1. CRD VI is reshaping EU market access rules for third-country banks

In November 2023, the European Parliament and the Council of the European Union reached agreement on the final text of CRD VI (Directive (EU) 2024/1619), and the Directive was published in the Official Journal of the European Union on 19 June 2024. CRD VI is a significant amendment to the Capital Requirements Directive (the "CRD"), adopted by the EU to implement the relevant prudential requirements under Basel III[1] and to further harmonise the EU banking regulatory framework. It addresses, among other matters, supervisory powers, sanctions, third-country branches and environmental, social and governance risks.

CRD VI materially changes the rules governing third-country banks in the EU market. Before CRD VI, third-country banks’ activities in the EU market were, in general, governed by the national laws of individual Member States, coordination at EU level was limited, and the applicable regulatory requirements varied significantly across Member States. There was also no integrated framework for supervisory cooperation. Following the implementation of CRD VI, a minimum prudential framework for third-country banks lending into the EU will be established at EU level. Where a third-country bank intends to provide core banking services in the EU, such as taking deposits, granting loans, or providing guarantees or commitments, in the absence of an applicable exemption or structuring solution, it will, in principle, need to do so either through its fully authorised and passported EU subsidiary, or through an authorised third-country branch established in that Member State.

2. Implementation timeline for the new third-country branch rules and Member State transposition progress

Although CRD VI was formally adopted at EU level on 19 June 2024, as an EU directive, it does not apply automatically and must be transposed into national law by each Member State before its requirements can be implemented locally. Under CRD VI, Member States should, in principle, complete national transposition by 10 January 2026 and apply the relevant measures from 11 January 2026. The new third-country branch framework as a whole applies from 11 January 2027.[2]

As of July 2026, Member States such as Ireland, Germany, Czechia, Denmark, Hungary, Italy, Slovenia, Slovakia and Latvia had notified full transposition measures. France, Croatia, Austria and certain other Member States had notified partial measures, while some Member States had not yet made formal transposition notifications. [3]It follows that, although the EU-level framework and key application dates for the third-country branch rules under CRD VI have already been set, their concrete implementation in each Member State is still in progress. When assessing EU business arrangements, third-country banks should therefore consider not only the requirements of CRD VI itself, but also the transposing legislation, supervisory approach and transitional arrangements of each relevant Member State.

3. Scope of the CRD VI third-country branch rules

Under Article 21(c) of CRD VI, a third-country undertaking that wishes to provide the following core banking services in the territory of a Member State, in the absence of an applicable exemption or structuring solution, must, in principle, establish and obtain authorisation for a third-country branch in that Member State or establish a fully authorised subsidiary with passporting rights across all EU Member States:[4]

(1) taking deposits and other repayable funds;

(2) lending, including but not limited to consumer credit, credit agreements relating to immovable property, factoring with or without recourse, and the financing of commercial transactions; or

(3) providing guarantees and commitments.

Item (1) applies to any undertaking established in a third country that intends to carry out that activity in a Member State. Items (2) and (3) apply only to third-country undertakings that qualify as “credit institutions” for the purposes of the CRD framework. A “credit institution” includes a traditional bank, namely an undertaking whose business is to take deposits or other repayable funds from the public and to grant credit for its own account. It also includes certain large investment firms that deal on own account or underwrite financial instruments and/or place financial instruments on a firm commitment basis, where the relevant EU asset thresholds are met and are therefore brought within the EU prudential banking regime.[5]

Apart from the activities expressly listed in CRD VI, whether other transaction structures constitute core banking services under CRD VI will depend on their specific arrangements. For example, letters of credit are likely to be deemed a “commitment” and would therefore be caught as a “core banking service” and fall within the scope of CRD VI. Finance leasing should not be treated as lending and so should be exempt from the prohibition. Lending as part of a syndicate would in theory be caught as lending but may be subject to the non-solicitation exemption, depending on the facts of the transaction in question and how the interpretation of this exemption evolves over time.

It should also be noted that there is currently no fully harmonised EU-level test for determining when the relevant core banking services are provided “in the territory” of a Member State. Certain jurisdictions have historically relied on a “place of characteristic performance” test when assessing whether a licence is required to provide particular regulated financial services within that jurisdiction. The “characteristic performance” analysis focuses on where the lending activity is performed rather than where the borrower is located. On that basis, there may be circumstances in which a loan provided remotely from a non-EU jurisdiction is regarded as being provided outside the EU, notwithstanding that the borrower is an EU entity. However, CRD VI does not expressly refer to the characteristic performance test, and there is currently no clear European or Irish guidance on how the test should be applied in this context. As a result, its relevance remains uncertain, giving rise to a degree of regulatory ambiguity and associated compliance risk. In practice, where the customer is located in a Member State, the relevant services may be regarded as being provided in that Member State. Chinese banks should therefore generally assume that services provided to EU-based clients fall within the scope of CRD VI, unless local law or regulatory guidance supports a different conclusion.

Similar uncertainty arises in the secondary loan market. As noted in the LMA Paper, Article 21(c) does not differentiate between primary and secondary lending. In particular, the provision is silent as to the treatment of sub-participations and does not address whether the acquisition of a participation in a fully funded loan on the secondary market would constitute lending to the relevant EU borrower for the purposes of Article 21(c). In the context of sub-participations, the LMA expects market practice to develop on the basis that arrangements in which the participant does not become the lender of record (including those documented using the LMA standard form sub-participation agreement) should be regarded as lending to the grantor of the participation, rather than to the underlying EU borrower. Therefore, the sub-participants should generally not be subject to the CRD VI framework.[6]

4. Exemptions from the requirement to establish a third-country branch

4.1 Reverse solicitation

Reverse solicitation is one of the major exemptions under CRD VI. It refers to a situation where an EU borrower client, on its own initiative, approaches a third-country undertaking and requests core banking services. The exemption covers not only the service initially requested, but also the continuation of that service and services closely related to those originally solicited. [7]However, it does not permit a third-country undertaking to market any services other than those which have been solicited by the client. If a third-country undertaking contacts or solicits EU clients or potential clients through entities with which it has close links or through other persons acting on its behalf, this would not constitute reverse solicitation. Relevant consultation materials also take a broad view of “solicitation”, indicating that forms of marketing such as online advertising, brochures, emails, pop-ups or banner advertisements on websites or social media may be regarded as active solicitation and may therefore exclude reliance on the exemption. [8]This means that the exemption should be limited to passive responses to specific unsolicited requests. Business generated through active marketing by a third-country undertaking should not be re-characterised as client-initiated.

As CRD VI does not specify how the exemption should be assessed, its application in individual cases may still depend on the supervisory practice of the relevant Member State. In Ireland, the concept of “reverse enquiry” does not have an independent statutory footing in relation to banking services. However, guidance issued by the Central Bank of Ireland in the context of Brexit indicates that providing services to customers located in Ireland may not, in itself, amount to carrying on banking business “within the State”. In making this assessment, the CBI may consider whether the institution has a physical presence in Ireland, targets Irish customers through marketing, has adapted its operational infrastructure, processes or policies for the Irish market, and the scale and concentration of its Irish customer base. The assessment is therefore likely to turn on the overall factual matrix and the extent to which the institution directs its activities towards the Irish market. In many syndicated financings, the borrower appoints an arranger to identify and approach potential lenders. Where the syndication process arises from a borrower-led mandate, this may support a broader analysis that the transaction originated with the borrower rather than through solicitation by participating lenders.

In practice, third-country banks should assess the specific circumstances of each transaction and retain evidence of the customer’s initial approach, relevant communications and the source of the business to support reliance on the reverse solicitation exemption.

4.2 Interbank and intragroup transactions

In addition to reverse solicitation, CRD VI excludes the following circumstances from the requirement for a third-country undertaking to establish a branch:

(1) Interbank and interdealer transactions. Interbank or interdealer transactions between a third-country undertaking and an EU credit institution should not, in principle, trigger an obligation for the third-country bank to establish a third-country branch in the Member State where its counterparty is located.[9]

(2) Intragroup transactions. CRD VI permits a third-country undertaking to provide loans, guarantees or commitments to members of the same group in the EU without triggering a local establishment requirement. A third-country branch already established in the EU, although its generally prohibited from providing core banking services into other Member States, it may enter into intragroup funding transactions on a cross-border basis with other third-country branches of the same head undertaking.[10]

4.3 MiFID carve-out

The requirement to establish a third-country branch under CRD VI should not apply where a third-country undertaking provides investment services or activities under MiFID II (Markets in Financial Instruments Directive II) in the EU, such as reception and transmission of orders, execution of orders on behalf of clients, portfolio management, investment advice, or dealing on own account, together with any accommodating ancillary services, such as related deposit-taking or the granting of credit or loans for the purpose of providing those MiFID II services. These activities would remain primarily subject to the MiFID II regime and other applicable EU capital markets rules, rather than being subject to the CRD VI third country branch rules.[11]

5. Consequences of breach of CRD VI and impact on transactions

5.1 Regulatory consequences

At the authorisation stage, the competent authority may refuse authorisation where the relevant requirements on capital and liquidity, anti-money laundering controls, booking arrangements and regulatory reporting and other matters are not met. For an authorised third-country branch, the competent authority may withdraw the authorisation if the conditions for authorisation are no longer met. A third-country undertaking that carries out relevant business without establishing and obtaining authorisation for a branch or a fully licensed subsidiary in accordance with CRD VI may be subject to orders to cease the breach, administrative penalties and other supervisory measures under the national law of the relevant Member State.[12]

For an authorised third-country branch, if the branch breaches its territorial limits, or is considered systemically important and poses significant risks to the financial stability of the Member State or the EU, the competent authority may require it on a case-by-case basis to apply for authorisation as a subsidiary. Where appropriate, the competent authority may also require the branch to restructure its assets or business, or impose additional prudential requirements relating to capital, liquidity, reporting or disclosure.[13]

CRD VI also requires Member States to provide for effective, proportionate and dissuasive administrative penalties and other measures under national law, and to impose liability on lender undertakings that breach authorisation requirements or fail to comply with supervisory decisions. In particular, CRD VI requires Member States to make available at least the following measures without prejudice to their ability to impose higher maximum penalties or stricter measures under national law: administrative fines of up to 10% of the total annual net turnover of a legal person; administrative fines of up to EUR 5 million for a natural person; and, where appropriate, fines of up to twice the amount of the benefit gained or loss avoided as a result of the breach. For continuing breaches, competent authorities may also impose daily periodic penalty payments to compel the cessation of the breach. Such periodic penalty payments may be up to 5% of average daily net turnover for legal persons and up to EUR 50,000 per day for natural persons, for a maximum period of six months.[14]

5.2 Impact on Finance Documents and Transaction Performance

On its face, CRD VI does not expressly state whether a breach of the relevant requirements would render an existing loan agreement, security or guarantee document, or other transaction document invalid, unlawful or unenforceable. Failure to comply with branch establishment or authorisation requirements generally would not automatically release the borrower, guarantor or other transaction parties from their contractual obligations. That said, the performance of the relevant transaction may still be materially affected. For example, if a lender is restricted from carrying on new business, has its authorisation withdrawn, or is required to access the market through a subsidiary as a result of CRD VI compliance issues, subsequent drawdowns, extensions, increases or refinancing arrangements may be affected.

CRD VI may also affect the contractual provisions in the finance documents: an illegality event may be triggered if the relevant activity is determined to be unlawful in the member state; representations relating to compliance with applicable laws or regulatory status may become inaccurate; undertakings to comply with applicable law may be breached; and the occurrence of such breaches could give rise to an event of default, mandatory prepayment right or termination right.

6. Impact of CRD VI on Chinese banks' EU-facing lending business

6.1 Impact on new transactions

Following the implementation of CRD VI, Chinese banks may find it less feasible to provide loans, guarantees or commitments directly from China to EU clients. The possible routes for providing such services to EU clients may broadly be summarised as follows:

(1) The relevant business may fall within statutory exemptions such as reverse solicitation, interbank business or intragroup transactions. Where the relevant business is conducted relying on exemptions such as intragroup funding or reverse solicitation, the third country branch must still need to record the transaction fully and accurately in the branch’s books or registry book in accordance with the applicable booking requirements.[15]

(2) The relevant business may be carried out through a branch or subsidiary established in the EU. For EU business that is ongoing, sizeable or intended to cover multiple Member States, Chinese banks will generally need to consider carrying out the relevant business through a third-country branch established and authorised in the relevant Member State, or through an EU subsidiary.

The key difference between a branch and a subsidiary is that a branch may carry out authorised activities only within the Member State in which it is established and authorised, and is expressly prohibited from providing such activities on a cross-border basis into other Member States, except where an applicable exemption applies. A subsidiary, by contrast, may provide core banking services in other Member States on a cross-border basis, subject to the applicable EU passporting framework. Accordingly, if the business is mainly concentrated in a single EU Member State, a branch may be the more direct access route. If the business is intended to cover multiple Member States or requires ongoing expansion of the client base, a subsidiary will usually be more scalable from a regulatory perspective. It should be noted that the establishment of a fully licensed subsidiary is both more time-intensive and more expensive.

6.2 Impact on existing transactions

Under Article 21c(5) of CRD VI, in order to protect clients’ acquired rights under existing contracts, rights acquired under contracts entered into before 11 July 2026 are not affected by the branch establishment requirements. Accordingly, loan, guarantee or commitment arrangements entered into before that date may continue to be performed in accordance with the existing contract. New transactions with EU clients entered into on or after 11 July 2026 will no longer benefit from that protection and will need to comply with the applicable establishment requirements from the outset.

For contracts entered into before 11 July 2026, while there is currently no formal guidance on what may result in the loss of grandfathering protection, material amendments made on or after that date, such as term extensions, increases in loan amounts, refinancings or new credit arrangements, may still be treated as new arrangements for core banking services and may therefore fall within the scope of CRD VI. For existing financing transactions involving an EU borrower, guarantor, project company or actual user of funds, it is advisable to conduct a CRD VI applicability analysis and obtain local law advice in the relevant Member State before making any substantive amendment, renewal or refinancing arrangement.

7. Responses and action list for Chinese banks

In light of the CRD VI implementation timeline and the new third-country branch regime, Chinese banks intending to conduct lending, guarantee or commitment business involving the EU may consider the following actions at this stage:

(1) Review existing and proposed EU-related business, identify client locations and transaction structures, and assess whether the relevant activities may fall within the scope of core banking services under CRD VI.

(2) Review existing contracts, with particular attention to arrangements entered into before 11 July 2026 that still involve subsequent drawdowns, extensions, increases, refinancing or material amendments.

(3) Assess, taking into account business continuity, client distribution, Member State coverage and the group’s existing EU footprint, whether the relevant business should continue to be carried out on a cross-border basis or be conducted through an authorised EU affiliate, branch or subsidiary.

(4) Where a third-country branch is to be established or retained, prepare in advance the business plan, governance structure, capital and liquidity arrangements, anti-money laundering controls, booking arrangements and supervisory reporting systems required for the authorisation application.

(5) For business intended to rely on exemptions such as reverse solicitation, retain evidence of the client’s initial approach, business origination, internal approvals and communications, and avoid active marketing in the EU.

(6) Continue to monitor CRD VI transposition legislation, supervisory and market updates and transitional arrangements in the target Member States, and assess, by reference to business scale, asset thresholds and systemic importance indicators, whether the relevant business may be subject to restrictions or limitations on business scope, additional prudential requirements, or a requirement to apply for authorisation as a subsidiary.

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