The Bottom Line
- 100% Liability: A financial institution is fully liable for a client’s losses if its products were sold based on advice from an unlicensed intermediary, and the institution knew or should have known about the advising.
- Onus is on the Institution: A company cannot plead ignorance about the actions of its third-party sales channel. The court places the burden on the financial institution to proactively verify that its intermediaries are operating within their legal and licensed boundaries.
- “Advice” Broadly Defined: Simply recommending a specific financial product as “suitable” for a client based on their personal circumstances constitutes licensed advisory activity. A complex financial plan is not required to cross this threshold.
The Details
In a recent appeal, The Hague Court of Appeal upheld a ruling against Dexia Bank, reinforcing a critical principle for any company using intermediaries or third-party sales agents. The case centered on a “securities lease” product sold to a consumer via an intermediary, Pensioen Platform B.V. The consumer suffered significant losses and argued that the intermediary provided unlicensed financial advice, a fact Dexia should have been aware of. The court agreed, holding Dexia responsible for the full extent of the consumer’s losses and wiping out any arguments of shared fault.
The court’s reasoning focused on two key questions: Did the intermediary give advice, and should Dexia have known? On the first point, the court confirmed that the threshold for “advising” is met when an intermediary does more than just introduce a client. By inquiring about the client’s financial goals and personal situation and then recommending a specific Dexia product as a suitable solution, the intermediary was engaging in a licensed activity. The consumer’s detailed account of this personalized sales pitch was deemed a sufficient basis for this finding.
Crucially, the court rejected Dexia’s defense that it was not present during these conversations and therefore could not know what was said. The ruling establishes that since Dexia chose to use intermediaries to distribute its products, it had a duty to ensure they complied with regulations—specifically, the prohibition against facilitating deals based on advice from unlicensed advisors. The court pointed to evidence that the intermediary publicly marketed itself as a financial advisor and even cited a 2007 internal Dexia memorandum acknowledging that its sales partners often provided investment advice. This failure to perform due diligence means the consequences—and the full financial liability—fall squarely on Dexia.
Source
Gerechtshof Den Haag
