The European Union has established a definite deadline for transferring the Capital Requirements Directive VI into national law by no later than January 10, 2026, which will greatly impact cross-border banking. This legislative amendment addresses third-country financial institutions operating within EU borders to provide banking services, improving standardized supervision for new branches, and ensuring uniform standards for new branches for third-country financial institutions.
Harmonized framework minimizes regulatory fragmentation for member states
Currently, there is no harmonized framework for cross-border banking within the European Economic Area for third countries. Different approaches are applied by member countries, whereby third country undertakings are expected to obtain full authorization for commercial loans in certain countries, and exemptions are either provided or third country undertakings are allowed on certain conditions.
CRD VI imposes obligations for branch establishment for non-EEA undertakings engaged in essential banking operations, such as commercial lending, accepting deposits, guarantees, and commitments. This directive also does away with the present scheme of granting exemptions on discretion and introduces only limited exceptions for reverse solicitation, interbank business, intra-group operations, and operations under MiFID II. This approach provides equal treatment under the law for all member countries in the EU.
Important regulatory developments include:
- • Forged branch setup for basic banking operations
- • Ending discretionary national exemptions
- • Standardized reporting and capital requirements
- • Improvements to supervisory coordination mechanisms
- • Risk Classification System for Third-Country Branches
Hard exclusions severely restrict alternative routes to compliance
The only limited exemptions are given to branch establishment, whereby reverse solicitation is recognized as the most common applicable exemption. This exemption only applies when clients approach third-country institutions on their own accord, without any form of advertising or solicitation on the part of the financial firm. However, indications from the European Securities and Markets Authority are quite restrictive on this issue.
Inter-bank business exemptions relate to other EEA credit institutions and qualified investment firms, while intra-group exemptions relate to business within a corporate group as determined by the regulation on capital requirements. Business exemptions related to MiFID II protect investment services and include ancillary services, but it is not clear where the boundary exists between banking and investment business. The existing rights of clients are protected by grandfathering provisions until July 11, 2026.
Third-country branches are expected to provide comprehensive information on their assets, liabilities, confirmation of regulatory compliance, general business strategies adopted by their parents, and reverse solicitation services. Class 1 branches are expected to submit their reports biannually, while Class 2 branches submit reports on an annual basis. The European Banking Authority will provide templates to ensure harmonization.
It appears that no actual action has to be taken to achieve
The transposition must be finalized by January 10, 2026, and new reporting obligations will begin on January 11, 2026. Third-country branch authorization obligations can only start on January 11, 2027, giving financial institutions only one year to structure themselves in line with this new requirement. This effectively means that financial institutions must act immediately on this new requirement.
This can be seen in the German draft implementation bill, reflecting how seemingly broad provisions include most existing exemptions within Section 2(5) of the German Banking Act. This removes existing discretionary exemptions that must now either reorganize their branch structure to comply or shut down altogether, as revocation is no longer grandfathered in. This pattern is to be expected for other existing frameworks within member states.
The implementation of CRD VI is a turning point for cross-border banking regulation, ensuring, for the first time, a degree of harmonization within EU countries that was unachievable prior to its implementation. It is essential for financial institutions to screen their business models and work out applicable structures, and the success of this regulation has implications for shaping the EU landscape on cross-border banking for international banking institutions.
