September 11. 2025

CRD VI: Updated Implications for US Fund Finance Lenders

Authors:

The European Banking Authority (“EBA”), in consultation with the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, recently released a report on the treatment of third-country undertakings (“TCUs”) under the revised Capital Requirements Directive (“CRD VI”). The EBA concludes that no expansion of the existing exemptions to CRD VI is warranted to permit TCUs to provide core banking services directly from outside the European Union to EU financial sector entities.

Background

Article 21c of CRD VI establishes a baseline prohibition on TCUs providing deposit-taking, lending, and guarantees directly to EU counterparties unless conducted through an authorized EU branch or subsidiary. Limited exemptions remain available, including for:

Reverse solicitation;
Interbank services;
Intra-group transactions;
Certain MiFID II services; and
Grandfathered contracts.

The EBA was tasked with assessing whether these exemptions should be broadened to cover a wider range of EU financial sector entities.

See our Legal Update, CRD6: Implications for US Fund Finance Lenders, for additional background and a discussion of CRD VI’s scope.

EBA Findings

From a fund finance perspective, the report highlights:

Cash exposures: Deposits with TCUs by EU financial sector entities remain low overall, with concentrations in Luxembourg and Ireland, particularly for money market and alternative investment funds with significant foreign currency needs.
Lending and guarantees: Cross-border exposures are limited and not material at the EU level, though certain Member States (including Ireland and Luxembourg) report significant localized concentrations.
Investment firms: Most cash deposits remain with EU/EEA institutions; third-country exposures are immaterial.
Operational concerns: Stakeholders cited cost and operational implications—particularly for non-bank PSPs requiring USD clearing and for global custody models. Still, most EU entities viewed EU branch or subsidiary solutions as viable, if less efficient.

The EBA ultimately determined that the existing exemptions generally suffice and that no further flexibility is needed at this time. They further note that the impact of the prohibition (as modified by exemptions) should be limited and manageable, but acknowledge that national authorities should continue monitoring, with further clarification to come through supervisory Q&A.

Implications for US Fund Finance Lenders

As we noted in our May 2024 update, CRD VI’s implications for US lenders remain unsettled. Subscription credit facilities often involve multiple borrowers, including EU entities, making the prohibition particularly relevant in the US fund finance market. Here are three key reminders as the implementation of CRD VI in relevant jurisdictions grows closer:

What constitutes the provision of core banking services in an EU Member State remains undefined and subject to national interpretation. Given CRD VI is a directive, it will ultimately be enacted differently across Member States, creating potential divergence.
Of particular importance to the US fund finance industry will be how Luxembourg and Ireland elect to implement CRD VI, given their core function in common fund structures.
Establishing or converting EU branches implicates Regulation K and resolution planning considerations. EU capital requirements applied at the branch or subsidiary level could result in capital “trapping” for US lenders.

Preparing for Implementation

CRD VI will apply beginning January 11, 2026, with reporting requirements for third-country branches and their head offices effective on that date. Authorization requirements for third-country branches follow one year later, on January 11, 2027.

For US lenders, this may require one or more of the following:

Considering whether any of the exemptions described above are viable options;
Making plans to originate impacted loans from an EU branch;
Assessing the cost and regulatory impact of establishing or re-domiciling EU entities; and
Planning now for compliance with reporting and capital requirements.

Key Takeaways

The EBA does not recommend broadening the exemptions under CRD VI, leaving significant uncertainty around how Member States will interpret and implement Article 21c and how those interpretations will impact the US fund finance market. In the meantime, US lenders should pay particular attention to the implementation strategies of Luxembourg and Ireland as more information becomes available. While the authorization requirements do not come into effect until early in 2027, strategic decisions on compliance with CRD VI (including any EU branch structures) should be made well before the 2027 deadline to ensure an orderly transition and implementation.