Starting January 11, 2027, banks from third countries will face the question of whether they can continue to provide cross-border banking services from abroad into the EU. The Capital Requirements Directive VI (CRD VI) establishes new framework conditions in this regard: In the future, an authorized EU branch may be required for core banking activities such as lending, deposit-taking, or guarantees.
According to the CRD VI: In the future, banks from third countries will no longer be able to provide certain banking services—in particular, deposit, credit, guarantee, and commitment transactions—across borders from a third country into the EU without further ado. Starting January 11, 2027, they may need an authorized third-country branch in the respective EU member state to do so. For this reason, third-country banks should assess whether their existing business model and organizational structures are compatible with the new regulatory requirements. This applies in particular to capital, liquidity, and governance structures, as well as the specific structure of their retail banking operations.
Specifically, the following questions arise for banks from third countries: Which activities fall within the scope of application? What carve-out provisions are available to allow banks from third countries to continue operating in the EU?
Key Points at a Glance
- Requirement for Branches of Third-Country Banks: Effective January 11, 2027, third-country banks will be required to have an authorized branch in the relevant Member State in order to provide certain core services, unless an exception applies.
- No EU passporting: Authorization of a third-country branch does not, in principle, grant EU-wide market access; it is valid only in the Member State where the authorization was granted.
- Stricter requirements for higher-risk branches: Class 1 branches are subject to stricter requirements regarding capital, liquidity, governance, reporting, and regulatory transparency.
Quick Check: Does the Business Model Fall Under CRD VI?
The following questions provide an initial indication of whether action is needed:
- Does your institution provide credit, deposit, or guarantee services to EU customers?
- Do you actively reach out to customers in the EU or provide them with support?
- Do you structure or initiate business transactions related to the EU?
If you answer “Yes” to at least one of these questions, you should take a closer look at the requirements of CRD VI.
When does the requirement to establish a branch office apply?
CRD VI generally requires that third-country firms establish a branch and apply for authorization to take up or continue certain banking activities in a Member State. These banking activities include, in particular,
- Core services such as deposit-taking, lending, and
- Guarantee and commitment transactions, to the extent that they are provided by a third-country firm that, if established in the EU, would be classified as a credit institution or a CRR-relevant firm.
Exceptions apply in particular to
- Reverse solicitation cases,
- intra-group services, as well as
- Certain investment services that fall within the scope of the Market in Financial Instruments Directive (MiFID), including closely related ancillary services.
Existing contracts entered into before July 11, 2026, will generally remain unaffected (“grandfathering”).
Which exceptions are particularly relevant in practice
Whether a local branch is actually required depends, in particular, on the specific sales situation, the counterparty, and any applicable corporate structure. CRD VI provides for several exemptions that affected parties can utilize to remain outside the scope of application. These are particularly important in practice because they can alleviate the burden on existing cross-border models. However, they must be interpreted narrowly, and the underlying considerations must be well documented.
Reverse Solicitation
There is no requirement to establish a branch if the banking service is provided exclusively at the initiative of the customer or the counterparty. The key factors are that the customer’s initiative is documented in a verifiable manner, that there is no active solicitation from the third country into the EU, and that marketing, origination, and relationship management activities are clearly separated. Banks from third countries should establish a reverse solicitation framework and develop a reverse solicitation policy.
Interbank and Intragroup Arrangements
Exceptions may also apply in individual cases to certain fees for intra-group banking services, particularly for treasury, funding, and liquidity structures of international banking groups.
MiFID-related investment services
The third-country branch regime targets certain core banking services. Investment services and related ancillary services continue to be governed primarily by the provisions of MiFID. In practice, drawing the line remains challenging, for example when lending, providing collateral, or issuing guarantees are combined with capital market transactions and thus, strictly speaking, constitute services regulated under MiFID.
Existing Contracts and Transition Periods (“Grandfathering”)
Transitional or grandfathering provisions may apply to contracts entered into before July 11, 2026. However, the original contract date is not the only determining factor. Extensions, increases, novations, or material changes to existing credit lines may also require a new regulatory assessment. Institutions should therefore not only inventory their contract portfolios but also analyze change mechanisms and renewal processes. This will enable them, in the event of any changes after July 11, 2026, to determine with precision whether the preferential treatment for existing contracts continues to apply.
Class 1 or Class 2: Why Classification Matters
Classification as a Class 1 or Class 2 branch determines the requirements that a third-country branch must meet, particularly with regard to capital, liquidity, governance, and reporting.
Class 1 includes branches with a higher risk profile, such as those with a large volume of business (5 billion euros or more in assets) or those holding deposits from retail customers. Branches whose home country has not been recognized as equivalent may also fall into this category.
Class 2 applies to less complex and high-risk activities.
The classification thus determines how strictly the supervisory authority regulates the branch and serves as the central proportionality mechanism of the new third-country branch regime.
Simplified Requirements for Qualified Third-Country Branches
Branches of third-country institutions classified as “qualified” are generally subject to less stringent regulatory requirements, particularly when compared to Class 1 branches.
Such a classification is possible if the supervisory framework in the parent institution’s country of origin is comparable to EU standards.
If this comparability is not recognized, the branch may be treated as a Class 1 branch—with correspondingly stricter requirements.
Banks from third countries should therefore assess at an early stage whether their home country’s regulatory framework is recognized as equivalent.
What requirements apply to branches of third-country firms?
Branches of third-country institutions must meet a number of minimum requirements. These relate in particular to authorization, capital and liquidity adequacy, organizational structure, and ongoing reporting obligations.
Granting of Permits
Branches of third-country institutions require prior authorization. In particular, the application must include a business plan detailing the firm’s activities, organization, and risk management. Requirements include, among other things, that the activities are covered by the third-country authorization, that the supervisory authorities can cooperate, and that there are no concerns regarding money laundering or terrorist financing.
Capital and Liquidity
Class 1 branches must maintain capital equal to at least 2.5 percent of their average liabilities, with a minimum of 10 million euros. For Class 2 branches, the requirements are 0.5 percent or a minimum of 5 million euros, whichever is greater. In addition, liquid assets must be held to cover outflows for at least 30 days.
Governance and Local Leadership
Each branch must have at least two managers working on site. In addition, internal and group-wide structures must be designed in such a way that the supervisory authority can understand the risks and clearly see what measures have been taken to control them.
Booking and Reporting
The branch must record its assets and liabilities in a register and report on them regularly. Class 1 branches must report at least semiannually, and Class 2 branches at least annually.
When might an EU subsidiary be necessary?
In certain cases, a branch in a third country is not sufficient. The supervisory authorities may require an institution to establish an independent EU subsidiary instead.
This is particularly relevant when the branch operates across borders in several Member States, plays a significant role in the EU market, or poses increased risks from a supervisory perspective.
An important indicator in this regard is business volume: A transition to a subsidiary may be required if the EU branches of a third-country group collectively reach a volume of approximately 40 billion euros, or if a single branch exceeds approximately 10 billion euros.
However, what is always decisive is a comprehensive assessment of the business model and the associated risks. The supervisory authority has discretion in this matter.
What Banks in Third Countries Should Review
In particular, institutions should review the following points at an early stage:
- Review the scope of application:Which products and services are offered to EU customers? In particular, it is important to determine whether they fall under CRD VI or are more appropriately classified under the MiFID regime.
- Identify existing EU client relationships:What contracts and client relationships already exist in the EU? Existing contracts and ongoing engagements should be fully documented.
- Review Exceptions:It should be determined whether an exception applies, such as in cases of reverse solicitation, intra-group services, interbank transactions, MiFID-related services, or existing contracts. The review should be documented in a transparent manner.
- Evaluating a Branch or Subsidiary:Is an authorized third-country branch sufficient? Or do business volume, risk profile, and EU-wide activities make it more advisable to establish an EU subsidiary?
- Preparing for Classification as Class 1 or Class 2:Banks should assess early on whether their branch should be classified as Class 1 or Class 2. Key factors in this assessment include deposits, assets, and relevant thresholds.
- Planning for Capital and Liquidity:Banks should determine early on how much capital and liquidity the branch will require and incorporate this into their group-wide planning.
- Ensuring Local Governance:Suitable managers must be appointed locally for the branch office. In addition, clear oversight, reporting, and escalation procedures should be established.
Conclusion: Market access is becoming a structural issue
CRD VI changes the requirements for banking services provided by third-country banks in the EU. Going forward, it will be important to determine whether a bank’s specific presence in the EU aligns with its actual business activities, risk profile, and the cross-border scope of its business model.
For banks from third countries, the key strategic question is therefore: Is a locally licensed third-country branch sufficient, or do the volume of business, the risk structure, or cross-border EU activities require a subsidiary structure? Those who wait until shortly before the new regime takes effect to answer this question risk operational disruptions, regulatory uncertainty, and unnecessary time pressure.
