A new EU regulation will come into force on January 11 2027, requiring banks headquartered outside the European Union to have an authorized European presence in order to provide core banking services—deposit‑taking, lending, and guarantees—to clients who reside in the EU. The rule is set out in Article 21c of the EU’s sixth Capital Requirements Directive (CRD VI) and will affect institutions from the United States, United Kingdom, Switzerland, Singapore and other non‑EU financial centres, as well as internationally mobile individuals, family offices and businesses that rely on them.
Scope of the requirement
- Covered activities: taking deposits and other repayable funds, granting loans, issuing guarantees and commitments.
- Applicable clients: any person or entity established or situated in an EU member state, regardless of citizenship.
- Foreign banks: must operate through an authorized EU branch or subsidiary to continue providing the covered services directly to EU‑based clients. A third‑country branch is authorised in a single member state and does not enjoy EU‑wide passporting rights.
Exemptions and grandfathering
- Reverse solicitation – If an EU client independently approaches a non‑EU bank without any solicitation from the bank, the bank may provide the covered service without an EU presence. The bank cannot claim reverse solicitation if it has actively marketed to the client.
- Pre‑existing contracts – Agreements concluded before July 11 2026 are grandfathered and remain unaffected.
- Intra‑group transactions – Services involving an EU credit institution or transactions within the same corporate group are exempt.
These exemptions mean the rule is not a blanket ban on foreign banking relationships, but it does limit the ability of non‑EU banks to offer core services directly to EU residents.
Impact on residents and businesses
- Residence‑based test: non‑EU nationals living in the EU fall under the rule, while EU citizens living outside the bloc are not automatically covered.
- Decision points: clients must determine whether the services they use (e.g., deposit accounts, loans, guarantees) are subject to the new requirement, whether an exemption applies, or whether the relationship is covered by the grandfathering provision.
- Potential outcomes: banks may shift the relationship to an EU‑based subsidiary, establish a new branch, rely on an exemption, or discontinue the service if it is not commercially viable.
Implementation timeline
- July 2026 – European Banking Authority (EBA) finalised guidelines for authorising third‑country branches.
- March 31 2027 – First reference date for the EBA’s supervisory reporting framework for these branches.
- Transposition status (as of 7 August 2026) – Only 12 EU member states have fully incorporated CRD VI into national law; infringement proceedings are pending against 22 states for delayed or incomplete transposition.
Possible responses by foreign banks
- Establish an authorized EU branch in a member state where they have significant client exposure.
- Route business through an existing EU subsidiary, which enjoys EU‑wide passporting rights.
- Seek an exemption (e.g., reverse solicitation) where feasible.
- Reassess client portfolios and potentially terminate relationships that are not cost‑effective to support under the new regime.
From 2027 onward, the choice of residence will have a greater influence on where and how individuals and businesses can bank, prompting a reassessment of cross‑border banking arrangements for anyone living in Europe.
Source article: outboundinvestment.com
