CRD VI: Opportunities and challenges for Swiss banks in the EU

As Swiss banks navigate CRD VI, it is important to understand the rules and exceptions to stay compliant – and ahead of the competition.

In brief

• How are Swiss banks enhancing risk management and compliance during the CRD VI transition phase until January 2027?
• What strategies are Swiss banks using to navigate exemptions for reverse solicitation and MiFID II services under CRD VI?
• How will Swiss banks and other third-country institutions amend their business models to offer core banking services in line with prudential requirements?

The revised Directive 2013/36/EU (Capital Requirements Directive (CRD VI)) forms a critical component of a broader legislative package that also includes amendments to Regulation (EU) No. 575/2013 (Capital Requirements Regulation (CRR)).

The legal text of CRD VI was published in the Official Journal of the EU on 19 June 2024. Subsequently, the Directive came into force on 9 July 2024, subject to an 18-month transposition period during which member states are mandated to integrate the provisions of the Directive into their respective national legislations by 10 January 2026.

In addition to the transposition period, a further 12-month transition phase has been granted to facilitate the necessary adjustments and alignments by market participants. The final compliance date is therefore 11 January 2027. This staged approach underscores the EU’s commitment to ensuring a smooth and orderly implementation of regulatory reforms within the financial sector.

Impact on Swiss (and other non-EU) banks

CRD VI requires banks domiciled outside the EU (third-country banks (TCB)) to establish a branch within the EU member state in which they provide certain core banking services to clients based on active solicitation. This  “TCB requirement” is aimed at ensuring that non-EU banks operate in a regulated environment when offering services within the EU jurisdiction. It is complemented by a harmonized authorization procedure and a set of minimum regulatory standards. By governing the operations of TCBs within the EU, these measures help create a level playing field, thereby mitigating the risk of regulatory arbitrage by banks seeking to exploit differences in national regulations.

In light of these imminent regulatory developments, Swiss banks, as third-country financial institutions, should conduct a thorough reassessment of their cross-border market access strategies. The results will help them safeguard their existing EU market share or explore avenues for expansion within the EU financial market. By strategically aligning with a new regulatory landscape delineated by CRD VI, banks can ensure compliance and maintain a competitive edge in the European banking sector.

Exemptions

The framework also provides several exemptions to mitigate the impact on non-EU banks serving EU clients:

Action required

Swiss and other TCBs that haven’t already done so will need to establish a branch within the member state to offer (solicit) specific “core banking services” to clients domiciled there. Core banking services covered by the branch requirement include the services defined in points 1, 2, and 6 of Annex 1 to Directive 2013/36/EU:

• Taking deposits and other repayable funds
• Lending including, inter alia: consumer credit, credit agreements relating to immovable property, factoring, with or without recourse, financing of commercial transactions (including forfeiting)
• Guarantees and commitments

TCBs that are currently operational within the EU may, in certain instances, be required to undergo re-authorization and adhere to additional requirements. This adjustment is driven by the need to align with the evolving standards aimed at enhancing financial stability and regulatory compliance within the EU. Some aspects to consider include:

Proportionality principle

The CRD VI, as adopted, seeks to differentiate the prudential requirements between distinct categories of TCBs to prevent undue administrative burdens on smaller entities. The categorization distinguishes between Class 1 and Class 2 TCBs, with Class 1 encompassing larger TCBs (specifically, those with assets equal to or exceeding EUR 5 billion) as well as TCBs authorized to accept deposits from retail customers and those deemed “non-qualifying”. A TCB is considered “qualifying” when its head office is located in a jurisdiction i) whose supervisory and regulatory framework for banks, including confidentiality requirements, is assessed as equivalent to that of the EU and ii) that is not listed as a high-risk third country with strategic deficiencies in its anti-money laundering and counter terrorist financing regimes.

TCBs not meeting the criteria for Class 1 are designated as Class 2 and are subject to less stringent prudential and reporting requirements. This differentiation is grounded in the principle of proportionality, ensuring that the regulatory framework is appropriately tailored to the size and risk profile of the TCBs.

Key takeaways and next steps

The impact on Swiss banks is multifaceted. Existing TCBs must seek re-authorization and are required to meet new criteria, including explicit authorization procedures, minimum capital and liquidity requirements, internal governance and supervision. However, exemptions exist for reverse solicitation – where clients independently approach banks – and for MiFID II investment services – such as interbank transactions and private wealth management. These exemptions provide some relief from the requirement to establish a branch, but they also necessitate a thorough analysis to ensure compliance with the broader regulatory framework.

Third-country firms that do not currently have a branch in the EU must now review their cross-border operations to ensure they do not breach the new EU third-country branch requirements. The existing reverse solicitation framework, local guidance and interpretations for the provision of investment services must be analyzed in detail for potential enhancement to cover the core banking services outlined under CRD VI, beyond the Directive or Regulation level.