The Bottom Line
- A financial institution is 100% liable for a customer’s entire financial loss if it knew, or should have known, its products were being sold through an intermediary providing unlicensed advice. The court’s decision eliminates the common defense of shared client responsibility.
- The court established a clear duty for companies to vet their distribution channels. A business cannot use third-party intermediaries to sell its products and then claim ignorance of their sales practices. The responsibility for compliance rests squarely with the product provider.
- This ruling reinforces a strict liability standard stemming from the “securities lease” era. It serves as a stark reminder for all businesses, particularly in the financial sector, that the consequences of non-compliant partnerships can be severe and long-lasting.
The Details
This case revolved around “securities lease” agreements sold by the financial services firm Dexia to a retail customer. The contracts were sold not by Dexia directly, but through an intermediary named EPB Advies B.V. The customer successfully argued that EPB went beyond a simple introduction and provided personalized financial advice, recommending specific Dexia products to help them build capital. This was a crucial point, as EPB did not hold the necessary regulatory license to provide such investment advice. The Amsterdam Court of Appeal agreed with the customer, ruling that this “personalized recommendation” was indeed a regulated advisory activity.
Dexia’s core defense was that it was not involved in the conversations between the customer and the intermediary and therefore could not be held responsible for the advice given. The Court firmly rejected this argument. It reasoned that since Dexia’s business model relied on intermediaries to generate sales, the company had a positive duty to ensure its partners operated within the law. The court highlighted that Dexia should have been aware of the intermediary’s activities, pointing out that the firm’s own name—”EPB Advies”—literally translates to “EPB Advice.” This clue, combined with evidence of widespread advisory practices among similar intermediaries, meant Dexia either knew or should have known about the compliance failure.
The legal and commercial consequences of this finding are severe. Under established Dutch Supreme Court precedent, when a financial institution collaborates with an unlicensed advisor, a special “equity correction” applies. This principle overrides the standard allocation of liability, where a customer might be deemed partially responsible for their own investment decisions. Instead, the institution’s failure to ensure compliance is considered so significant that it must bear 100% of the customer’s losses. Dexia was therefore ordered to provide full compensation, covering all payments made by the customer and cancelling any outstanding debt.
Source
Source: Amsterdam Court of Appeal
