The adoption of the Sixth Capital Requirements Directive (“CRD VI” or the “Directive”) in July 2024 marks another significant step in the European Union (“EU”)’s efforts to strengthen the prudential framework governing banking activities, in particular with respect to cross-border lending.
Prior to CRD VI, no EU-wide framework governed the conditions under which non-EU credit institutions could extend credit to borrowers located within the EU. Each Member State applied its own rules, producing a patchwork of licensing requirements, supervisory expectations, and permissible activities that varied considerably across jurisdictions. Some Member States tolerated direct cross-border lending from third-country head offices with minimal restrictions, while others imposed mandatory authorisation or required the establishment of a local presence. This inconsistency generated unequal competitive conditions, created legal uncertainty for market participants, and left open avenues for regulatory arbitrage.
CRD VI introduces, for the first time, a single EU-wide regime applicable to third-country credit institutions seeking to provide core banking services within the EU. By establishing a common set of rules and a harmonised supervisory perimeter, the Directive aims to eliminate these inconsistencies and ensure that non-EU lenders operating in the EU market are subject to equivalent oversight regardless of the Member State in which their client is based.
The new Article 21(c)
Overview of the new requirement
At its core, Article 21c (1) of CRD VI provides that from 11 January 2027, third-country undertakings engaging in deposit-taking and lending activities within the EU are required to establish an authorised branch in the relevant Member State. The objective of this new requirement is to ensure that third-country credit institutions carrying out core banking activities within the EU are subject to appropriate supervisory oversight and to reduce opportunities for forum shopping and loophole exploitation.
Applicable exemptions
The Directive, however, recognises that not every cross-border transaction warrants the establishment of a local branch.
The most significant applicable exemption is that of reverse solicitation, whereby an EU based client approaches the third-country credit institutions on its own exclusive initiative. The exemption is nevertheless expected to be interpreted narrowly in that it must be limited to the specific service requested by the client and cannot be relied upon to market additional products or establish an ongoing commercial presence within the Member State.
Further exemptions include where lending or deposit-taking: (i) is provided to EU credit institutions or large investment firms; or (ii) is carried out within the same corporate group; or (iii) is ancillary to MIFID II investment services.
Grandfathering
CRD VI also includes a transitional protection for existing contractual arrangements. Under Article 21c (5), lending agreements and other commitments concluded on or before 11 July 2026 may continue to be performed through to their contractual maturity without the lender being required to establish an authorised branch. The provision is designed to avoid disrupting ongoing financing relationships and to give market participants adequate time to adjust their structures ahead of the new regime taking effect on 11 January 2027.
The protection is not, however, unlimited. Arrangements that undergo material changes after the cutoff date (such as extensions of maturity or increases in commitment) risk losing the benefit of the transitional regime and falling subject to the full requirements of Article 21c. Credit institutions with existing portfolios of EU-facing lending should therefore approach any amendment negotiations with care.
Practical Considerations
Given that it is a directive, CRD VI requires transposition into the local national legislation of each EU member state. However, while CRD VI’s transposition deadline was 10 January 2026, many EU countries (including Malta) have not finalised their implementing laws as of mid 2026. This phased implementation creates uncertainty as to how key concepts under CRD VI will be interpreted and applied across individual Member States, highlighting the need for early strategic planning by non-EU lenders seeking to maintain uninterrupted access to EU borrowers.
As the 2027 deadline approaches, third-country credit institutions will need to adopt a proactive approach by carefully timing transactions, reassessing how they lend to borrowers established within the EU and exploring compliant alternative structures. In this regard, third-country credit institutions intending to continue lending to customers in the EU should evaluate whether their activities fall within the scope of the new branch requirement or whether one of the available exemptions can be relied upon.
Camilleri Preziosi has been following these developments closely and is well-placed to assist third-country credit institutions in assessing the impact of these changes on their businesses ahead of the 11 January 2027 deadline. Please do not hesitate to get in touch.
This article was co-authored by Karla Galea and Georgina Darmanin Kissaun.
