CRD VI: The Impact for Third-Country Entities Providing Banking Services in Ireland

Third-country entities providing banking services in Ireland, or seeking to do so in the future, will need to be aware of the new requirements and review their operations to ensure compliance.

What changes are coming?

In order to provide core banking services in an EU Member State the CRD VI framework will, subject to the comments below, require Third-Country Undertakings (“TCUs”) to either:

• establish an EU branch in that Member State (in which case, the services could only be provided in that Member State), or
• operate through an authorised EU entity (e.g. establish a local subsidiary which obtains authorisation via the relevant national regulator, in which case the subsidiary could passport the services throughout the EU).

This is a significant change to the existing Irish framework which allows non-EU banks to act on a cross-border basis. This activity is currently typically carried out without the requirement for an authorisation or licence. The transposition of CRD VI will bring about major changes to the existing regulatory landscape which is currently more accommodating of international finance than many other EU Member States.

What falls within the scope of the core banking services?

Core banking services essentially consist of the following:

• deposit taking (including the taking of other repayable funds)
• lending (broadly defined and includes factoring)
• provision of guarantees or commitments

Which TCUs are affected?

Article 21c will apply to any TCU taking deposits or other repayable funds from customers in the EU. Where a TCU is not engaged in deposit-taking or other repayable funds but engages in the other core banking services in the EU, Article 21c only applies if the undertaking would fall within the scope of definition of a “credit institution” within the meaning of the Capital Requirements Regulation (“CRR”) if it were established in the EU.  The definition of a “credit institution” under CRR includes certain large investment firm activities (in essence, firms with individual or consolidated group assets exceeding EUR 30bn and engaging in lending for its own account or underwriting/placing financial instruments).

Accordingly, provided that a non-bank third-country lender does not take deposits or other repayable funds from customers in the EU and would not qualify as a “credit institution” , within the meaning of CRR, if were established in the EU, it will generally not be in scope for Article 21c, i.e. it can continue to provide lending and the provision of guarantees or commitments without the need to establish a branch in Ireland or operate through an authorised EU entity.

Exemptions to the requirement to establish a branch/EU credit institution?

Where a non-EU entity conducts banking activity in a Member State, there are certain narrowly construed exceptions which prevent the branch/EU credit institution requirement from applying.

(a) Reverse Solicitation

Where an EU client or counterparty approaches a third-country entity ‘at its own exclusive initiative’ for the provision of a core banking service, the prohibition in Article 21c CRD VI does not apply. Contact must be initiated by the client on the basis of their own research without any direct or indirect influence or prompting from the third-country entity. The exemption will not apply if a client is ‘solicited’ by an entity or person acting on behalf of the TCU or an entity having close links with the TCU. This exemption will be interpreted narrowly by regulators and its interpretation will depend on the particular facts of each case, so any reliance on it should be on the basis of careful prior review of the particular circumstances.

This exemption may be of use in the context, for example, of fund finance. Currently, non-Irish institutions account for the majority of lending to Irish funds. Although many of these lenders are based in the EU, non EU banks and particularly US-based banks, are major contributors to the financing of Irish funds.

(b) Intragroup Transactions

A TCU can provide banking services to an undertaking within the same group without the establishment of a branch in the relevant Member State.

While each case should be considered on its facts, a TCU can provide core banking services to a European custodian/depositary within its group for the benefit of underlying funds and this provision of services should generally not be regarded as being provided by the TCU to the underlying funds.

(c) Interbank Arrangements

Paragraph 1 of Article 21c CRD VI does not apply where an undertaking established in a third country provides a service or activity to a client or counterparty established or situated in the EU which is a credit institution.

(d) MiFID Investment Services

An exemption to Article 21c applies where MiFID investment services and related ancillary services are being provided. However, the exact scope of this exemption is unclear and no formal domestic or European guidance has yet been published to clarify this point.

In any case, the ability to rely on this exemption will likely be limited due to the requirement that TCUs obtain local authorisation in order to provide MiFID services into the EU.

(e) Grandfathering Provisions

In the case of pre-existing contracts entered into before 11 July 2026, Article 21c CRD VI will not apply. However, it should be noted that CRD VI Recital 6 states that measures to preserve clients’ acquired rights under existing contracts ‘should be narrowly framed to avoid instances of circumvention’. Thus, for example, amendments post 11 July 2026 to a contract entered into prior to 11 July 2026 can be expected to amount to a ‘new’ contract, bringing it outside of scope of the grandfathering provisions.

When will the changes take effect?

The EU’s new rules surrounding the provision of core banking services by third-country entities in the EU will take effect on 11 January 2027. While the transposition deadline for CRD VI was 10 January 2026, Ireland has not yet published transposing legislation. This deadline was also missed by the majority of Member States.

What are the options for providing Third-Country Banking Services in the EU Under CRD VI?

Under CRD VI, a TCU wishing from 11 January 2027 to provide core banking services within an EU Member State has the following options (if it does not benefit from any of the above exemptions)

(a) Restructure to Use a Non-Bank Entity

In order to avoid Article 21c CRD VI, some non-EU banks may move their lending activities to affiliated non bank entities that do not fall within the definition of a ‘credit institution’. An entity which does not accept deposits or other repayable funds from the public is unlikely to fall within the definition of a ‘credit institution’.

(b) TCU could lend to non-EU entity which on-lends to any of its EU group affiliate companies

A variation of option (a) above could be for the TCU to lend to a third party non-TCU entity outside the EU which could, in turn, on-lend within the EU. This may be a practical option for consideration where a TCU wishes to lend to an entity within the EU and that entity has a non-EU group company which could be used for the on-lending.

(c) Authorisation as a Third-Country Branch

Title VI of CRDVI sets out the framework for authorisation of third-country branches, together with supervision and reporting of information in relation to the activities of the branch. In order to establish a branch of a credit institution in Ireland, authorisation under Section 9A of the Central Bank Act 1971 is required. The CBI will require evidence of strong governance frameworks, capital and liquidity arrangements, and robust risk and operational processes.

It should be noted that a TCU which sets up a branch in an EU Member State can only offer services in that particular Member State and will not be permitted to passport its authorisation to other EU Member States.

(d) Authorisation as an EU Credit Institution

If you are a TCU conducting high volumes of business in the EU, you could opt to operate through an EU credit institution or establish an EU credit institution. The latter would involve incorporating an Irish subsidiary and seeking authorisation from the CBI. Although this option would require significant time and cost investment, the major benefit is that (unlike the option to be authorised as a branch) the authorisation could be passported throughout the EU.

Clients should consider whether the ability to passport is important for their current or future business model. The front-loaded cost and regulatory demands may be balanced out by the benefit of having a long-term platform and access to other EU Member States.

Preparing for CRD VI

CRD VI impacts the entire financial services industry. Both TCUs and Irish-based financial market participants will have to consider how CRD VI impacts them and ensure their operations are in compliance with the new requirements. In particular, the following areas will be impacted:

(a) Asset Management and Investment Funds

Fund managers will have to review financing and custody arrangements to ensure compliance with CRD VI.

(b) Debt Finance

Ireland’s robust banking sector offers a comprehensive suite of debt and invoice financing solutions to market participants. The domestic sector is further supported by foreign banks and non-bank lenders who may well fall within the scope of CRD VI.

(c) Structured Finance and Securitisation

Ireland is a key hub for European and global structured finance, with the section 110 regime attracting significant international business to Ireland. TCUs involved in cross border financing transactions structured through Ireland need to be aware of the impact of CRD VI.

Conclusion

Non-EU banks may have to significantly amend how they carry out Irish-facing core banking activities. CRD VI will not just impact the business operations of lenders but will also impact entities that rely on TCUs for activities such as financing or guarantees.

If you have any queries on how your business may be impacted by CRD VI, including in relation to the drafting of appropriate contractual provisions in relevant lending agreements, please reach out to your usual contact at Eversheds Sutherland (Ireland) LLP.