It is a significant development to the European legislation governing cross-border lending activity and will have an impact on non-EU banks and certain large non-EU investment firms, as undertakings established in a third country for the purposes of CRD VI.
Article 21c will not come into force in the United Kingdom as a Non-EU Member State. However, it will have significant practical implications for UK financial institutions and banks providing financial services to EU based clients and customers.
Article 21c: requirement to establish a branch for the provision of regulated banking activities
Article 21c will require such non-EU banks and certain large non-EU investment firms providing “core banking services” to EU based customers to establish an authorised branch in the Member State where that client or customer is based (the Authorised Branch Requirement) unless an exclusion applies (see below). CRD VI sets out the conditions for the authorisation of third-country branches.
The relevant “core banking services” (listed in Annex I, points 1, 2 and 6, to Directive (EU) 2013/36) are:
- taking deposits and other repayable funds;
- lending (including consumer credit, credit agreements relating to immovable property, factoring (with or without recourse) and financing of commercial transactions); and
- providing guarantees and commitments.
CRD VI provides some commentary on the legislative rationale for the requirement to establish a regulated branch in the relevant Member State (Recital (5), Directive (EU) 2024/1619):
“The provision of core banking service….should be made conditional on an explicit and harmonised authorisation requirement in Union law, specifying that undertakings established in a third country which seek to provide such core banking services in the Union should at least establish a branch in a Member State and that such branch should be authorised in accordance with Union law, unless the undertaking wishes to provide banking services in the Union through a subsidiary.”
Exemptions
The following exemptions will apply in respect of the Authorised Branch Requirement:
- a reverse solicitation exemption, which permits a non-EU bank to lend where an EU borrower “at its own exclusive initiative” approaches the non-EU bank;
- the provision of services to a credit institution;
- the provision of services to an undertaking of the same group as that established in a third country (i.e. intra-group transactions); and
- certain investment services under MiFID.
In addition, contracts (which would include loan agreements) entered into before 11 July 2026 will benefit from transitional relief, so they may continue after 11 January 2027. The LMA insights paper refers to this as "grandfathering", and notes that this “grandfathering” could fall away if a "break event" occurs, as further discussed below.
Finally, for the purposes of the reverse solicitation exemption, there will not be an “own exclusive initiative” where the non-EU bank (or a member of its group or their agent) solicits the EU borrower.
Implementation
Member States will be responsible for the transposition of Article 21c into local law with effect from 11 January 2027. There will therefore be some differences in how it will apply across the EU/EEA, and the affected institutions will need to consider how best to approach Article 21c in each impacted jurisdiction (i.e. do they exit the relevant jurisdiction, migrate their business to an EU subsidiary, or look to rely on one of the available exemptions). The LMA has published an implementation tracker summarising the status of the legislative implementation process in each jurisdiction.
Practical implications for existing arrangements
Summarised below are some specific examples of UK bank transactions that could be affected following implementation of Article 21c in relevant Member States:
Loan by a UK bank to an EU borrower
This will no longer be possible unless a specified exemption applies.
The UK bank would either have to make the loan available through an EU subsidiary or affiliate or would have to establish a branch in the country in which the EU borrower was domiciled (we expect that the latter is unlikely to occur as branches do not benefit from passporting rights across the EU so a branch would be required in every EU jurisdiction in which the UK bank continues business).
EU subsidiary accedes as a borrower to a facility its UK parent (as existing borrower) has with a UK bank
This may be permitted under the reverse solicitation exemption, but the position is not clear (the UK parent may have, for example, "told" its EU subsidiary to accede to the facility agreement, so there may be doubt as to whether the EU subsidiary has approached the UK bank “at its own exclusive initiative” for the reverse solicitation exemption to apply).
Amendments to existing facility agreement between a UK bank and an EU borrower (dated pre-11 July 2026) after 11 July 2026
Contracts including loans entered into before 11 July 2026 have the benefit of “grandfathering” to preserve the rights of EU borrowers under those existing contracts. The recently released LMA insights paper suggests that a lifecycle event, such as a material amendment to the underlying debt obligation may result in the loss of the “grandfathering” protection.
Please contact the DWF Finance & Restructuring Team if you would like any further information.
