the type at issue in the course of his professional activities. This also constituted a legal error in the assessment of limitation.
Remittal to the appellate court
The Bundesgerichtshof set aside the appellate judgment and remitted the case to the appellate court. That court must now make further findings and examine the case again.
According to the BGH’s guidance, the appellate court will in particular have to address the following questions:
- whether the defendant sufficiently informed the claimants about the initial negative market value of the swap agreements,
- whether sufficient disclosure was made regarding the lack of term congruence between the swap agreements and the foreign-currency loans,
- whether, in the event of a breach of duty, the presumption of causation in favour of the claimants can be rebutted,
- whether any claims for damages are time-barred, taking into account the BGH’s statements.
To the extent that the defendant had argued that the claimants had already entered the advisory meeting with a settled opinion and that only clarification of details and formalities remained, the burden of pleading and proof lies with it according to the BGH’s statements.
Classification of the decision for interest rate swap agreements
The decision confirms the case law of the XI. Zivilsenat on disclosure duties in relation to interest rate swap agreements. Particularly significant is the clarification that disclosure of inducements in connection with the conclusion of the agreement does not replace disclosure of the initial negative market value.
The BGH maintains that interest rate swaps are to be classified as financial futures transactions and that advice on them is generally subject to the rules governing investment advice. This also applies where the swap is intended to hedge an existing interest rate risk. The decisive factor remains the economic assessment of the specific subject matter of the advice.
For banks and customers, the distinction between mere information on costs or commissions and disclosure of the initial negative market value is also decisive. Information on inducements does not necessarily show the customer’s risk position existing at the time of conclusion and shaped by the structure of the swap.
Frequently Asked Questions
BGH XI ZR 231/23: Is advice on interest rate swap agreements investment advice?
According to the judgment of the Bundesgerichtshof of 9 June 2026, advice on interest rate swap agreements to hedge or limit existing interest rate risks is to be classified as investment advice. The duties developed for investment advice therefore apply.
BGH interest rate swap: Is disclosure of inducements sufficient for the initial negative market value?
No. The BGH clarified that information on inducements received or paid by the bank does not constitute disclosure of the initial negative market value of a swap agreement.
What are the consequences of BGH XI ZR 231/23 for companies with interest rate swap agreements?
The decision makes clear that, in the case of interest rate swap agreements, classification as investment advice and disclosure of the initial negative market value can play a central role. For companies and other market participants, this may be significant in particular when reviewing previous advisory situations and existing contractual structures.
Banking law advice on interest rate swap agreements
The decision of the Bundesgerichtshof shows that advisory duties in relation to interest rate swap agreements require a precise examination of the respective agreement, the advisory situation and the risk structure. MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on banking law issues in connection with derivatives, capital market products and financing structures. Further information can be found under Legal advice in banking law.
