CRD VI and Third-Country Banks: Preserving Cross-Border Access to the EU Market

From 11 January 2027, third-country banks will need to reassess whether they may continue to provide banking services into the EU on a cross-border basis. CRD VI introduces a new framework under which an authorised EU branch may be required for core banking activities, including lending, deposit-taking and the provision of guarantees.

Under CRD VI, third-country banks will no longer be able to provide certain banking services – most notably deposit-taking, lending, guarantees and commitments – directly from a third country into the EU. From 11 January 2027, the provision of such services may require an authorised third-country branch in the relevant EU Member State. Third-country banks should therefore assess whether their existing business models and organisational structures are compatible with the new regulatory framework. This assessment should cover, in particular, capital, liquidity and governance arrangements, as well as the specific design of their EU-facing banking activities.

For third-country banks, two questions are therefore central: Which activities fall within the scope of the new regime? And which exemptions or carve-outs may allow cross-border business into the EU to continue?

Key Takeaways

• Third-country branch requirement: From 11 January 2027, third-country banks will generally need an authorised branch in the relevant Member State to provide certain core banking services, unless an exemption applies.
• No EU passport: Authorisation of a third-country branch does not generally confer EU-wide market access. It permits business only in the Member State in which the branch is authorised.
• More stringent requirements for higher-risk branches: Class 1 branches are subject to enhanced requirements relating to capital, liquidity, governance, reporting and supervisory transparency.

Quick Assessment: Does the Business Model Fall Under CRD VI?

The following questions provide an initial indication of whether action may be required:

• Does your institution provide lending, deposit-taking or guarantee services to customers in the EU?
• Does your institution actively solicit or support customers in the EU?
• Does your institution structure, originate or initiate transactions with an EU nexus?

If the answer to any of these questions is “yes”, the implications of CRD VI should be examined in greater detail.

When Does the Third-Country Branch Requirement Apply?

As a general rule, CRD VI requires third-country undertakings to establish an authorised branch before commencing or continuing certain banking activities in a Member State. These activities include, in particular:

• core banking services, including deposit-taking and lending; and
• guarantees and commitments, where provided by a third-country undertaking that would qualify as a credit institution or relevant CRR undertaking if established in the EU.

Key exemptions include:

• services provided on the basis of reverse solicitation;
• certain intragroup services; and
• certain investment services within the scope of the Markets in Financial Instruments Directive (MiFID), together with closely related ancillary services.

Existing contracts entered into before 11 July 2026 will, as a general rule, remain unaffected under the applicable grandfathering arrangements.

Which Exemptions Are Most Relevant in Practice?

Whether a local branch is required will depend, among other things, on the distribution model, the relevant counterparty and the applicable group structure. CRD VI provides several exemptions that may allow affected institutions to remain outside the third-country branch regime. These exemptions are of considerable practical importance because they may preserve existing cross-border operating models. However, they must be construed narrowly, and the underlying analysis should be carefully documented.

Reverse Solicitation

No branch is required where the banking service is provided exclusively at the customer’s or counterparty’s own initiative. The decisive factors are that the customer initiative can be evidenced, that there has been no active solicitation from the third country into the EU, and that marketing, origination and relationship-management activities are clearly delineated. Third-country banks should therefore establish a robust reverse-solicitation framework and adopt a dedicated reverse-solicitation policy.

Interbank and Intragroup Arrangements

Exemptions may also apply, depending on the circumstances, to certain interbank transactions and intragroup banking services, in particular in connection with treasury, funding and liquidity structures within international banking groups.

MiFID-Related Investment Services

The third-country branch regime is directed at specified core banking services. Investment services and related ancillary services remain primarily governed by MiFID. In practice, the boundary may be difficult to draw—for example, where lending, collateral arrangements or guarantees are provided in connection with a capital-markets transaction and may therefore qualify as MiFID-related ancillary services.

Existing Contracts and Transitional Arrangements (“Grandfathering”)

Transitional or grandfathering provisions may apply to contracts entered into before 11 July 2026. The original contract date is not, however, the only relevant factor. Extensions, increases, novations and other material amendments to existing credit arrangements may trigger a fresh regulatory assessment. Institutions should therefore not only map their existing contract portfolios but also review amendment mechanisms and renewal processes. This will allow them to determine with precision whether grandfathering remains available following any change made after 11 July 2026.

Class 1 or Class 2: Why the Classification Matters

Classification as a Class 1 or Class 2 branch determines the prudential requirements applicable to a third-country branch, in particular in relation to capital, liquidity, governance and reporting.

Class 1 generally captures branches with a higher risk profile, including branches with assets of EUR 5 billion or more or branches that accept retail deposits. A branch may also fall within Class 1 where the supervisory framework of its home jurisdiction has not been recognised as equivalent.

Class 2 applies to branches conducting less complex and lower-risk activities.

The classification therefore determines the intensity of supervision and operates as the central proportionality mechanism within the new third-country branch regime.

Reduced Requirements for Qualifying Third-Country Branches

Third-country branches that qualify for preferential treatment are generally subject to a less onerous regulatory regime, particularly by comparison with Class 1 branches.

Such treatment may be available where the supervisory framework in the parent undertaking’s home jurisdiction is considered comparable to EU standards.

If equivalence is not recognised, the branch may be treated as a Class 1 branch and become subject to the correspondingly more stringent requirements.

Third-country banks should therefore assess at an early stage whether the regulatory framework of their home jurisdiction is recognised as equivalent.

What Requirements Apply to Third-Country Branches?

Third-country branches must satisfy a range of minimum requirements. These relate, in particular, to authorisation, capital and liquidity, organisational arrangements and ongoing reporting.

Authorisation

A third-country branch requires prior authorisation. The application must include, in particular, a business plan describing the proposed activities, organisational arrangements and risk-management framework. Among other conditions, the relevant activities must be covered by the institution’s home-country authorisation, effective cooperation between the competent supervisory authorities must be possible, and there must be no concerns relating to money laundering or terrorist financing.

Capital and Liquidity

Class 1 branches must maintain capital equal to at least 2.5% of their average liabilities, subject to a minimum of EUR 10 million. For Class 2 branches, the requirement is 0.5% of average liabilities, subject to a minimum of EUR 5 million, whichever is higher. Branches must also hold sufficient liquid assets to cover outflows over a period of at least 30 days.

Governance and Local Management

Each branch must have at least two persons effectively directing its business in the relevant Member State. Its local and group-wide governance arrangements must also enable the competent authority to understand the branch’s risk profile and assess the measures implemented to manage those risks.

Booking and Reporting

The branch must maintain a register of its booked assets and liabilities and report on them periodically. Class 1 branches must report at least semi-annually; Class 2 branches must report at least annually.

When Might an EU Subsidiary Be Required?

In certain circumstances, a third-country branch may not be sufficient. The competent authorities may instead require the institution to establish a separate EU subsidiary.

This may be particularly relevant where the institution carries on business through branches in several Member States, has a significant presence in the EU market or presents heightened supervisory risks.

Business volume is an important indicator. A subsidiarisation requirement may arise where the aggregate assets of a third-country group’s EU branches reach approximately EUR 40 billion or where a single branch exceeds approximately EUR 10 billion.

The decisive factor will nevertheless be a holistic assessment of the business model and the associated risks. The competent authority retains discretion in this regard.

What Third-Country Banks Should Assess Now

Institutions should address the following points at an early stage:

1. Assess the scope: Identify the products and services offered to EU customers and determine whether they fall within CRD VI or are more appropriately characterised under the MiFID framework.
2. Map existing EU client relationships: Identify and fully document all existing contracts, client relationships and ongoing engagements in the EU.
3. Analyse available exemptions: Determine whether an exemption applies, including for reverse solicitation, intragroup services, interbank transactions, MiFID-related services or grandfathered contracts. The analysis should be documented transparently.
4. Evaluate the appropriate legal presence: Consider whether an authorised third-country branch is sufficient or whether the scale of the business, the risk profile and EU-wide activities point towards an EU subsidiary.
5. Prepare for Class 1 or Class 2 classification: Assess the likely classification at an early stage, taking account of deposits, assets and the applicable thresholds.
6. Plan capital and liquidity: Quantify the branch’s capital and liquidity needs and integrate them into group-wide planning.
7. Establish local governance: Appoint suitable local management and implement clear oversight, reporting and escalation arrangements.
8. Early regulatory engagement: Third-country banks should engage proactively with BaFin at an early stage to assess the implications of CRD VI and prepare their target operating model for the regime taking effect on 11 January 2027.

Conclusion: Market Access Is Becoming a Structural Question

CRD VI materially reshapes the conditions under which third-country banks may provide banking services in the EU. Going forward, institutions will need to ensure that the nature of their EU presence is aligned with their actual business activities, risk profile and the cross-border reach of their operating model.

The key strategic question for third-country banks is therefore whether a locally authorised branch will be sufficient or whether business volumes, the risk profile or cross-border activities within the EU require a subsidiary structure. Institutions that defer this assessment until shortly before the new regime takes effect risk operational disruption, regulatory uncertainty and avoidable execution pressure.

Read here how KPMG Law can support your company in implementing the new rules.