Under current local member state rules, third-country banks and credit institutions may offer core banking services to EU clients remotely, without having a physical presence in the region. This is changing under Article 21c of CRD VI, which requires all third-country undertakings (TCUs) to set up either a subsidiary with passporting rights to other EU states, or a branch in each EU country they operate in. These changes aim to harmonise and strengthen regulatory supervision. Article 21c offers five narrow exemptions for pragmatism and proportionality — most notably to allow interbank transactions with EU credit institutions.
Article 21c is part of the broader CRD VI package, which must be transposed by EU member states by 10 January 2026, with full application starting 11 January 2027. The EBA’s July 2025 report does not amend the rule but provides clarification on its scope and practical implications.
The recent European Banking Authority (EBA) report considered extending the interbank exemption beyond EU credit institutions, to broader financial sector entities (FSEs), including asset managers, insurers, and payment institutions, but decided against it. Financial sector firms must now assess how they will continue accessing key third-country services to support custody arrangements, treasury operations, and foreign currency clearing.
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Key findings from the EBA report
While stakeholders raised concerns about operational burdens and competitive disadvantages (particularly for non-bank FSEs), the EBA found no compelling evidence to justify broadening the interbank exemption. However, one of the report’s limitations was the lack of harmonised supervisory data and consistent definitions across member states, which hindered quantitative analysis. Much of the feedback was anecdotal, pointing to specific challenges in areas such as foreign currency clearing, global custody, and treasury operations.
Custody services
The report clarified how custody-related services are treated under Article 21c. If these services are closely linked to investment activities (such as sub-custody or cash accounts tied to securities transactions), they may fall outside the scope of the new rules, especially when they support Markets in Financial Instruments Directive (MiFID) regulated services.
However, if these services resemble core banking functions (such as standalone deposit-taking or providing settlement credit) then firms may need to change their service models or set up an EU presence, unless an exemption applies.
Firms that offer or rely on custody services should carefully assess whether these activities are genuinely ancillary to MiFID investment services. If not, they may be subject to Article 21c requirements. This is particularly relevant for asset managers and fund administrators who often use third-country custodians to streamline operations.
The EBA also noted that there’s some uncertainty around how Article 21c interacts with other EU rules, such as Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers Directive (AIFMD). These frameworks allow certain banking activities (such as placing deposits or delegating safekeeping) to be carried out by third-country institutions. To help clarify these overlaps, the EBA recommends using it’s EBA’s Single Rulebook Q&A tool.
USD clearing and payment services
Non-EU firms involved in US dollars (USD) clearing face specific challenges, especially when they need access to US payment systems. While clearing itself isn’t considered a core banking service, it often includes activities (such as holding client funds or providing credit) that could fall under Article 21c.
The EBA acknowledged these practical issues but concluded that current exemptions and the option to route services through EU credit institutions offer enough flexibility for firms to continue operating.
Treasury operations and insurance firms
Insurance and reinsurance companies highlighted their reliance on third-country banks for treasury functions such as payroll, tax payments, and liquidity management. These activities are essential for global operations, but the EBA didn't recommend extending the interbank exemption to cover them.
Instead, the report suggests firms use intra-group arrangements or EU-based entities to carry out these functions.
Regulatory overlap and clarification needs
The report also flagged potential overlaps between Article 21c and other EU rules such as UCITS, AIFMD, and Money Market Funds (MMF) regulations. Rather than proposing changes to legislation, the EBA recommends using the Single Rulebook Q&A tool to help firms understand what activities are allowed and reduce uncertainty when delivering cross-border services.
Next steps for cross-border firms
For third-country firms operating across borders, the EBA’s findings underline the need for proactive compliance and implementation planning and firms should consider the following as important next steps.
Assess scope and third-country dependencies
TCUs should conduct a thorough review of their provision of core banking services to EU clients. This includes evaluating whether services like lending, deposit-taking, or guarantees are provided directly from outside the EU and whether these arrangements comply with Article 21c.
Validate use of exemptions
If relying on exemptions (such as reverse solicitation or MiFID carve-outs), ensure documentation, record keeping and internal controls are strong, and can withstand regulatory scrutiny and enforcement action.
Prepare for business model adjustments
If current arrangements don’t meet the new requirements, firms may need to restructure. This could mean setting up an EU branch or subsidiary, renegotiating contracts, or shifting services to authorised EU entities.
Monitor regulatory developments
Further guidance may be issued, especially around UCITS and AIFMD. Firms should stay informed and engage with the EBA’s Q&A process to understand evolving interpretations.
Engage with national regulators
While CRD VI sets a common framework, member states retain some flexibility in how they implement its provisions. Early engagement with national competent authorities (NCAs) is strongly recommended to clarify local expectations and avoid last-minute compliance challenges.
For more insight and guidance on this and how to strengthen your frameworks, get in touch with Rashim Arora.
