From January 2027 CRD VI will have a significant impact on ability of non-EU banks and large investment firms to provide core banking services into the EU.
What is CRD VI?
CRD VI is the latest amendment to the EU Capital Requirements Directive which is the EU's legislative framework for banks and other credit institutions.
Why does the CRD VI have an impact on non-EU firms?
Under the current CRD framework there is no harmonisation between EU states in relation to the regulation of core banking services provided by non-EU firms and, given the significant amount of banking activity in the EU by non-EU firms, the European Commission became concerned that this represented a source of financial stability risk for the EU.
CRD VI will now introduce minimum regulatory requirements for the provision of banking services in the EU by non-EU firms. In most cases the new rules will require the establishment of third-country branches and CRD VI contains rules for both licensing the branches and ongoing compliance requirements.
Which banking activities are caught by the new rules?
The new rules apply to non-EU firms who provide “core banking services” to customers in one or more EU member state(s).
The “core banking services” are:
1. taking deposits or other repayable funds;
2. lending (both consumer credit and lending to corporates); and
3. the provision of guarantees or commitments.
The CRD VI does not specify what constitutes the provision of services in a member state for the purposes of the new rules. It is likely that the location of the client will be the most relevant factor but, unless the EBA prepares guidance on this point, it is possible that the approach taken across each member state may differ.
Which entities are caught by the new rules?
The rules apply to non-EU entities who do not have an authorised subsidiary in the EU and provide lending, deposit taking or the provision of guarantees to customers in the EU either cross-border or via a branch.
These rules will apply to any non-EU firm which either accepts deposits or would otherwise be classified as a “credit institution” under the Capital Requirements Regulation (a “credit institution” can broadly be summarised as a firm with over EUR 30 billion in assets (including assets of its group) or which carries out investment services exceeding EUR 30 billion).
This means that the rules will apply to banks and very large investment firms.
Insurance companies, small investment firms and collective investment undertakings are not caught by the rules.
Are there any exemptions?
There are five exemptions from the new rules:
(1) reverse solicitation, where the client approaches the non-EU firm at their “own exclusive initiative” (firms should note that there are quite detailed rules in relation to the use of the reverse solicitation exemption);
(2) interbank and interdealer business, business conducted between non-EU and EU banks or CRR investment firms;
(3) intragroup business, activities conducted by a non-EU firm with a member of its own group;
(4) MiFID business, including any ancillary services; and
(5) legacy contracts entered into by 11 July 2026, in order to preserve client rights allowing those contracts to continue being serviced cross-border.
What is the impact of being caught in the new regime?
Non-EU banks and large investment firms without an authorised EU subsidiary who currently provide core banking services to customers in the EU and wish to continue to do so will need to establish a branch in the territory of each EU member state in which they wish to operate. They will need to apply for appropriate authorisation from the national competent authority of each relevant member state.
CRD VI introduces minimum authorisation, prudential and regulatory requirements (including reporting requirements) for authorised third country branches. The requirements are only minimum standards and some member states may choose to gold-plate them.
The rules will require member states to prohibit EU branches of non-EU firms from carrying on core banking activities in other EU member states on a cross-border basis.
If a non-EU bank or investment firm carries on a particularly large amount of business in a particular member state so that they are systemically important or pose significant financial stability risks, they may be required to establish a subsidiary rather than a branch.
What is the timescale for implementation of the changes?
CRD VI was published in the Official Journal on 9 July 2024. The new rules banning the provision of core banking services without a branch and the registration and compliance rules for third country branches will apply from 11 January 2027.
What should non-EU firms be doing now?
Although there is some time until the new rules come into force, non-EU banks and large investment firms that carry out cross-border lending business should consider the extent to which these new rules are likely to affect their EU business. Firms should monitor the implementation of the new rules in each of the member states in which they carry on activities and should consider whether they need to start taking steps to open one or more EU branches.
