Licence to lend?

Change is coming for cross-border lending into the EU

Licence to lend? Change is coming for cross-border lending into the EU


For many years there has been a stable path for non-EEA lenders wanting to advance loans and guarantees to EEA borrowers.  Generally, lending has not triggered a licencing requirement in many EEA states unless to retail consumers or accompanied by other activities.  Instead, there are generally understood ways for lenders to ensure that their activities have not been viewed as taking place “in the EEA” provided that certain steps were followed.

This, however, is about to change. The EU has at last published the finalised text of CRD VI in the Official Journal (Directive 2024/1619).  This will start the process for implementing changes the way in which non-EEA banks can lend or give guarantees to EEA borrowers.

1. What are the changes?

Currently, lending on a cross-border basis from outside the EEA to EEA based borrowers can often be done without an EEA licence.

CRD VI will introduce a requirement into the existing regulatory framework to mean that a non-EEA bank (and some large brokers) will only be able to make loans or guarantees to, or accept deposits from, EEA borrowers where they have registered a branch within an EEA member state and had it licenced.

This may result in significant changes to the way non-EEA banks can offer loans and guarantees to EEA borrowers.

2. Will there be any exemptions?

There are limited exemptions available. A non-EEA bank will not need to establish a branch where:

  1. The client (whether retail, professional or eligible counterparty) approaches the bank at “its own exclusive initiative”;
  2. The client or counterparty is itself another credit institution (i.e., interbank lending); or
  3. The client or counterparty is in the same group as the non-EEA institution.

As with MiFID II and AIFMD, CRD VI includes extensive anti-avoidance provisions. Consequently, this is not going to be a solution that banks making a significant number of loans or guarantees into the EEA will want to rely on.

3. Who is it likely to affect?

The rule will apply to third country credit institutions (i.e., firms that accept deposits and then lend to customers).  It will also apply to a small number of significant firms that deal as principal (or act as underwriter) and that have (in summary) total net assets (at individual or group level) of Euros 30bn or more, or perform investment services in excess of Euros 30 bn.

Though some may argue this is a response to Brexit, the new rule will affect not just UK banks, but also US, Asian, Middle East and all other banks without an EU presence.

Clearly many third country banks have already established an EEA subsidiary post-Brexit.  Those firms should also consider checking whether there are any legacy lending activities carried out from a non-EU group entity as these arrangements may also need to be moved into the EEA subsidiary instead.

The rule changes will not apply to fund managers, insurers, and other non-bank lenders.  However, as we discuss below, there is a sense that the previously stable “rules of the road” and approaches taken by EU regulators and advisers may change too in line with any guidance on how CRD VI will be interpreted for in-scope lenders.  So even non-bank firms who are lending into the EU under these types of arrangement should be carefully monitoring how these rules develop and plan for contingencies.

4. But will we being acting “in the EEA” when all our personnel and agreements are outside?

Until relatively recently, there was a general understanding that lenders would not be operating “in” the EEA where they follow established rules of the road – for example, by not having a place of business in the EU, ensuring the loans did not take effect until signed in the home jurisdiction of the bank etc.  Different regulators across the Member States take slightly differing stances on when a firm would be viewed as operating “in” that Member State, and these positions have remained relatively stable. In many Member States, a “characteristic performance” test has been observed. The characteristic performance test has principally be used to assess whether a credit institution authorised in one Member State was deemed to have established a branch for passporting purposes (rather than simply operating on a cross-border basis within the EEA). But it is a useful marker for understanding when a non-EEA firm was providing service “in” (rather than simply into) the EEA.

Although the EEA has not yet issued any guidance on this, there is a strong sense that the tide is changing and that there will be a much more expansive understanding of when activities are taking place “in the EU” to effectively cover any situation that is not arising under one of the exemptions mentioned above.  This is a trend we have noticed being increasingly taken by EEA regulators following Brexit in other areas, such as payment services regulation.

As discussed above, there is an exemption for reverse solicitation.  This is less helpful than it first looks.  Reverse solicitation will only be available in a very restricted number of situations and presents difficulties for firms when seeking to document a “genuine” approach. Furthermore, we envisage a similar approach being taken to that followed under AIFMD in that there becomes an effective presumption that unless an EEA borrower has made a clear and genuine reverse solicitation approach to a non-EEA bank, then any resulting loan or guarantees will de facto be viewed as taking place “in” the EEA.  This will be a dramatic change from how cross-border banking activities are currently treated and a reversal of the characteristic performance test.

5. This all sounds interesting, but take a step back. What actually is CRD VI?

EEA banks currently operate under European Directive 2013/36/EU, the fourth iteration of the Capital Requirements Directive (and referred to as CRD IV).  Alongside the Capital Requirements Regulation (575/2013/EU) (“CRR”), CRD IV and the CRR set out a framework for the authorisation and regulation of, and prudential requirements for, banks operating across the EEA.

The CRD has been amended over the years.  The last amendment (referred to as CRD V) was in 2019.  CRD V only inserted amendments into CRD IV hence why the current version is still referred to as CRD IV.  CRD VI will again amend the framework set out in CRD IV.

CRD IV sets out various obligations, including a requirement that a credit institution must obtain authorisation before it can commence activities in the EEA.  Once licenced, a credit institution may obtain a passport to provide services across the EEA (or to establish a branch in another member state). Credit institutions are licenced to accept deposits, but also are then permitted to perform various ancillary services such as lending; financial leasing; payment services; issuing and administering other means of payment (such as travellers’ checks and bankers’ drafts); and also (subject to an additional layer of regulation under the MiFID II framework) securities activities such as own account trading, portfolio management, and custody.  CRD IV also sets out corporate governance and remuneration requirements on credit institutions, as well as some prudential requirements to supplement those set out in CRR.

There is no framework under CRD IV at the moment for branches of non-EEA banks to become registered. Nonetheless, some Member States do allow branches of non-EEA firms to become registered under local rules outside the CRD IV/CRR framework. Banks wishing actively to operate in the EEA can therefore either choose to establish a subsidiary which would obtain authorisation under the CRD IV framework described above; or get a local branch registration.  A key purpose of CRD VI is to regularise the practices of individual Member States to create a centralised regime. Instead of an irregular localised system only available in some Member States, CRD VI will bring in a centrally controlled system that operates on a level playing field across the EEA.  Upon implementation, Branches of non-EEA banks registered in a Member State (or that a bank looks to establish) will need to obtain authorisation under CRD VI and will become subject to a single harmonised supervisory regime.

Other changes in CRD VI include enhanced regulation of senior individuals within credit institutions and ESG provisions. We do not address those changes in this blog but would be very happy to discuss them individually with you.

6. When will these changes happen?

The legislation has now been finalised. Some previous drafts of CRD VI did not include these provisions, however they have been put back into the final version.  Member States must implement most of the provisions in CRD VI by 11 January 2026.  There is, thankfully, a longer period for the changes described above – those changes only fully take effect from 11 January 2027.

There is a transitional provision that will mean agreements entered into before 11 July 2026 will not be subject to this new rule. Whilst good news for legacy agreements, it does in effect mean that non-EEA banks will actually need to work to the July 2026 deadline to have their plans in place (rather than January 2027) – so in effect there is barely two years to get ready.

This may sound like a decent amount of time. Nonetheless, given how long it takes to apply for a licence or change how lending is structured, this will not leave long to act.

Even under the new regime, a third country branch does not have passporting rights in the EEA.  So lenders that take the route of getting licenced may want to consider whether a branch is the right way forward, or whether they need to fully embrace their EEA business and establish a dedicated subsidiary. Whilst that will then allow them to lend across the whole of the EEA rather than just the site of a branch, it will unleash the full requirements of CRD and CRR on them, including prudential capitalisation and personnel requirements.


Please let us know if you would like to discuss this in more detail and plan next steps.


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Matthew Baker

Partner, London
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