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Providers of financial products liable for intermediaries with inadequate licensing

In misselling litigation where a financial institution’s investment product was sold to retail investors by a referral agent (rather than by the bank directly) the Dutch Supreme Court ruled that retail investors must be compensated by the financial institution for any losses resulting from the investment product if they prove: (i) that they were advised by an unlicensed referral agent; and (ii) the financial institution was aware or should have been aware of them having been so advised by that agent. Under these circumstances the duty of care of financial institution extends to ensuring that advisors of potential customers have obtained the required licences.  (Dutch Supreme Court, 2 September 2016, ECLI:NL:PHR:2016:2012 & ECLI:NL:PHR:2016:2015)

Effectenlease” 2009 compensation scheme

During the 1990’s several Dutch financial institutions sold financial products that allowed retail investors with modest financial means to purchase securities with borrowed money (also known as effectenlease). The products were very popular and lucrative at first, due to stock markets being favourable. However, subsequent poor performance of global stock markets and, to a lesser extent, changes in fiscal law on tax deducability of interest on loans resulted in losses for a significant number of retail investors, consisting of the interest investors had paid and a residual debt resulting from the value of the portfolio being insufficient to repay the loan.

An explosion of civil litigation ensued, resulting in Dutch courts ruling that financial institutions were under a duty of care towards these retail investors. The court found that, based on that duty of care, providers of effectenlease products should have: (i) researched the financial position of potential investors; (ii) warned potential investors of the risk of a residual debt; and (iii) advised clients who could not bear the burden of that residual debt to refrain from entering into the effectenlease product.

This does not mean, however, that investors have to be compensated for the total amount of their losses. The Dutch courts found that investors (including retail investors), should have understood (part of) the risks of investing with borrowed money. Therefore they were in part to blame for their own losses.

On 5 June 20091 the Dutch Supreme Court sanctioned a compensation scheme under which investors would be partially compensated for their residual debt and, in cases where the effectenlease product had caused an unacceptable burden, for paid interest.  Since then most cases have been settled accordingly.

Supreme Court widens scope of bank liability

In judgments on 2 September 2016, the Dutch Supreme Court took a significant step away from the guidance it had provided in 2009. It considered a case in which the effectenlease product was sold to retail investors through a referral agent, not by the financial institution directly.

Under applicable Dutch law at the time of the effectenlease products being sold, referral agents were only allowed to inform potential investors about general characteristics of financial products, not provide advice (for which a special licence is required). Financial institutions were obliged to refrain from accepting clients that were introduced by any person, who, without having the required licence, had provided such advice.2

The retail investors argued that they should receive more compensation than the compensation scheme provided for because they had been advised by an unlicensed referral agent and because the financial services provider was or should have been aware of the referral agent providing advice.

The Supreme Court agreed with the retail investors and ruled that selling the effectenlease product was in violation of Dutch law if the retail investors proved: (i) that they were advised by (an unlicensed) referral agent; and (ii) that the financial institution was aware or should have been aware of them having been advised. The Supreme Court held that under those circumstances retail investors are entitled to full compensation of all interest and residual debt, regardless of whether the effectenlease product had constituted an unacceptable burden.

In addition, the Supreme Court ruled that the retail investor need not prove that the financial institution was or should have been aware of the referral agent not having been licensed. According to the Supreme Court it stands to reason that a professional party, like the financial institutions, must ensure that advisors of their potential investors have obtained the required licences.3


Prior to the September judgments most former investors had exercised or were close to exercising their final appeals. In most cases settlements were being reached based on the compensation scheme sanctioned in 2009. In its September judgments, the Dutch Supreme Court has introduced the possibility for retail investors in effectenlease products to receive full compensation of all losses regardless of the financial impact on their individual situation.

It is notable that the Dutch Supreme Court ruled that financial institutions have an obligation to research whether their clients’ advisors had obtained the required licences. This demonstrates that financial institutions have a duty of care that under certain circumstances may extend to reviewing advisors of potential customers.

The recent judgments may reignite litigation and are a significant setback in bringing closure to the effectenlease cases in the Netherlands at a time when public concern was finally subsiding.


1. Dutch Supreme Court, 5 June 2009, ECLI:NL:HR:2009:BH2815, ECLI:NL:HR:2009:BH2822, ECLI:NL:HR:2009:BH2811.
2. Article 41 of the Dutch Further Regulation on the Supervision of the Securities Trade 1999.
Supreme Court, 2 September 2016, ECLI:NL:HR:2016,2012, paragraph 5.6.3.

Further information

This article is part of the European Finance Litigation Review,  a quarterly publication on recent developments in the finance litigation and regulatory sector in key European jurisdictions.  For more information please contact Amy Edwards

Western Europe