The Bottom Line
- 100% Liability for Intermediary Misconduct: A Dutch court has ruled that a financial institution (Dexia) is fully liable for all of a client’s losses because it used an intermediary that provided unlicensed financial advice. The bank must refund all payments and cancel any remaining debt.
- “Should Have Known” is Enough: The court found the bank was aware of a common industry practice of unlicensed advising by its intermediaries. This created a duty to investigate its sales channel, and its failure to do so meant it could not plead ignorance.
- Contributory Negligence Defense Voided: Due to the bank’s significant breach of financial regulations, the court completely voided its contributory negligence defense, placing the entire financial burden on the company.
The Details
This ruling from the Arnhem-Leeuwarden Court of Appeal stems from the long-running “securities leasing” saga in the Netherlands, but its lessons on third-party risk are universal. The case involved a client who purchased several complex investment products from Dexia Bank. The deal was not made directly; it was arranged through a third-party intermediary, Spaar Select. When the investments soured, the client faced significant losses. The core legal issue was whether the intermediary had simply introduced the client to Dexia or had crossed the line into providing personalized financial advice—an activity for which it held no license.
The Court affirmed that financial regulations explicitly forbade Dexia from accepting clients from intermediaries it knew, or should have known, were providing unlicensed advice. The pivotal finding was the court’s recognition of a “usual business practice” among these intermediaries. Based on evidence including Dexia’s own internal documents and public statements, the court concluded that it was common practice for these third parties to assess a client’s personal financial situation and recommend specific products as “suitable.” Because Dexia was aware of this general pattern, the court held that it “should have known” that unlicensed advising was likely occurring in this specific case as well.
This finding had severe consequences for the bank. By failing in its duty to investigate the intermediary’s actions before signing the client, Dexia violated a key regulatory rule. The court ruled that this breach was so significant that it overrode any “contributory negligence” on the part of the client. In essence, it no longer mattered whether the client understood the risks or made a poor decision. The bank’s failure to police its own sales channel meant that it must bear 100% of the client’s losses. This includes refunding all principal payments, interest, and costs, and canceling any outstanding debt on the account.
Source
Arnhem-Leeuwarden Court of Appeal
