On 19 June 2024, the final texts of the EU banking package known as CRD6 and CRR3 were published in the Official Journal of the European Union. As covered in our earlier update, CRD6 introduces a new, EU-wide requirement for certain “core banking services” to be provided in the EU through a third country branch or local subsidiary. The package also introduces significant new prudential supervision requirements for third country branches in the EU.
In addition to implementing the final parts of the global Basel III standards for banks in the EU, the package includes a range of EU-specific measures, including changes to the fit and proper requirements for senior managers, provision relating to the management of ESG risks, and the first specific own funds requirements for cryptoasset exposures.
Further detail on the entry into force and application of the different aspects of the package is set out below.
Summary of key points
CRD6 and CRR3 cover a number of updates to the banking regime in the EU, with CRD6 focussing on the harmonisation of the EU’s banking supervisory framework (specifically supervisory powers, sanctions, third country undertakings, and ESG risks), and CRR3 focussing on the implementation of the Basel 3 standards (specifically on credit risk, credit valuation adjustment risk, operational risk, market risk, and the output floor).
Importantly, CRD6 introduces a new Article 21c into the CRD, which requires 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 “core banking services”. The scope of this requirement has significantly narrowed since the original proposal in October 2021, however, it affects and remains a highly important issue for third country banking groups with EU customers. Please refer to our earlier update for further detail.
As part of the final legislative process this year, certain technical and clarificatory amendments were made to final text of CRD6 in relation to the branch requirement, including to now more clearly reflect the intended scope of the reverse solicitation exemption. However, these changes do not materially change the position that was agreed in December 2023. There was no further EU-level clarification as to when a core banking service will be deemed to be provided “in” a Member State, or in relation to the scope of the grandfathering provisions (albeit the recitals continue to state that these should be “narrowly framed“).
Entry into force and application
CRR3
CRR3 will enter into force on 9 July 2024 and will largely apply directly in all EU Member States from 1 January 2025, with the exception of specific amendments, which will apply from 9 July 2024. These predominantly update definitions or set out mandates for the European Banking Authority to develop further Level 2 and 3 materials.
In addition, the European Commission and the European Central Bank confirmed in a joint conference on 18 June 2024 that the CRR3 provisions implementing the Basel 3 standards on market risk will be postponed so that they will only apply from 1 January 2026, in line with the anticipated implementation of Basel 3 in the United States. It remains to be seen what approach the UK will take.
CRD6
CRD6 will enter into force on 9 July 2024, amending CRD on that date. As a Directive, the changes will need to be transposed into national legislation in each Member State before they apply. This is with the exception of specific amendments relating to systemic buffer risk calculations, which shall apply immediately from 29 July 2024.
By 10 January 2026, Member States will be required to adopt and publish their own national legislation transposing the requirements of CRD6, and apply them from 11 January 2026. However, there are key exceptions, which only apply from 11 January 2027:
- Article 21(c) branch requirement
- The branch requirement (discussed above) will only apply from 11 January 2027, with the exception of the grandfathering provisions relating to existing contracts entered into before 11 July 2026, which will apply from that date.
- The prudential supervision requirements of third country branches and relations with third countries
- The new enhanced requirements for third country branches will apply from 11 January 2027, with the exception of certain reporting requirements and related forms and templates, which are to apply from 11 January 2026.
Next steps
Banking groups with European operations and/or customers are currently preparing for implementation of the third country branch requirement, and for the CRD6 and CRR3 package generally. Our UK and EU-based lawyers are able to offer a pan-European view on market practice and interpretation, and seamlessly execute complex cross-border projects. If you have any questions on any of the topics mentioned, please contact us.
Co-authored by Justin Kwik
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