In recent weeks, Article 21(c) of CRD VI1 has come to the forefront of attention for many non-EU banks. This article provides practical answers to non-EU banks' most pressing questions.
What is Article 21(c) and why does it matter to non-EU banks?
One aim of CRD VI is only EU-financial entities or EU-authorised branches and subsidiaries of third-country banks should provide regulated financial services to EU entities.
Article 21(c) prohibits non-EU banks which are in scope from providing some services to EU-based entities. In practice, this means a non-EU bank will not be able to continue lending to its EU-based shipping customers or to market financial services to EU-based shipping companies.
It is important to note that each EU Member State is at different stages of the transposition process2, and not all EU Member States are transposing Article 21(c) in the same manner. This means the practical application of Article 21(c) will differ from one EU Member State to another, and many details still remain unknown at the time of writing.
Which non-EU financiers are in scope?
Article 21(c) applies to non-EU entities that:
(a) take deposits or other repayable funds from EU clients; or
(b) would meet the criteria for "credit institutions" under the EU Capital Requirements Regulation if they were established in the EU.
In practice, this includes all deposit-taking banks (regardless of size) headquartered outside the EU which lend to or take deposits from EU clients. For other core banking activities, only larger financial institutions (above €30 billion in assets) are in scope.
Article 21(c) does not currently apply to non-bank lenders (e.g. private credit funds, insurers and asset managers) nor to export credit agencies (unless they qualify as a "credit institution" as defined above). However, it is important to note EU Member States may decide to apply some equivalent standards to these types of lenders when they transpose CRD VI.
Which financial services are in scope?
The services that are in scope of Article 21c include lending (broadly defined), financial leasing, guarantees and commitments and deposit-taking and other repayable funds. Some maritime transactions that would be in scope are: (a) a loan from a non-EU bank to an EU borrower (even when such non-EU Bank is part of a syndicate which includes other EU lenders), (b) a loan from an EU bank to an EU borrower backed by a non-EU export credit agency which qualifies as a credit institution, (c) a sale and leaseback transaction where either the lessor qualifies as a non-EU bank and charters the vessel to an EU lessee or where the back-financing is provided by a non-EU bank to an EU lessor, and (d) a financing from a non-EU bank to an EU shipping fund.
Which EU customers are in scope?
CRD VI widely refers to carrying any of the relevant activities in the EU. A strict interpretation of Article 21(c) would mean the prohibition only targets services provided to EU entities (i.e. financial services to entities incorporated in certain offshore jurisdictions (typically incorporated as single purpose vehicle or ‘SPV’ entities in maritime transactions) would be out of scope, even if such SPVs are owned by an EU shipping company).
However, when CRD VI is transposed in each EU Member State, it is unlikely to be as simple as that because traditionally, regulators have looked beyond an SPV with no real commercial substance. If the SPV does not have any offices or staff in the EU, while cashflows, management and decision making are located in or closely connected with the EU, local regulators may consider the financial services to such SPV are in scope. Some EU regulators may even treat the offshore SPV as a circumvention device (for regulatory and/or tax purposes). The position will therefore depend on the local law of the EU Member State where the operating company is located.
When will the new regime apply?
The regime comes into force on 11 January 2027 in EU Member States which have transposed CRD IV. Once in force, the regime will apply to all transactions involving EU customers completed after 11 July 2026.
Transactions that have completed before 11 July 2026 will not be in scope, even when further advances can be made under the loan agreement (this is referred to as "grandfathering").
However, if such "grandfathered" transactions are later amended, they may become in scope. At the time of writing, there is no official EU-level or EU Member State guidance around which types of amendments would be at risk. The Loan Market Association has released an article with an indicative list of lifecycle events that may be caught by the loss of grandfathering. The general view is these would include substantive amendments to existing loan agreements (e.g. substantial increase of the loan amount or of the facility period).
What are the consequences if a non-EU Bank provides a loan to an EU borrower in breach of Article 21(c)?
At the loan agreement level, such a breach may trigger an illegality prepayment event. If such loan agreement is governed by the laws of an EU Member State, it may even be deemed unenforceable by certain EU courts. At the national level, the non-EU bank may be exposed to regulatory fines and sanctions. Some EU Member States may even impose criminal corporates and/or personal liabilities. Any such breach is likely to be publicised and thus may cause reputational damage.
Are there any exemptions to the general prohibition that would allow a non-EU Bank to continue providing its services to its EU customers?
The prohibition has four exemptions, which are subject to interpretation and further guidelines from the European Banking Authority and national regulators:
(a) intragroup lending (i.e. banking services within the same group as the non-EU bank);
(b) interbank lending (i.e. banking services between a non-EU bank and an EU bank);
(c) some investment services ancillary to MiFID II3; and
(d) reverse solicitation (i.e. the EU customer has approached the non-EU bank "at its own exclusive initiative").
In typical maritime transactions, the fourth exemption is likely to be the most relevant, although it may not always be easy to implement in practice as the exemption applies per transaction and not per client relationship. This means the fact that a non-EU bank already provides some financial services to an EU customer may not automatically exempt such non-EU bank from the prohibition for future services. It only allows such non-EU bank to provide "closely related services" in respect of existing products and services (e.g. offering a hedging product or working capital tranche in respect of an existing loan agreement). The non-EU bank will not be allowed to offer new loans (directly or through an agent) to existing or potential EU customers. This means no marketing calls, emails, brochures, pitch documents, presentations or other similar activities. However, if an EU entity contacts a non-EU bank for information about its services and later enters into a transaction, such transaction should benefit from the exemption.
In practice, it will be critical to prepare document during the inception of a transaction (whether this is a completely new financing or a substantial amendment to an existing financing) to evidence the fact that the transaction was at the EU borrower's own exclusive initiative. Such documentation could be in the form of a letter issued by the EU borrower requesting information on a product. A mere disclaimer at the top of a term sheet or a box ticked on a new customer form is unlikely to be sufficient.
What other options do non-EU banks have if they wish to actively market their services to EU customers?
If the non-EU bank already has a fully licenced EU subsidiary, it can migrate its banking services to its existing or potential EU customers to its EU subsidiary.
If the non-EU bank does not have any presence in the EU, it could either open a branch or establish a fully licenced EU subsidiary in the EU. Each option has its advantages and disadvantages. Establishing a branch may be easier from an administrative and regulatory perspective4. However, if the non-EU bank has customers located in more than one EU Member State, it will need to set up a branch in each Member State as branches do not have EU passporting rights to service customers located in other EU Member States. Establishing a fully licenced EU credit will allow the non-EU bank to provide financial services to EU-based customers located in any EU Member States (thanks to passporting rights across the EU), however this option involves higher upfront costs, governance and regulatory demands. It may also involve changing internal credit allocation and relationship management, and the operational risk will be higher. There will also be tax, accounting and other practical considerations.
If the non-EU Bank is not in position to establish a branch or a subsidiary in the EU, it could still take part in financings to EU customers through other financing structures, such as funded or unfunded sub-participations, fronting arrangements with EU-authorised banks or credit derivatives. Some banks may transfer fund lending activities to related non-bank that do not meet the definition of credit institution. Some bond financing and other capital markets structures also seem to be out of scope of Article 21(c).
Which steps should a non-EU bank starting to look at the regime take?
The first step is a due diligence exercise on its existing loan portfolio and answering questions such as:
(a) Which loans, financial leases or guarantees is it currently providing to EU customers?
(b) Does it have any secondary market commitments (particularly in relation to loans with undrawn commitments to EU borrowers)?
(c) Who is the lending entity for each of these transactions, and can it qualify as a credit institution?
(d) Which loans or financial leases to EU-entities are currently being negotiated and likely to be entered into after 11 July 2026? Can these benefit from reverse solicitation (and, if so, is there evidence to prove it?)?
(e) What can be implemented internally to ensure record keeping and evidence compliance with the reverse solicitation exemption?
(f) Does it already have a branch or subsidiary in the EU? Could this be used for transactions with EU customers going forward?
(g) If it does not have a branch or subsidiary, can it establish one? This aspect will require tailored legal regulatory advice, licencing and tax advice, as well as setting up new internal systems and workflows.
The second step will be to obtain legal and regulatory advice from legal counsel qualified in the relevant EU Member States. Such advice will depend on the type of bank, the specific transaction and the way the EU Member State where the borrower or lessor/lessee is located has transposed Article 21(c).
Subsequent steps will depend on the advice obtained during the previous steps.
Please note: rhis document is not intended to be legal advice.
1 Directive (EU) 2024/1619 of the European Parliament and of the Council of 31 May 2024 amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks.
2 EU Transposition tracker: Capital Requirements Directive VI - Finance - European Commission. LMA Members can also access a more detailed tracker for each EU Member State.
3 In practice, this exemption will not be available to most non-EU credit institutions given the separate authorisation requirements it entails under MiFID.
4 Although the authorisation process may take 12 to 18 months and local governance and reporting infrastructure will need to be set up.
