THE BOTTOM LINE
- Full Liability for Channel Partners: A Dutch appellate court has confirmed that a financial institution (Dexia) is 100% liable for a client’s losses when its product was sold through an intermediary giving unlicensed advice, even if the institution had no direct contact with the client.
- “Willful Blindness” is No Defense: The court found that knowledge of a widespread, non-compliant “usual practice” among intermediaries is sufficient to hold the company liable. A company cannot ignore industry-wide issues and then claim ignorance in specific cases.
- Duty to Investigate: The ruling places a clear duty on companies to proactively investigate and understand the sales practices of their intermediaries. Failing to document that a specific transaction was compliant shifts the legal risk squarely onto the company.
THE DETAILS
This case revolved around a “securities lease” agreement, a complex financial product sold by Dexia to a retail customer. The sale was facilitated by an external intermediary who introduced the customer to Dexia. The customer argued that this intermediary did more than just introduce them; they provided personalized financial advice, recommending this specific product as suitable for their financial situation. The problem? The intermediary lacked the necessary regulatory license to provide such advice. The customer claimed Dexia knew, or at least should have known, about this unlicensed activity but proceeded with the contract anyway.
The Court of Appeal’s reasoning is a critical lesson in corporate responsibility for third-party sales channels. The court looked beyond this single transaction and established that there was a “usual working method” among such intermediaries that consistently crossed the line into unlicensed advising. Evidence, including Dexia’s own corporate communications, showed that the company was aware of this widespread industry practice. This general knowledge was key; it created a strong presumption that the intermediary in this specific case also provided unlicensed advice.
Crucially, this finding shifted the burden of proof. Because Dexia was aware of the general risk and practice, it was up to the company to prove that this specific intermediary acted differently and stayed within the legal non-advisory boundaries. Dexia could not provide this proof. The court ruled that Dexia had a duty under financial supervision regulations to investigate the intermediary’s role before entering into the agreement with the customer. Its failure to do so, and to document that compliance, meant it “should have known” about the unlicensed advice. This breach of duty makes Dexia directly liable for all the customer’s losses, with no reduction for the customer’s own potential negligence.
SOURCE
Source: Court of Appeal of Arnhem-Leeuwarden
