The European Banking Authority (“EBA”), in consultation with the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, recently released a report on the treatment of third-country undertakings (“TCUs”) under the revised Capital Requirements Directive (“CRD VI”). The EBA concludes that no expansion of the existing exemptions to CRD VI is warranted to permit TCUs to provide core banking services directly from outside the European Union to EU financial sector entities.

Background

Article 21c of CRD VI establishes a baseline prohibition on TCUs providing deposit-taking, lending, and guarantees directly to EU counterparties unless conducted through an authorized EU branch or subsidiary. Limited exemptions remain available, including for:

• Reverse solicitation;
• Interbank services;
• Intra-group transactions;
• Certain MiFID II services; and
• Grandfathered contracts.

The EBA was tasked with assessing whether these exemptions should be broadened to cover a wider range of EU financial sector entities.

See our Legal Update, CRD6: Implications for US Fund Finance Lenders, for additional background and a discussion of CRD VI’s scope.

EBA Findings

From a fund finance perspective, the report highlights:

• Cash exposures: Deposits with TCUs by EU financial sector entities remain low overall, with concentrations in Luxembourg and Ireland, particularly for money market and alternative investment funds with significant foreign currency needs.
• Lending and guarantees: Cross-border exposures are limited and not material at the EU level, though certain Member States (including Ireland and Luxembourg) report significant localized concentrations.
• Investment firms: Most cash deposits remain with EU/EEA institutions; third-country exposures are immaterial.
• Operational concerns: Stakeholders cited cost and operational implications—particularly for non-bank PSPs requiring USD clearing and for global custody models. Still, most EU entities viewed EU branch or subsidiary solutions as viable, if less efficient.

The EBA ultimately determined that the existing exemptions generally suffice and that no...