Nearly two years ago the European Commission put forward a draft law which would require non-EU firms to establish a branch in the EU before providing banking services. Since then the EU has debated the details of this requirement with the European Council and European Parliament taking different approaches. These talks are now reaching a critical stage.

Summary of positions

Following the latest trilogue meeting held on 10 May 2023, the Commission released a non-paper focusing on this third country branch requirement - the proposed Article 21c. The paper lays down the respective position of the co-legislators and proposes different ways forward.

Generally, the Parliament takes a harder stance than the Council but still ‘softer’ than what the Commission had initially proposed. The key outstanding point of difference is in whether there should be a requirement to establish a third country branch in the first place.

  • The Council suggests removing this requirement entirely.
  • The Parliament retains it, but with exemptions for reverse solicitation, intra-group and interbank activities.
  • The Commission proposes keeping Article 21c with certain ‘targeted’ exemptions for intra-group activities (between parent, subsidiary and branch in the EU). However, interbank activities remain an ‘open point’.

There is also some divergence on what “core” banking services are in Article 47, which is important because it would trigger the requirement to establish a branch under Article 21c.

  • The Council considers that these services must combine deposit-taking with lending. Its approach also includes systemic third country investment firms dealing on own account and underwriting.
  • The Parliament considers that deposit-taking as a standalone activity is sufficient to trigger the licensing requirement, and also certain other financial services (e.g. lending, leasing and factoring, payment services, safe custody services).
  • The Commission agrees with the Parliament that deposit-taking as a standalone activity should trigger the licensing requirement on the basis that this activity entails “particular risks for EU depositors”. The Commission also agrees that lending, leasing and factoring, and guarantees and commitments are “most central” to the concept of “core” banking services and should be in scope.

The Council and Parliament are more aligned on other points. For example, there is consensus that there should be an exemption for reverse solicitation but the exact scope is still to be determined. They also agree that there should be an intra-group exemption for Article 48c but a question remains whether this will be restricted to services between branches of the same parent or include subsidiaries too. There is also helpful clarification that MiFID investment services will be out of scope of “core” banking activities under Article 47.

What happens next?

The key point to watch is whether the requirement to establish a third country branch remains, and if so, what exemptions will be built in. Given the Council and Parliament are still far apart on this, the Swedish presidency’s ambition to conclude negotiations by June 2023 seems ambitious. The next trilogue meeting is scheduled to be held on 6 June 2023.

Read our briefing note on the original proposal: CRD6 could shut out cross-border financial services into the EU.