European Commission proposes new harmonised rules for non-EU firms - Thistle Initiatives

What has happened?

In October 2021, the European Commission proposed new harmonised rules for non-EU firms (banks and non-banks) carrying on banking business in the EU (“banking business” is defined as including  deposit-taking, lending, payments, foreign exchange and securities and derivatives business).

The Commission has recently published its legislative package amending the Capital Requirements Regulation and Directive (CRR3 and CRD6), which includes proposals for these new rules, which would allow non-EU firms to carry on cross-border banking business of this kind into the EU on a reverse solicitation basis only, and would also harmonise the way in which Member States regulate non-EU firms conducting banking business through EU branches.

Who do you need to do?

The new rules would significantly affect the ability of many non-EU banks and non-bank firms to continue to deal with EU customers or counterparties on a cross-border basis while relying on existing Member State regimes and they would also significantly alter the regulatory regime for many non-EU firms currently operating through EU branches.

The new regime would apply to non-EU deposit-taking banks, and to any non-EU firm that carries on any of the following activities in a Member State on a cross-border basis or via a branch:

• The activities listed in Annex I of the CRD, which include banking business as defined above, or
• Dealing on own account in or underwriting the issue of financial instruments where the non-EU firm meets the size criteria for being classified as a non-deposit-taking credit institution under the CRR.

The new rules applying to cross-border business and branch reporting could apply from Q4 2024, with the other new rules for branches applying from Q4 2025

Some key issues arising from the rules are as follows;

• Some investment firms would be exempt if they do not meet the size criteria to be treated as non-deposit-taking credit institutions.
• EU branches of non-EU firms carrying on banking business would be subject to new minimum authorisation and supervision rules, including endowment capital and liquidity requirements and new reporting requirements.
• EU branches would be prohibited from conducting cross-border banking business in other Member States.
• More onerous rules will apply to EU branches if the firm’s non-EU home state is not assessed as equivalent.
• EU authorities would have new powers to restructure EU branches as subsidiaries to protect Member States’ financial stability.
• Member States would have to remove or limit national regimes providing favourable treatment to cross-border business or branches.

How can we help you?

If you’d like to know more about how we can help you with your cross-border business or reverse solicitation arrangements, or with any other regulatory compliance issues, our expert team is here to help.

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.