CRD VI: Clock starts ticking on the EU’s tightened market access for third country entities

Overview

In this article we discuss the recent publication of CRD VI and CRR III (CRD package) in the EU's Official Journal. Our team has been tracking this legislative package in order to understand its impact on the ability of third country banks to provide services into the EU on a cross-border basis.

Following the CRD package's publication, the clock has started ticking on an 18-month deadline for EU member states to transpose the directive into national law. The package, which updates the EU banking regime, consists of amendments to both the Capital Requirements Directive (2013/36/EU) and Capital Requirements Regulation ((EU) No 575/2013). A significant proportion of the measures focus on implementing the final Basel III standards together with a number of other EU-specific reforms designed to enhance resilience, transparency and risk management practices. However, of particular interest are:

• the prohibition on the provision of cross-border core banking services into the EU by a third country institution
• the harmonised minimum requirements for the regulation of branches of third country institutions

Below is a reminder of some of the key points to be aware of regarding the scope of the new restriction on non-EU (third country) entities providing core banking services on a cross-border basis. We take a look at the possible options for non-EU undertakings accessing EU clients post-implementation, and pose some key questions to consider when assessing next steps.

What is the new branch requirement?

New article 21(c) introduced by CRD VI provides for the requirement for third country entities to at least establish a branch in the member state of the client to whom they are actively marketing/providing core banking services (the Third Country Branch Requirement). The intention is to tighten and harmonise the EU regulatory framework for regulated banking services. This requirement will effectively restrict the provision of core banking services by third country institutions on a cross-border basis. Until now the position on the regulation of cross-border banking services has not been homogenous across the EU, so each member state has taken its own approach as to whether and on what basis third country institutions can provide services to clients in the EU.

Which banking services are in scope?

The core banking services in scope of the Third Country Branch Requirement include (Core Banking Services):

• taking deposits and other repayable funds
• lending including, consumer credit, credit agreements relating to immovable property, factoring, with or without recourse, financing of commercial transactions (including forfeiting)
• guarantees and commitments

Note that the provision of cross-border investment services under MiFID remains unaffected and continues to be subject to MiFID/MiFIR market access rules.

Which third country undertakings are in scope?

For deposit taking, the answer is clear-cut: all types of third country entities offering deposit taking are in scope. For lending, guarantees and commitments, the scope is narrower and applies only where the third country entity qualifies as a credit institution or as a large investment firm (subject to fulfilment of certain criteria). Note that insurance undertakings, commodity dealers and funds are specifically excluded.

Are there any exemptions?

There are some limited exemptions to the Third Country Branch Requirement. Only active solicitation of the Core Banking Services is caught by the new requirement and, as such, the Third Country Branch Requirement is specifically stated not to apply where Core Banking Services are requested at the exclusive initiative of the client. However, reliance on this traditional concept of reverse solicitation will require careful consideration of:

• the frequency of its use (given that it is generally understood to have limited value as a sustainable business model)
• how best to document reliance
• any particular nuances in interpretation made by each EU member state

In addition, where the client or counterparty is a credit institution or is a member of the same group as the third country undertaking, the Third Country Branch Requirement will not apply. Further, services provided ancillary to core MiFID services and activities (in Annex I Section A) by third country institutions are excluded from scope.

Time to strategise

Member states have 18 months to transpose CRD VI (national laws to apply from 11 January 2026) following which there will be an additional 12-month transitional period before the Third Country Branch Requirement will start to apply (from 11 January 2027) (subject to grandfathering rules for existing contracts entered into before 11 July 2026). From this point, third country institutions that provide Core Banking Services in a member state will no longer be able to do so on a cross-border basis and will need to become authorised as at least a third country branch unless such services are provided through a different EU based operation or an exemption applies.

For now, third country entities without an existing branch in the EU should conduct impact assessments and kick off their strategic planning.

Some key questions to consider when assessing your options:

• to what extent do your current activities fall within the Core Banking Services and are you the type of entity in scope of the Third Country Branch Requirement?
• how likely are you to be able to rely on any of the exemptions to the Third Country Branch Requirement?
• what approach has each member state taken when implementing the CRD VI and what is the status of any pre-existing national laws, exemptions or tolerated practices post implementation?
• what is your current footprint in the EU, if any, and how can you best take advantage of existing operations?
• can existing business be migrated to non-credit institutions or EU group companies?

Final thoughts

The CRD package represents a landmark change for the way third country entities can access the EU market going forwards. In addition, whether you have an existing third country branch or will be establishing a new one, you will need to get up to speed on the newly harmonised regulatory framework (which provides for common minimum requirements for licensing, prudential standards, internal governance, supervision and reporting). It should be noted that a third country branch is only permitted to conduct authorised activities in the member state in which it is established so an authorised branch in every member state where you are targeting clients is required or alternatively an EU subsidiary duly licensed as a credit institution which can then use its passporting rights.

Just some of the points that we will be tracking at aosphere include any anomalies or gold plating from member state implementation of CRD VI, whether divergent interpretations arise as to when the Core Banking Services are deemed to be provided in a member state, the status of existing member state regimes and any variations in interpretations of CRD VI’s concept of reverse solicitation.