IRSG Narrative – EU Third Country Regime for Banking Services (CRD6)

Published 15 Feb 2022

With this narrative, we wish to make the following observations: 

1. The new proposals mark a significant departure from the existing requirements. The new provisions go beyond a mere clarification of the status quo.
2. Although the proposed changes to the prudential requirements for third country branches (CRD article 48) was assessed in the run-up to the adoption of the CRD6, it appears there was no detailed impact assessment on the market access restrictions proposed in article 21 c. 
3. The broad scope of the requirements will result in fragmentation of markets, creating problems for EU corporates, due to a loss of access to financing and account options, and EU firms carrying out core banking services. For example, it would be more problematic for EU entities and individuals to have bank accounts in non-EU jurisdictions, more challenging for EU corporates to raise finance or develop their businesses abroad, and harder for EU banks and investment firms to access international interdealer markets.
4. New barriers for EU firms, retail clients and citizens to access international capital markets would hinder the development of the Capital Markets Union, which the IRSG has argued before should consist of both internal EU market integration alongside openness to international markets.
5. The EU proposals appear tougher than the regulations governing cross-border market access into other important jurisdictions. Subject to certain criteria, a local establishment is not required for EU entities to deal cross-border into either the UK, US or Switzerland for example.
6. Since the adoption of the CRD6, there have been statements from the European Commission suggesting an openness to consider narrowing the scope of the market access restrictions in CRD6. This is welcome, and the IRSG, along with others bodies, is working to identify precisely what amendments may be required both to article 21 c, but also as regards the linked provisions in article 48.
7. The EU will be an outlier in comparison to other jurisdictions such as Switzerland, the US, the UK and other major jurisdictions which allow firms to cross-border business without the establishment of a locally authorised branch.
8. Overall, the IRSG supports market access rules that increase harmonisation across the EU, but which do not unduly constrain the access to international markets and services currently enjoyed by EU entities and citizens.