The Bottom Line
- Full Liability Risk: A Dutch court has affirmed that a financial institution is 100% liable for a client’s investment losses if it accepted a client through an intermediary who provided unlicensed advice. The client’s own negligence is not a mitigating factor.
- Due Diligence on Sales Channels is Non-Negotiable: The ruling establishes that if a “customary practice” of unlicensed advising exists within a firm’s intermediary network, the firm is presumed to know about it. The burden then falls on the firm to prove its intermediary acted correctly in a specific case.
- Willful Ignorance Is No Defense: The court explicitly rejected the argument that the firm couldn’t have known what its third-party agents were doing. It ruled that firms have a duty to investigate their sales channels, and failure to do so is at their own risk.
The Details
This ruling from the Arnhem-Leeuwarden Court of Appeal deals a significant blow to financial firms relying on third-party sales channels. The case involved the bank Dexia and complex investment products sold to retail clients via an intermediary. The core of the dispute was not the product itself, but the role of the unlicensed “introducer.” The client argued that the intermediary went beyond a simple introduction and provided a personalized recommendation—a service that requires a specific financial advisory license, which the intermediary lacked. The court agreed, finding that this constituted prohibited unlicensed advising.
The crucial element of the court’s reasoning rested on the ‘knew or should have known’ standard. The court found that it was a widespread and customary practice for intermediaries in Dexia’s network to provide personalized, unlicensed advice to generate sales. Based on evidence including Dexia’s own internal documents and public statements, the court concluded that the bank was fully aware of this systemic practice. This finding shifted the legal dynamic: the court established a presumption that Dexia knew its intermediaries were likely giving unlicensed advice, moving beyond the specifics of this single case to the firm’s general operational awareness.
Consequently, the burden of proof was effectively reversed. It was no longer the client’s sole responsibility to prove they were advised; instead, it was up to Dexia to prove that this specific intermediary deviated from the common practice and did not provide advice. The court found Dexia’s general denials insufficient. It held that given the widespread knowledge of how these intermediaries operated, Dexia had a positive duty to conduct due diligence and verify the nature of its intermediaries’ involvement before accepting clients from them. Its failure to do so means the resulting liability falls squarely on the bank, leading to a full reimbursement of the client’s losses and cancellation of any remaining debt.
Source
Source: Arnhem-Leeuwarden Court of Appeal
