This report addresses the prohibition of providing banking services directly from third countries while outlining exceptions to this rule. It examines the current state of core banking services provided by third country entities and analyzes relevant data on these services within the European financial sector. The conclusions highlight the obstacles to achieving a comprehensive understanding of the current…
This report was published in July 2025 by the European Banking Authority (EBA) pursuant to Article 21c(6) of Directive 2013/36/EU (CRD6). It concerns the exemption of third-country institutions (TCU) from the obligation to establish a branch (TCB) in the European Union to provide essential banking services to EU financial sector entities (FSE). The scope covers essential banking services listed in Annex I of the CRD, the concerned European financial entities (asset managers, funds, investment firms, insurance, etc.) and interactions with ESMA and EIOPA authorities. The analysis period extends until the fourth quarter of 2023, with quantitative and qualitative data collected from stakeholders.
- Subject: Assessment by the EBA, in consultation with ESMA and EIOPA, of the relevance of extending the exemption from establishing a branch in the EU for the direct provision of essential banking services by third-country institutions to all European financial entities (FSE), beyond credit institutions only.
- Importance: This analysis aims to reconcile financial stability and EU competitiveness, taking into account regulatory and operational impacts of the general prohibition on the direct provision of essential banking services from third countries.
- Main findings:
- Difficulties in obtaining a complete view of the phenomenon, due to the absence of a harmonized definition of essential banking services, limited and partial data availability, and the complexity of exemptions (reverse solicitation, intra-group, MiFID).
- Available data show that deposits and cash exposures with third-country institutions are concentrated in a few Member States (notably Ireland and Luxembourg) and remain overall marginal at the European level.
- Other essential banking services (loans, guarantees) are poorly documented quantitatively, with partial data for alternative funds and insurance.
- Stakeholders highlight potential impacts on costs and transaction structuring, notably for non-bank payment service providers (PSP), asset management, custody, and clearing of payments in foreign currencies (USD).
- Existing exemptions (reverse solicitation, intra-group, MiFID) provide some flexibility, and the transition is facilitated by the preservation of acquired contractual rights until July 2026.
- Conclusions: Based on quantitative and qualitative analyses, there is no clear justification to extend the exemption to other FSEs than credit institutions. The current regulation, with its exemptions, appears adequate to meet market needs.
- Recommendations: Continue monitoring impacts, notably on PSPs and asset management, and clarify regulatory interactions, notably between CRD and UCITS/AIFMD, through support tools for competent authorities.
- The report responds to the mandate conferred to the EBA by Article 21c(6) CRD6, which imposes a general prohibition on the direct provision of essential banking services from third countries without establishing a branch in the EU, except for exceptions.
- The objective is to examine whether this prohibition should be relaxed for other European financial entities than credit institutions, considering risks to financial stability and impact on competitiveness.
- The scope covers essential banking services defined in Annex I CRD (deposit-taking, lending, guarantees), European financial entities (asset managers, funds, investment firms, insurance, PSP, etc.) and third-country institutions providing these services.
- The report relies on quantitative analysis of supervisory data available from EBA, ESMA, and EIOPA, complemented by qualitative exchanges with stakeholders.
- Limitations include partial data availability, absence of a harmonized definition of essential banking services, and difficulty in identifying the application of exemptions.
1. Regulatory framework and scope:
- Article 21c CRD6 prohibits the direct provision of essential banking services (deposit-taking, lending, guarantees) by third-country institutions without a branch in the EU, except for exceptions (reverse solicitation, provision to credit institutions, intra-group, MiFID services).
- Essential banking services are those listed in points 1, 2, and 6 of Annex I CRD.
2. Quantitative data on the provision of essential banking services:
- MMFs: 250 funds in EU/EEA with EUR 1.4 trillion assets, mainly domiciled in Ireland and Luxembourg, hold deposits with third-country institutions, mainly in the UK, US, and Canada, representing 7% of their net asset value.
- AIFs: 3,087 funds (17% of cash exposures) show low cash exposure to third-country institutions (1.72%), concentrated in Ireland, Cyprus, Malta, and Sweden.
- Investment Firms (IFs): 636 Class 2 IFs show 5% of their deposits in third-country institutions, concentrated in a few Member States (Malta, Ireland, Estonia, Netherlands, Germany).
- Insurance: Significant exposures to third countries limited (8.8%), concentrated in Malta, Ireland, Netherlands, Germany, Luxembourg, Sweden, and France.
3. Exemptions and carve outs:
- Reverse solicitation excludes services initiated exclusively by the client.
- Exemption for services provided to credit institutions and intra-group.
- MiFID carve out for investment services and related ancillary services.
- Preservation of acquired rights until 11 July 2026.
4. Anecdotes and stakeholder feedback:
- TCCIs and FSEs mention potential increased costs and delays related to the obligation of an EU intermediary for payments in foreign currencies (notably USD).
- Concerns about the clarity of the application of the MiFID carve out to banking services linked to custody of financial instruments.
- Limited anticipated impact on overall competitiveness, but need for monitoring.
5. Methodological difficulties:
- Partial data, absence of clear identification of exact services and applied exemptions.
- National variability in the definition of essential banking services.
- Complexity of organizational structures of third-country groups.
- Established facts:
- The direct provision of essential banking services from third countries without a branch is prohibited except for exceptions.
- Deposits in third-country institutions by EU FSEs are geographically concentrated and remain marginal at the European level.
- Loans and guarantees provided by TCCIs to EU FSEs are poorly documented but appear limited.
- Exemptions (reverse solicitation, intra-group, MiFID) offer significant flexibility.
- Assumptions:
- Data on cash exposures are a proxy for deposit-taking, but exact correlation is uncertain.
- Reported economic and operational impacts are based on anecdotal and partial evidence.
- Interpretations:
- The current prohibition, with its exemptions, balances financial stability protection and competitiveness.
- Extending the exemption to other FSEs is not justified based on available data.
- Uncertainties:
- Impact on certain market segments (non-bank PSPs, custody services) requires increased monitoring.
- The exact scope of exemptions and their practical application remain to be clarified.
- The EBA concludes that there is no clear justification to extend the branch establishment exemption for the direct provision of essential banking services to FSEs other than credit institutions.
- The current framework, combining general prohibition and targeted exemptions (reverse solicitation, intra-group, MiFID), appears adequate to meet market needs while preserving financial stability.
- The EBA recommends continuing to monitor impacts, notably on non-bank payment service providers and asset management.
- It is suggested to improve regulatory clarity, notably on the interaction between CRD and the UCITS and AIFMD directives, through support tools for competent authorities.
- The preservation of acquired rights until July 2026 facilitates the transition to the new regime.
- No legislative proposal to extend the exemption is made at this stage.
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