Does the provision regarding the scope of bail-in tool applicable to client assets or client money held on behalf of UCITS (Article 44(2)(c)) have to be expressly transposed into national law?

Article 44(2)(c) (Scope of bail-in tool) of Directive 2014/59/EU (BRRD) provides that “Resolution authorities shall not exercise the write down or conversion powers in relation to the following liabilities whether they are governed by the law of a Member State or of a third country: […] (c) any liability that arises by virtue of the holding by the institution or entity referred to in point (b), (c) or (d) of Article 1(1) of this Directive of client assets or client money including client assets or client money held on behalf of UCITS as defined in Article 1(2) of Directive 2009/65/EC or of AIFs as defined in point (a) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council (1), provided that such a client is protected under the applicable insolvency law”.

It seems that this provision does not need to be expressly transposed into national law because those liabilities are not owned by the institution, they are clients’ property. For that reason they cannot be bailed-in (bail-in can only be applied to the liabilities of the institution under resolution). Is this interpretation correct?

Client assets or client money held on behalf of UCITS are not “owned” by the institution, and, therefore, they cannot be bailed in provided that such a client is protected under the applicable insolvency law. (see also Q&A 3023) The purpose of Article 44(2)(c) BRRD is to leave no scope for doubt and it needs to be transposed.

Disclaimer:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Directive 2014/59/EU (BRRD) and continues to be relevant.