On 6 December 2023, the finalised texts of the EU banking package known as CRD61and CRR32 were published following the conclusion of negotiations between the EU co-legislators. In this article, we set out an overview of the latest developments and the next steps. We also explain the final compromise position on Article 21c of CRD6, which introduces a requirement for third country undertakings to establish a branch in the EU in order to provide core banking services, subject to certain exemptions.
Latest developments
On 6 December 2023, the Council of the EU published the final compromise texts of the proposed sixth Capital Requirements Directive (known as CRD6 or CRDVI) and the third Capital Requirements Regulation (known as CRR3 or CRRIII). Both texts were dated 4 December 2023. The texts reflect the outcome of the provisional political agreement reached by the Council and the EU Parliament in June 2023, the subsequent technical review by the Parliament and the EU Commission which was completed on 13 November 2023, and subsequent minor technical amendments by the Council.
The texts must now be formally adopted by the Council and the Parliament. The Council has advised the Parliament that should the Parliament adopt the texts in the exact form of the final compromise texts, the Council will also adopt the texts. The texts can then be prepared for publication (including translation) before being published in the Official Journal.
Entry into force and application
CRD6 will enter into force 20 days following its publication in the Official Journal. Member States will be required to adopt and publish provisions transposing CRD6 within 18 months of entry into force, with such provisions to be applied the following day. This transposition deadline is subject to certain derogations, including as discussed below in relation to the third country branch requirement.
CRR3 will also enter into force 20 days following its publication in the Official Journal, with the majority of the provisions to apply from 1 January 2025. Certain other provisions will apply from the date of entry into force or from 30 June 2024.
Summary of Article 21c third country branch requirement
As originally introduced on 27 October 2021, draft Article 21c of CRD6 required third country undertakings to at least establish a branch in a Member State and apply for authorisation in order to commence or continue conducting certain banking services in the relevant Member State. This requirement has been controversial since its introduction, including because of the fact that its broad scope could cut across the third country regime existing under MiFID in relation to investment services. The MiFID third country regime currently gives Member States discretion as to whether or not they may require third country firms to establish a branch in their territory.
Prior to the commencement of trilogue negotiations in May 2023, the Parliament had proposed softening the requirement, introducing specific carve-outs for interbank/interdealer and intra-group activities, whereas the Council had proposed deleting it altogether.
On 6 December 2023, the final compromise text of CRD6 was published, including an updated version of Article 21c. The requirement to establish a branch for the provision of banking services by third country undertakings remains, subject to significant modifications. In summary:
- Narrowing of scope to “core banking services”. The requirement will now only apply in respect of so-called “core banking services”, which are:
- deposit-taking by any third country undertaking; and
- lending and/or guarantees and commitments made by a third country undertaking that would qualify as a credit institution or that would fulfil the “class 1 investment firm”/EUR 30 billion size criteria, if it were established in the EU. This will impact third country banks and large broker/dealers that provide credit and/or guarantees and commitments.
- Exemption for banking services that are ancillary to MiFID investment services. Significantly, there is a carve-out where a third country undertaking is providing MiFID investment services and any accommodating ancillary services such as related deposit-taking, granting credits or loans the purpose of which is to provide services under MiFID. This exemption is subject to compliance with applicable AML/CTF rules.
- Introduction of new exemptions for interbank/interdealer and intra-group transactions. The requirement will not apply in relation to the provision of relevant services to credit institutions and undertakings in the same group that are established in the EU.
- Acquired rights. The requirement is without prejudice to existing contracts that were entered into/will be entered into before six months of the date of application of Article 21c.
- Broadening of scope of reverse solicitation exemption. The reverse solicitation exemption is retained and widened slightly. While a third country undertaking may not market other categories of products, activities or services than those that have been solicited by the client or counterparty, they may market those that are “necessary for, or closely related to” the provision of the service, product or activity originally solicited by the client or counterparty.
- Information gathering. Competent authorities will have the power to require credit institutions and branches established in the EU to provide them with the information they require to monitor services provided on a reverse solicitation basis (e.g. by non-EU affiliates).
- Extension of deadline for compliance. The relevant provisions will apply from the date that is 12 months after the date of application of CRD6. This is understood to mean the date 12 months after the transposition deadline. That is, once CRD6 is published in the Official Journal, Member States will have 18 months to publish their transposing provisions, and a further 12 months to publish and apply the provisions that transpose Article 21c. Currently, the absolute earliest that the requirement could apply is mid-2026. (Note, the paragraph relating to acquired rights referred to above applies six months before the date of application of the rest of Article 21c.)
- Review within 12 months. By 12 months from the date of entry into force of CRD6 (which is understood to mean the date 12 months after the transposition deadline), the European Banking Authority shall, after consulting the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, review whether any financial sector entity in addition to credit institutions should be exempted from the requirement, taking into account financial stability and competitiveness concerns.
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