CRD VI: Questions And Answers (Podcast)

In this episode of our podcast, Sarah Thompson and Rob Cain, Partners in our Financial Regulation Group, break down the major current talking points on Article 21c of CRD IV as amended by CRD VI, which will restrict third‑country institutions providing core banking services into the EU from January 2027. They discuss the current uncertainty around Irish implementation, the impact of the July 2026 grandfathering cut-off, and the practical steps firms are already taking to reassess booking models, decision‑making structures and cross‑border service delivery.

Podcast transcription

Sarah Thompson

Hello and welcome to the Arthur Cox Financial Regulation Podcast. Today we’re going to be talking about one of the most significant developments for institutions providing financial services into the EU, Article 21c. So Article 21c of CRD IV, as amended by CRD VI, introduces a general prohibition on third-country financial institutions providing core banking services into the EU. Those core banking services include deposit-taking, lending, and issuing guarantees. So ahead of the January 2027 effective date, there’s a lot of change already happening in the market. I’m joined today by my fellow partner, Rob Cain and we’re going to talk about some of the key themes that are emerging as we advise clients and work with them to navigate the implications of Article 21c.

Rob Cain

Thanks, Sarah. This is definitely one of the hot topics that we’re advising on at the moment, so it’s really good to chat about it.

Sarah Thompson

Yes, fantastic. So I think, let’s start with the obvious question.

Rob Cain

Okay.

Sarah Thompson

Transposition, where are we?

Rob Cain

In short, we’re not there yet. Unfortunately, there’s no Irish implementing legislation either published or adopted. So we do have a little bit of uncertainty at the moment. Having said that, there are some certainties. So we know that from the 11th of January 2027, third country banks must establish an EU branch to provide core banking services into the EU. And we also know that there’s a grandfathering cut-off from July 2026 and that’s driving a lot of the current activity that we’re advising on. So where are we then from an Irish perspective? So there are some key issues outstanding because we don’t have the legislation yet. So we don’t know how Ireland will implement some of the key exemptions. We don’t know whether Ireland will have a narrow or pragmatic approach to implementation. We don’t know under Irish law what consequences will flow from non-compliance with 21c and we don’t know what, if any, guidance the Central Bank will issue. So quite a bit of uncertainty.

Sarah Thompson

And I guess for some of our clients listening, given all that we don’t know, it’s the, “why should we call you?” in what we don’t know and I think for us, what we’re saying is we have the level one text, and the direction of travel is as important to be looking at right now as much as the legislation itself.

Rob Cain

Yeah, I think that’s right. And the direction of travel is reasonably clear and so it’s clear that there are going to be changes. I think though, if we take a step back for a second, we think Ireland’s going to copy out the Directive. We don’t think there’s going to be any implementing guidance here, gold-plating or guidance here that will be done at EU level, we think. But I agree, the direction of travel is set and firms are acting sort of, in accordance with the Directive and not necessarily relying on local legislation.

Sarah Thompson

Sure, and perhaps then if we’re going to talk to the exemptions. I think that’s something we’re talking to clients quite a great deal. And reverse solicitation is one we are speaking to clients about.

Rob Cain

Yeah.

Sarah Thompson

Particularly I think, lenders at the moment. And it is a useful exemption but perhaps limited in certain respects.

Rob Cain

Exactly.

Sarah Thompson

So if we recap, it allows services where the client approaches the third-country institution at its own exclusive initiative.

Rob Cain

Yeah.

Sarah Thompson

But it cannot be used where there is any element of marketing or solicitation by the third-country institution.

Rob Cain

Yeah.

Sarah Thompson

Or crucially, on the undertakings behalf. And it’s really important that some of the significant uncertainty is around whether reverse solicitation can support ongoing relationships, how it can apply to repeat transactions or renewals. And again, coming back to this Irish implementation piece, how actively the Central Bank of Ireland and indeed other regulators are going to police it.

Rob Cain

Yeah. So is there kind of an Irish specific sort of lens or focus on reverse solicitation?

Sarah Thompson

I think as you said, we’re sort of waiting on the transposing measures. We don’t expect any gold plating in the legislation itself. So I think there’s a limited risk of the scope being narrowed in the transposing measures but what approach the Central Bank of Ireland is going to take is the key question. And it is open to them to take a relatively restrictive interpretive approach. At the moment, there’s no indication that they will and there’s no indication that the Central Bank is going to actively police it. But when we’re talking to our clients, you know they’re weighing up the risks of relying on reverse solicitation as part of their business model going forward.

Rob Cain

It always strikes me that reverse solicitation is a kind of a tactical solution rather than a long-term structural solution.

Sarah Thompson

I think that’s absolutely right. Many of our clients are working with reverse solicitation as a risk mitigation point, as opposed to, as you say, a structural solution. Perhaps we should then talk about sort of that more technical aspect of the analysis.

Rob Cain

Okay.

Sarah Thompson

So characteristic performance. And I think we should talk about what we think that means in Ireland.

Rob Cain

Yeah, so characteristic performance is a kind of a hot topic and a tricky one to get into and to explain, but it’s really all about where the service is deemed to be provided, which goes to the question as to whether Article 21c is triggered at all, because it applies where services are provided in a member state.

Sarah Thompson

Yes.

Rob Cain

So in Ireland, in this context, now from an Irish perspective, we’ve never really tested or really deeply consider the concept of reverse solicitation.

Sarah Thompson

Because we haven’t had to, right?

Rob Cain

We haven’t had to, yeah. We’ve a really permissive regime for cross-border investment services. We don’t regulate commercial lending. So characteristic performance just hasn’t been a topic that we’ve had to really think about, either from the regulator’s perspective or indeed as advisors. And you mentioned lending, I think before the question becomes from a characteristic performance perspective, to give an example through lending, is the service provided in the EU or not? Is it provided in Ireland or not? And the question is sort of is the service effectively being provided here or in the case of a US bank, is it actually being provided in the US for example?

Sarah Thompson

And in terms of what we can actively do about that, I think we’ve seen a big focus on loan documentation and structuring.

Rob Cain

Yeah, yeah, yeah, yeah. Lots and lots of analysis around booking models, location of decision-making. You know, going to that sort of sense of where is the activity performed. And a lot of analysis as well around sort of front office versus back office activity. Where is the lending activity taking place? And I think we’ve sort of not had well, character performance is sort of a theoretical issue, a theoretical question, but we have had a lot of practical discussions with clients, I think largely driven by the fact that some member states, or at least one, Luxembourg is very focused on characteristic performance, and it’s been a longstanding concept that they’ve applied. So we’ve had lots and lots of questions about whether characteristic performance will work here as well.

Sarah Thompson

Yeah, so quite a fact specific analysis as between each client, but also with that client looking at what their risk appetite is and how far they’re willing to lean into quite a technical piece of analysis.

Rob Cain

Yeah, absolutely. And because it’s not a settled point or a settled regulatory issue, there’s going to be lots of judgement calls to make and as I said at the start, all very new from an Irish perspective.

Sarah Thompson

True.

Rob Cain

So maybe we turn to sort of the market and what we’re seeing clients think about and ask us to advise on at the moment. What are clients up to at the moment?

Sarah Thompson

So I think there’s a few clear themes emerging. First of all, they’re accelerating transactions. So you mentioned the July 2026 grandfathering cut-off. And so they’re bringing forward deals that perhaps might have settled later in the summer just to make sure they are in force ahead of that grandfathering deadline and trying to make sure that contracts fall within that regime.

Rob Cain

Okay.

Sarah Thompson

Again, as you mentioned, there’s a lot of booking and structuring analysis going on where trades are booked. Which entity in a group context is providing the service, whether where the UK entity or the US entity or indeed the Asian entity is providing the service currently, is there a way of bringing the EU licensed institution into that structure? And also whether a new EU branch is needed? So those are the first two. Also a lot of work on reverse solicitation frameworks.

Rob Cain

Yeah.

Sarah Thompson

So it’s looking at internal controls. It’s working with business colleagues, client relationship colleagues, documenting client initiation and training of front office teams. For institutions that provide, for example, MiFID services and activities, that’s not a completely new set of rules of the road, but they are being adapted for different teams and perhaps being rolled out to different teams and people are being very thoughtful about how that might work. Particularly I think on the lending side.

Rob Cain

Yeah, and are we seeing any differences between sectors, sort of corporate lending versus trade finance. Any nuances?

Sarah Thompson

Definitely, and for us in Ireland, corporate lending to date, largely unregulated.

Rob Cain

Yeah.

Sarah Thompson

So Article 21c represents a huge change to that. And so we’re looking at that very closely with lots of clients together with our debt finance colleagues, particularly on syndicated lending structures and multi-lender structures. On the trade finance side, questions around guarantees and commitments. On the aviation side, you know looking at leasing, looking at acquisition finance, fund finance, custody models. So for example where credit is almost part of a package of services that is provided as part of the custody or depository service. So it’s never been sort of looked at as by those clients as a credit business. It’s a custody business.

Rob Cain

Yeah.

Sarah Thompson

So looking at how that works and also a few questions on the secondary loan market as well it’s fair to say.

Rob Cain

Okay.

Sarah Thompson

And so with bringing that together, appreciate this is a very short introduction of where we are now. But if we take a step back, where do we see opportunities and where do we see risks?

Rob Cain

Okay, as a natural pessimist I’ll start with that. I’ll start with the threats and the risks. So I think number one is probably fragmentation across member states. We’re starting to hear the European authorities raise that as a concern, as an issue sort of Luxembourg versus the rest of Europe, for example. So that’s going to create complexity if we have fragmentation. I think operational burden is another issue for firms. So potentially needing multiple EU branches if they provide services in multiple EU member states, that’s going to be an issue. And then the third one may be just restriction on cross-border models. So firms have had these models in place for a long, long time have been comfortable about how they provide services. That’s all changing. And so particularly for the US and the UK lenders, it’s a big change.

Sarah Thompson

Huge.

Rob Cain

Particularly when we’re looking at services into Ireland. And frankly, I think we probably share the same view on this. It’s ultimately or potentially bad for borrowers if the UK and the US banks are taken out of the market and others. And then ultimately regulatory uncertainty, you know, it is never great when we’ve got regulatory uncertainty, firms just don’t want that.

Sarah Thompson

Yeah, and I think maybe just pausing on that point around the borrowers, I think we are seeing Irish borrowers almost tooling themselves up. So making sure that they are presenting their request for a loan as something that they are soliciting at their own exclusive initiative. So there’s a little bit of sophistication amongst the client base as well as the service providers, I think.

Rob Cain

Exactly, or based on kind of the advice that they’re getting and so yeah, absolutely.

Sarah Thompson

Exactly. And that maybe leads us then from those risks to the opportunities.

Rob Cain

Okay. Well, I think the first one maybe is, the opportunity for firms to kind of build out their existing European footprint. So where they’ve got a European banking platform already, there’s an obvious opportunity there to build that up, which is great. Competitive advantage for EU entities, you know, fewer perhaps US, UK, other banks in the market is good for European banks. We talked a lot about sort of structure and other changes that firms are making. So product innovation is, you know, could be a positive. And again from a selfish perspective we’re seeing lots of interesting advisory mandates. So that’s been interesting as well.

Sarah Thompson

Yeah I think we were looking at characteristic performance and reverse solicitation last time for MiFID II right?

Rob Cain

Exactly.

Sarah Thompson

So we’re back into that, dusting out. And also the Brexit guidance as well, perhaps. We did a lot of work on that. So I think overall in the CRD VI context, still a lot to analyse, still a lot to work through. Maybe say, so some key takeaways. There is a policy direction at the EU level.

Rob Cain

Yeah, agreed.

Sarah Thompson

And that’s clear. There is significant uncertainty around details, particularly at the national level in Ireland, but also a market that is adapting in real time.

Rob Cain

Yeah, I think that’s right. Yeah, and I think for me the main takeaway, kind of bringing that all together is that firms have to come up with a plan. As you say, the direction of travel is clear.

Sarah Thompson

Yes.

Rob Cain

And having a plan is going to be really, really important. We know there’s uncertainty. We’ll update clients when we cover implementing legislation and a sense of the direction here. But we know what this broader sense of direction is and we know what people need to do.

Sarah Thompson

Fantastic. Thanks, Rob, and thanks everyone for listening. If you would like to talk to us about how Article 21c might impact your business, please do get in touch. We’d be delighted to hear from you.

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