CRD VI and Cross-Border Lending – EU Branch Requirements

The EU Capital Requirements Directive 2013/36/EU ("CRD") is one of the main pillars of the European banking regulatory landscape. It addresses access to banking activities, supervisory powers, and governance matters, whilst detailed capital requirements applicable to EU banks are set out in the companion Capital Requirements Regulation (EU) No 575/2013 ("CRR"). The latest amendment to the CRD, CRD VI (Directive (EU) 2024/1619), was enacted in 2024 and concerns multiple topics, including updates to so-called access rules for "third country" entities providing "core banking activities" in the EU. Namely, CRD VI introduces a harmonised framework requiring such third-country undertakings to establish a branch in an EU Member State and seek authorisation before commencing or continuing to carry out certain banking activities.

While most CRD VI measures apply from 11 January 2026, the third-country branch requirements will apply from 11 January 2027.

Implementation

It should be noted that the requirements of the CRD do not have direct effect in the EU and require separate implementation into the national laws of each EU Member State. Member States were expected to adopt and publish implementing measures by 10 January 2026. It is likely that during the implementation process, further clarifications and guidance will be provided by national and EU regulators, which may impact the comments below (which are based on the wording of the CRD itself rather than locally implemented provisions).

Third-Country Branch Requirement

Article 21c(1) of CRD VI requires certain third-country undertakings to establish a branch in the territory of the Member State in which they wish to operate and to apply for authorisation under CRD VI before commencing or continuing to carry out certain banking activities. Third-country branches are then classified as Class 1 or Class 2 based on risk profile, with Class 1 branches face more stringent capital, liquidity, governance and reporting requirements than Class 2.

"Third countries" are those located outside the European Economic Area ("EEA"). Article 47 of CRD VI, which replaces the previous Article 47 of the CRD, sets out which third-country undertakings are within scope of the new regime. The following entities are required to establish a branch:

1. Any undertaking that carries out the activity of taking deposits or other repayable funds;
2. Undertakings that would qualify as a credit institution (or certain large investment firms) if established in the EU, where such undertakings carry out lending activities, including inter alia: consumer credit, credit agreements relating to immovable property, factoring (with or without recourse), and financing of commercial transactions (including forfeiting); and
3. Undertakings that would qualify as a credit institution (or certain large investment firms) if established in the EU, where such undertakings provide guarantees and commitments.

Importantly, undertakings established in a third country providing investment services and activities listed in Annex I, Section A, to MiFID II and any accommodating ancillary services (such as related deposit taking or the granting of credit or loans for the purpose of providing services under MiFID II) are expressly excluded from the scope of the branch requirement under Article 47(2) and Article 21c(4) of CRD VI.

In practice, the above requirements will capture banks, broker-dealer firms which (i) deal on own account or underwrite financial instruments, and (ii) are large or part of a large group (having total consolidated assets or carrying out investment services in respect of amounts exceeding EUR 30 billion).

The definition explicitly excludes insurance undertakings, commodity dealers and funds/collective investment undertakings. Therefore, the requirements do not apply to credit funds. There are however certain concerns that certain European regulators may apply similar requirements for non-bank lenders, therefore such entities should still consider the national requirements when they engage with the borrowers in certain EEA Member States. Such requirements may be implemented under the non-CRD related frameworks.

Therefore, unless the relevant entities are insurance undertakings, commodity dealers or funds, third-country lenders will be subject to the above restrictions and will need to meet the requirements of CRD VI, subject to various exemptions introduced under CRD VI as explained below.

Exemptions to the Third-Country Branch Requirement

Under Article 21c(2) of CRD VI, exemptions from the branch requirement can be relied upon where an undertaking established in a third country provides a service or activity to a client or counterparty established or situated in the Union that is:

1. approached at the undertaking's own exclusive initiative ("reverse solicitation");
2. a credit institution;
3. an undertaking of the same group as that of the undertaking established in a third country.

Regarding reverse solicitation, this exemption applies to any type of client that approaches the third-country undertaking "at its own exclusive initiative". Reverse solicitation is interpreted narrowly by the CRD VI. In particular, where a third-country undertaking solicits a client or counterparty through an entity acting on its own behalf or having close links with such third-country undertaking, or through any other person acting on behalf of such undertaking, it shall not be deemed to be a service provided at the own exclusive initiative of the client or counterparty. Furthermore, an initiative by a client does not entitle the third-country undertaking to market other categories of products, activities or services than those originally solicited (other than through an authorised branch), though no branch is required for services closely related to those originally solicited.

Alternatively, third-country undertakings may choose to provide services through an EU subsidiary which has obtained a local licence. A subsidiary is a separate legal entity. Once licensed in one EU Member State, the subsidiary can provide services across the EEA without further authorisation – in the EU regulatory framework, this is often referred to as "passporting".

Grandfathering

It is important to note that under Article 21c(5) of CRD VI, the branch requirement will not apply to existing contracts that were entered into before 11 July 2026. This "grandfathering" provision is intended to preserve clients' acquired rights under such existing contracts.

Practical Implications

The CRD VI third-country branch requirements will have significant practical implications for a wide range of cross-border lending and financing activities involving third-country lenders and EU-based borrowers or counterparties. These implications are particularly acute for UK-based financial institutions, which became "third-country" entities following Brexit, but apply equally to lenders headquartered in other non-EEA jurisdictions such as the United States, Switzerland, and Asia-Pacific financial centres.

Set out below are key practical scenarios that third-country lenders should consider when assessing the impact of the new regime on their business activities.

Bilateral and Syndicated Lending

Where a third-country lender wishes to extend credit directly to an EU borrower - whether on a bilateral basis or as part of a lending syndicate - it will need to consider whether it can rely on any available exemption. In the absence of an exemption (such as reverse solicitation, where the borrower approached the lender at its own exclusive initiative), the lender may need to establish an authorised branch in the relevant EU Member State or route the transaction through an EU-licensed subsidiary. In the syndicated lending context, this analysis must be undertaken by each participating lender individually, as the availability of exemptions will depend on each lender's own relationship with the borrower.

Extending Credit to EU Group Entities

A common scenario arises where a third-country lender has an existing lending relationship with a corporate group headquartered outside the EU (for example, a US or UK parent company), but is subsequently asked to extend credit to EU subsidiaries of that group - whether under an existing facility or a new financing arrangement. In such circumstances, the lender should not assume that its relationship with the parent company automatically extends to the EU subsidiaries. Each EU entity is a distinct legal person, and the lender will need to assess separately whether it has a qualifying relationship with each EU borrower or guarantor, or whether it can rely on another exemption such as the intragroup exemption (which applies where the EU entity is part of the same group as the third-country lender, not the borrower's group).

Secondary Market Transactions

Third-country lenders active in the secondary loan market should consider the implications of acquiring loans to EU borrowers, whether through assignment, novation, sub-participation with funding obligations, or other transfer mechanisms. Where the acquisition results in the third-country lender entering into a new lending relationship with an EU borrower (for example, through novation or a transfer certificate that establishes privity between the lender and the borrower), the branch requirement may be triggered unless an exemption applies. Lenders should assess whether the original lending relationship was reverse-solicited and, if so, whether this exemption can be passed through to subsequent transferees - a point on which further regulatory guidance may be required.

Trade Finance and Letters of Credit

Third-country banks providing trade finance facilities, letters of credit, guarantees, or performance bonds in favour of EU beneficiaries will need to consider whether these activities fall within the scope of "guarantees and commitments" under point 6 of Annex I to the CRD. Where they do, and where the third-country bank would qualify as a credit institution if established in the EU, the branch requirement may apply. This is particularly relevant for banks that routinely issue letters of credit or guarantees in support of cross-border trade involving EU counterparties.

Structured Finance and Capital Markets Transactions

In structured finance transactions - such as securitisations, covered bond programmes, or asset-backed financings - third-country lenders may provide credit facilities to EU-based special purpose vehicles or issuers. Similarly, in leveraged finance and acquisition finance transactions, third-country lenders may be asked to provide commitment letters or bridge facilities to EU targets or acquisition vehicles. In each case, lenders should analyse whether their activities constitute "lending" within the meaning of CRD VI and whether any exemption is available.

Key Takeways

In light of the above, third-country lenders conducting or contemplating business with EU clients should undertake a comprehensive review of their activities to identify those that may fall within scope of the new regime. Key practical steps include:

• Mapping existing and prospective EU client relationships to assess which activities may constitute "core banking activities" and whether any exemptions are likely to apply on a client-by-client basis. Where reliance is placed on the reverse solicitation exemption, lenders should ensure that adequate records are maintained to evidence that the client approached the lender at its own exclusive initiative.
• Reviewing internal policies and procedures for client onboarding, marketing, and deal origination to ensure that activities are structured in a manner that supports reliance on available exemptions where appropriate, and to avoid inadvertent solicitation that could vitiate the reverse solicitation exemption.
• Considering whether to establish an authorised third-country branch in one or more EU Member States, or whether to conduct EU lending activities through an existing or newly established EU-licensed subsidiary. The choice between a branch and a subsidiary will depend on a range of factors, including the volume and nature of the lender's EU business, regulatory capital and liquidity considerations, tax implications, and operational preferences.
• Monitoring the transposition of CRD VI into the national laws of relevant EU Member States, as well as any guidance issued by national competent authorities or the European Banking Authority, which may provide further clarity on the interpretation and application of the new requirements.