THE BOTTOM LINE
- 100% Liability: A financial institution that uses an unlicensed intermediary for sales can be held 100% liable for a client’s losses, with no reduction for the client’s own negligence.
- “Should Have Known” is Enough: The court confirmed that a company cannot claim ignorance. If a firm’s business model relies on intermediaries, it has a duty to monitor them and will be held responsible for misconduct it reasonably should have been aware of.
- Due Diligence is Non-Negotiable: This ruling underscores the critical importance of robust compliance and oversight of third-party sales partners. Failure to police these channels effectively can lead to complete financial responsibility for any resulting damages.
THE DETAILS
The Amsterdam Court of Appeal recently reaffirmed a crucial principle for companies that use third-party intermediaries to sell their products. The case involved the Dutch bank Dexia and financial products sold over two decades ago via an intermediary, Spaar Select. The court found that the intermediary provided personalized investment advice to the client without possessing the required regulatory license. This act of unlicensed advising formed the core of the dispute and placed the ultimate liability on the product provider, Dexia.
The court’s reasoning hinged on Dexia’s own regulatory obligations. Under financial supervision rules at the time, Dexia was explicitly prohibited from entering into agreements with clients if it knew, or should have known, that their intermediary had provided unlicensed advice. The court concluded that Dexia’s close collaboration with Spaar Select and its reliance on them for sales meant the bank was, at a minimum, in a position where it should have known about the advisory activities. By failing to perform adequate due diligence and proceeding with the transaction, Dexia breached its own duty of care.
Perhaps the most significant aspect of the ruling is its treatment of liability. Typically, a court might reduce a damages award if the client also bears some responsibility for their loss (contributory negligence). However, in this instance, the court held that Dexia’s breach—contracting with a client despite the illegal advice from its sales partner—was so fundamental that fairness demanded the bank bear the full financial consequences. The court effectively ruled that Dexia’s obligation to refuse the business in the first place overrides any fault on the part of the consumer, leaving the bank to cover 100% of the client’s losses, including all payments, interest, and costs.
SOURCE
Source: Gerechtshof Amsterdam (Amsterdam Court of Appeal)
