WARNING : THIS IS NOT A LEGAL ADVICE _ PLEASE CONSULT YOUR LEGAL ADVICE

The European Union’s latest banking directive, CRD VI, introduces a new rule known as Article 21c. From January 2027, non-EU banks and investment firms will need to set up a branch in any EU country where they want to provide core banking services such as deposit-taking, lending, or issuing guarantees.

There are some exemptions, but the rule is significant: it reshapes how international institutions interact with EU clients. Because this is a Directive, each EU country has to write it into their own law by January 2026. And that’s where the challenges begin.

Why Is the National Transposition So Important?

Each Member State has discretion in how they “transpose” the Directive into national law. Ideally, they should stick closely to the EU’s wording. But in practice, there’s a risk that countries interpret things differently or even add their own twists.

The result? Firms could face a patchwork of rules across Europe. That’s costly, confusing, and damaging to the EU’s ambition of a single market in financial services.

What Are the Key Exemptions We Need to Understand?

The Directive is not an absolute blanket rule — there are clear exemptions:

• MiFID services: If the activity falls under the Markets in Financial Instruments Directive, or is ancillary to it, the branch requirement does not apply.
• Reverse solicitation: When an EU client approaches a third-country firm on their own initiative, that firm can provide the requested service without establishing a branch.
• Follow-on services: Once a relationship is established, additional services that are closely related to the original request should also be allowed.
• Grandfathering: Contracts entered into before July 2026 should continue to be valid, avoiding disruption for existing clients.
• Timing: The branch requirement itself only kicks in from January 2027, giving firms a year after transposition to prepare.

These carve-outs are designed to keep the market open while protecting clients.

Where Are the Concerns Coming From?

Industry bodies have spotted worrying trends in how some Member States are drafting their laws:

• Narrowing the MiFID exemption: Some texts only reference part of MiFID, leaving out important ancillary services like custody.
• Restricting follow-on rights: If “closely related” is interpreted too tightly, firms may be blocked from providing logical extensions of a client-requested service.
• Weak grandfathering clauses: If protections only cover the contract’s legal validity, but not the provider’s authorisation, uncertainty arises.
• Shifting the dates: A few drafts hint at early application of the branch requirement, cutting short the intended transition period.

In short, the fear is that “gold-plating” — adding extra national requirements — could creep in. Of course automation will be used with InvestGlass to make your process easier.

What Happens If Countries Get It Wrong?

Poor transposition has real-world consequences:

• Clients lose access to services they rely on, particularly in areas like custody and settlement.
• Firms face higher costs, as they may be forced to set up multiple branches in different countries.
• The market fragments, with each Member State becoming a regulatory island.
• Legal uncertainty grows, which undermines trust and investment.
• The EU loses competitiveness compared to other financial centres.

What should be a single market risks becoming a messy patchwork.

How Can Transposition Be Done Right?

The paper suggests some straightforward solutions:

• Draft the MiFID exemption broadly, covering both primary and ancillary services.
• Define “closely related” services generously, so follow-on rights work as intended.
• Write clear, strong grandfathering clauses to protect existing contracts.
• Stick to the official timeline: apply the branch requirement from January 2027, not before.
• Resist the temptation to gold-plate — no national extras, just the Directive as written.

This approach would bring consistency, certainty, and a level playing field.

Why Does This Matter Beyond the Legal Detail?

It’s easy to see this as a technical regulatory issue, but it’s bigger than that. At stake is the EU’s reputation as a predictable, integrated financial market. Businesses need clarity. Clients need access. And Europe needs to remain competitive globally.

Handled well, Article 21c can strike a balance: opening the market to international firms, while ensuring proper oversight through local branches where appropriate. Mishandled, it risks closing doors and driving business elsewhere.

What Should Firms Do Now?

• Check your jurisdiction’s draft law: spot potential issues early.
• Engage with regulators: consultations are the chance to fix unclear or overly narrow drafting.
• Plan ahead: review contracts, structures, and services to see what might need a branch.
• Keep monitoring: each Member State could take a slightly different approach.

Being proactive now will save a lot of disruption in 2027.

Final Word…

The industry’s position is clear: consistency matters and we believe that automation too. If every EU country takes a slightly different view of Article 21c, the whole purpose of the Directive could be undermined. For firms and clients alike, the prize is a stable, fair and competitive European market. The risk is fragmentation. The next 12 months of national law-making will decide which path we take.