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This article relates to another on investment advice given by an insurance broker, and is an extract from our “Banking Case Law Barometer 2019”, published in the D.A.O.R. review.
A case before the Liège Court of Appeal gave rise to an interesting decision on the liability of an insurance broker for advice on branch 23 life insurance products (no guaranteed capital, linked to underlying investments). Investors had, through an insurance broker, taken out branch 23 life insurance contracts but also disputed structured bonds and funds, these services being remunerated by commission.
Distinction between MiFID financial instruments and branch 23 insurance products
The court first recalled that a distinction must be drawn between operations carried out through the broker depending on whether they fall within the broker’s activity as a financial intermediary or as an insurance intermediary, the legislation on financial-instrument operations applicable to the former not applying to the latter. The court relied on the CJEU judgment C-542/16 of 31 May 2018, which held that financial advice on the investment of capital, given in the course of insurance mediation for the conclusion of a capital life insurance contract, falls within Directive 2002/92, not within MiFID. Investment advice given by insurance intermediaries is thus excluded from MiFID, on the basis of the exemption in Article 2(1)(c) of MiFID I.
The Court of Appeal concluded that only two operations could engage the broker’s liability as a financial intermediary; the subscriptions and redemptions of branch 23 life insurance policies concern insurance-based financial products and must be assessed under his obligations as an insurance intermediary.
A commission linked to an investment in financial instruments triggers the Act of 2 August 2002
For those two operations, the court applied the Act of 2 August 2002. Although the broker disputed being an investment firm, the court recalled the legal definition: firms under Belgian law whose usual activity consists in providing or offering investment services to third parties on a professional basis and/or carrying out investment activities. The words “on a professional basis” require the service to be rendered for remuneration, and providing a single service suffices. That was the case, according to the court, for the services provided in the subscription of the disputed structured bonds and funds.
That said, examining the definitions of investment advice and portfolio management, the court found nothing to establish that the broker had provided investment advice or portfolio-management services. He had acted only as a mere intermediary between issuer and subscribers, so he was bound by no advisory duty. The court held, however, that the broker should have carried out an appropriateness test under Article 27, § 5 of the Act of 2 August 2002, but that breach of that obligation did not suffice to engage his liability.
This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
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