The question is about investment firms, as defined in Article 4(2)(2) of Regulation (EU) No 575/2013 (CRR), which hold clients’ money.  

According to Article 16(9)of Directive 2014/65/EU (MIFID II) and Article 4 of Directive 2017/593/EU concerning the safeguard of funds belonging to clients and product governance rules, Investment Firms (IFs) are subject to an obligation to make adequate arrangements to safeguard investor's ownership and rights in respect of funds entrusted to them. In particular, IFs should keep clients’ assets distinct from those of the firm and those of other clients; where it places client funds with a third party, the investment firm should exercise all due skill, care and diligence in the selection, appointment and periodic review of the third party and of the arrangements for holding and safekeeping client funds, and should consider the need for diversification and mitigation of risks by placing client funds with more than one third party in order to safeguard clients' rights and minimise the risk of loss and misuse.

In addition to this, Article 44(2) of Directive 2014/59/EU (BRRD) provides that “Resolution authorities shall not exercise write down or conversion powers in relation to the following liabilities whether they are governed by the law of a Member State or of third country: [.…] c) any liability that arises by virtue of the holding […..] of client assets or client money including client assets and client money held on behalf of UCITS [.…] or AIFs […] provided that such a client is protected under the applicable insolvency law”.

Recently, with regard to UCITS Q&A 3023 clarified that Article 44(2)(c) BRRD concerns third-party-owned assets, while Q&A 3022 specified that clients’ assets or clients’ 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 insolvency law; the protection would be the right of the owners to reclaim the assets in the insolvency proceeding.

In Italy such protection is guaranteed by Article 22 of Legislative Decree on Finance No. 58/1998 also with regard to client assets and client money held on behalf of investment firms. In particular said provision states that “the financial instruments and funds of individual customers held in whatever capacity by an Italian investment company […] and the financial instruments of individual customers held in whatever capacity by a bank shall be separate assets for all intents and purposes from those of the intermediary and from those of other customers” and that “actions in respect of such assets may not be brought by creditors of the intermediary or on behalf of such creditors, nor by creditors of the depositary or the sub-depositary, if any, or on behalf of such creditors”.

Therefore, it seems debateable whether there would be an exposure towards the institution where client funds are deposited according to Article 119 CRR for the purposes of credit risk. In particular, for prudential purposes, the risks arising from the deposit (i.e. legal and reputational risk arising if the firms do not exercise all due skill, care and diligence in the selection of the depositary, concentration risks) would already be addressed by the operational risk requirements (under the CRR) and the Pillar II (CRDIV) framework.