The Clock Is Ticking: CRD VI And South African Financial Institutions

For many South African financial institutions, the European Union’s (“EU”) Sixth Capital Requirements Directive (“CRD VI”) was until recently seen as a future regulatory change. That is no longer the case.

CRD VI was adopted as part of the EU’s 2021 Banking Package and published in the Official Journal of the European Union on 19 June 2024. Its Article 21c introduces a single framework that limits how banks outside the EU (“third-country institutions”) can provide certain core banking services into the EU. These services include deposit-taking, lending, and the provision of guarantees and commitments. Before this, how Member States treated these activities varied widely. While some allowed cross-border lending without local authorisation, others banned it entirely.

The European Commission found that this patchwork approach created financial stability, risks and opportunities for regulatory arbitrage. Article 21c addresses this by requiring third-country institutions that want to provide core banking services in an EU Member State to set up an authorised branch, unless an exemption applies. For South African banks, understanding which activities are covered and which exemptions may be available has become a practical priority.

The grandfathering cut-off date under Article 21c has now passed, and the third-country branch rules will apply from 11 January 2027. The focus has shifted from understanding the law to working out what it means in practice. Institutions with EU-facing business should now ask not whether Article 21c applies, but which parts of their business may need to change before it takes effect.

The first deadline has already passed. Contracts entered into before 11 July 2026 may still benefit from transitional protection that preserves existing rights. New contracts signed after that date do not. Although the main branch requirement will only start in January 2027, the practical work has already begun. Decisions being made today about lending structures, trade finance arrangements and customer relationships may determine whether institutions can continue providing services into certain EU Member States without setting up an authorised third-country branch.

At its core, Article 21c creates a single set of rules for how third-country firms can provide certain core banking services into the EU. Generally, a non-EU institution wanting to conduct those activities in a Member State will need an authorised third-country branch unless an exception applies. The activities covered go beyond traditional deposit-taking and include lending, guarantees and commitments. The term “lending” is broad enough to cover many forms of commercial financing, while guarantees and commitments bring trade finance, revolving facilities and undrawn obligations within scope.

That does not mean every cross-border deal automatically requires a branch. One of the trickier parts of Article 21c is that its reach is not absolute. The Directive does not set out a single EU-wide test for deciding when a banking service is conducted “in” a Member State. Instead, how each country applies the rules still matters. For internationally active institutions, especially those involved in syndicated lending, trade finance, revolving credit facilities or secondary loan trading, the answer will likely depend on several factors. These include where the borrower is located, the legal nature of the obligation, where the relevant activity is performed and how the relevant Member State chooses to apply the Directive.

The exceptions remain important, but they should not be seen as a substitute for a workable cross-border business model. One such exception allows an eligible EU client or counterparty to approach a third-country institution entirely on its own initiative. However, this exemption is deliberately narrow. Marketing, promotion or outreach by the institution, its representatives or closely linked entities may prevent reliance on the exemption. A client’s unsolicited approach also cannot later be used to market unrelated banking products. Article 21c also excludes certain services provided to EU credit institutions, intragroup arrangements and specified Markets in Financial Instruments Directive (“MiFID II”)-related activities.

For wholesale banking institutions, the interbank exemption is especially important. However, it is equally important to understand its limits. During 2025, the European Banking Authority (“EBA”) found that there was not enough evidence to extend the exemption to a broader range of regulated financial institutions. It also identified areas where the interaction between Article 21c and other sector-specific laws would benefit from further clarity. Institutions dealing with insurers, payment institutions, investment funds or other regulated counterparties should therefore not assume that regulatory status alone will bring those entities within the interbank exemption.

At the same time, the practical requirements for setting up a third-country branch have become much clearer. During 2026, the EBA finalised its guidelines on branch authorisation, application procedures and supervisory expectations. Among other things, an application must include a formal non-opposition statement from the regulator supervising the applicant in his home country. For South African institutions, this means that engagement with domestic regulators is no longer a step that can be left until the end of the process. It has become a key part of any potential EU branch strategy.

It is also important to understand that setting up a third-country branch does not give unlimited access to the European market. Authorisation remains tied to the Member State in which the branch is set up, with only limited exceptions. Institutions planning to conduct significant banking activities across multiple countries may therefore need to consider whether multiple branch authorisations, or an appropriately authorised EU subsidiary that can passport throughout the Union, would be a better long-term solution. The branch regime itself also brings additional regulatory requirements, including capital requirements, booking expectations and supervisory reporting obligations, with the first reporting reference date set for 31 March 2027.

National implementation adds another layer of complexity. Although Member States were required to adopt CRD VI by 10 January 2026, implementation has not progressed evenly across the European Union. As a result, institutions cannot rely only on the text of the Directive when assessing their cross-border activities. Instead, the analysis must also consider the laws and regulatory approach adopted within each relevant Member State.

For South African institutions, this means that broad compliance reviews are no longer enough. Existing EU-facing lending, guarantees, commitments, trade finance arrangements and deposit relationships should be mapped carefully by legal entity, Member State and counterparty. Contracts signed before the grandfathering cut-off date should be identified separately, with close attention to amendments, extensions, refinancings, novations, increases in facility limits and future drawdowns that may affect whether transitional protection still applies. Where institutions intend to rely on the own-exclusive-initiative exemption, that position should be documented carefully and at the time. Syndicated lending and secondary market positions should also be assessed on their individual facts rather than relying on broad assumptions.

The strategic question has therefore changed. The issue is no longer whether Article 21c will affect South African financial institutions. For many firms, it already has. The more pressing question is which business can continue to be conducted cross-border after 11 January 2027, which activities fall within a valid exception, and where a more permanent European presence may be needed. With the grandfathering period now closed and the supporting EBA framework largely in place, the remaining time to prepare is getting short.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.