Responding to CRD VI for third country banks
CRD VI is a European regulatory framework established to enforce a harmonised set of minimum regulatory requirements across banks within the European Economic Area (EEA). Building on CRD V the current near-final text (22nd May 2024) for CRD VI; i) increases regulatory scrutiny across capital requirements, facilitating further oversight from national competent authorities (NCAs) of third country banks, and ii) introduces a mandatory subsidiarisation criteria of third country branches (TCBs).
For third country banks, building a a robust response to CRD VI requires evaluation and design across entity structures, technology platforms and, operating model – with key consideration of broader regulatory / compliance impact resulting from changes in operating structure.
Acting now is critical to ensure there is adequate time to deliver the required structure and operational changes to reach compliance. Additionally, as the impact of CRD VI becomes apparent across the European Banking ecosystem, Financial Institutions who bring to market a clear plan and customer proposition will benefit from potential opportunities where other players have failed to prepare.
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Responding to CRD VI for third country banks
From January 2027 third country banks will no longer be able to conduct cross-border core-banking services (taking deposits, lending, and provisioning guarantees and commitments) to EU clients. Banks without a physical presence in the EU will be required to establish a European footprint either through creating a third country branch (TCB) in each member state (MS) in which they wish to provide banking services, or through standing up an EU domiciled entity that leverages passporting rights to provision services across the EEA.
Third country banks that have an existing branch presence delivering Banking in the EU may still be impacted by CRD VI, due to the requirement for subsidiarisation of TCB where the nature of the TCB(s) align with certain criteria.
What is the timeline?
September 2024 - now
Q1 2025: DORA compliance needs to be achieved*
Q2 2026: PSD3 likely to be enforced*
May 2026: Grandfathering of new contracts is permitted
Q1 2027: CRD VI compliance required
*relevant incoming European regulation that will impact CRD VI response.
Key considerations in responding to CRD VI:
Assessing the potential in leveraging existing European branches and entities to meet the structural requirements of CRD VI is the crucial first step to designing for compliance. This should be completed alongside an evaluation of the available technology architecture, and an initial analysis of the target operating model to identify key areas where there may be outsourcing considerations. Aligning these areas with the broader strategic ambitions for Banking in Europe will enable a focused response to CRD VI and enabled appropriate continued market access.
Non-compliance by the January 2027 deadline will result in severely reduced access to European customers and loss of access to European payment schemes. Additionally, provision for grandfathering of accounts does not exist for any existing contracts amended after May 2026.
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