A class action closet tracking claim filed against Sweden’s largest bank for the mis-selling of financial products last December is being blocked, with the bank accused of intimidating its customers with threats of lawsuits and high legal costs if they do not drop their claims. The Swedish Shareholders’ Association is suing Swedbank for “Closet Tracking”; a practice widespread in the financial industry in Sweden. This widely condemned practice involves charging extremely high fees for actively managing finds, when in practice the fund managers do almost nothing in return, other than keeping a close eye on the stock market. Over 3,000 of the bank’s customers have added their names to the claim, which seeks damages of SKr 7bn (€792m). Academics and industry leaders have spoken out about this unfair banking practice, which has also attracted the attention of the Swedish government. In February this year Per Bolund, Sweden’s deputy finance minister and minister for capital markets and consumers, said that the government is to launch an investigation into organizations that charge high fees for “active funds that do little more than mimic an index.”
The class action closet tracking claim was filed with Sweden’s National Board for Consumer disputes (ARN), which Swedbank believes is inappropriate given the amount of damages being sought in the claim. Cecilia Hernqvist, Swedbank’s communications Director, told the FT “We think ARN is a very good authority for consumer disputes, but not for a group class-action which comprises SKr 7bn and concerns an industry-wide issue” The main concern comes from the ARN claims process as any decision cannot be appealed. Swedbank is also concerned as the ARN only allows written evidence to be submitted. Because of this, the bank is taking a stand and is threatening to take legal action against any customer that claims damages against it, should it lose the case. While these claims may not turn out to be successful, the bank has indicated that the legal action will result in its customers having to pay considerable costs. Carl Rosen, CEO of the Swedish Shareholders Association, has spoken out about the hard line that Swedbank is taking and has referred to this intimidation as being similar to prohibition “mafia tactics”. “This is not America in the 1930s, this is Sweden in 2015” he said.This may turn out to be an empty threat but it is clearly a concern. However, Hernqvist said that the mafia-like intimidation allegation is “absurd” and all the bank is saying is that if the case goes ahead, “the consequences might be that we have to bring this to court. We do not want this to happen, however, we think it is important to understand that this could be the result” It is not clear at this stage whether the ARN will actually handle the claim, although an ARN lawyer, Maria Johannson, has said that the ARN “is the right body to try this dispute”.
The case is being closely monitored by industry groups and is likely to set a legal precedent if Swedbank is made to pay for the practice. Since the issue is so widespread in the financial industry, many similar claims for mis-selling of financial products are likely to be launched as a result of a successful claim against the bank.