A new era for Swiss banks

The EU’s CRD VI has been finalised and is set to reshape the rules for Swiss banks. Stricter cross-border regulations mean that many will have to rethink where and how they operate. With new restrictions coming into force, planning ahead is more crucial than ever.

CRD VI will force Swiss banks to reevaluate their entire presence in Europe. To adhere to the new regulations, firms must decide on the future of current cross-border banking services that will no longer meet compliance standards. This may involve setting up or expanding existing third-country branches (TCBs) in Member States where cross-border operations currently take place. It may entail moving business to an existing or newly established European Economic Area (EEA) subsidiary capable of operating throughout Member States or establishing lending entities where possible. Or it may possibly mean ceasing operations in those Member States. In some instances, existing EEA branches will have to be subsidiarised if they meet specific criteria under the new regulation.

In this article, we focus on the new provisions regarding cross-border banking services, detailing which services and credit institutions are affected, along with certain exemptions and grandfathering rules. We also explore the options available to affected Swiss banks seeking to maintain their service offerings in the EU.

For Swiss banks providing services in the EEA, the regulatory landscape is about to shift dramatically. The EU is introducing a harmonised framework for inbound cross-border services and supervising branches of non-EEA banks, paving the way for a new era of oversight and compliance. This overhaul means that third-country branches will soon be subject to a suite of minimum standards, including robust capital and liquidity requirements, stricter internal governance and comprehensive rules on outsourcing. Furthermore, cross-border services without physical presence in an EEA country will be further regulated.

June 2024 saw a pivotal development shaping the European banking landscape when the revised Capital Requirements Directive VI (CRD VI) was published in the Official Journal of the European Union. Since then, many Swiss banks have been grappling with the looming challenges these rules pose. The time for strategic action is now. These transformative changes threaten to disrupt the status quo for third-country banks (including Swiss private, corporate, investment and neo banks) providing banking services to clients and counterparts in the EEA, a potential game-changer with far-reaching implications.

If you’re an executive or compliance officer at a Swiss bank, a strategist focused on European operations or an adviser to financial institutions, it’s imperative to grasp the urgency of these changes. The window for compliance is narrowing, forcing banks to reevaluate their entire presence and operations in Europe. You may need to restructure your business activities by setting up or expanding third-country branches (TCBs), establishing a subsidiary in the EEA, consolidating business under existing subsidiaries or reshaping your reverse-solicitation cross-border strategy. But it doesn’t stop there: existing branches may also need to undergo a reauthorisation process. Time is of the essence, and understanding these dynamics is key to navigating the future successfully.

Status quo in EEA: fragmented landscape of national regulations

A key aspect of the CRD VI reform is the harmonisation of rules for EEA branches of banks that are incorporated and regulated in non-EEA countries such as Switzerland. Currently, cross-border services from third countries, as well as the treatment of TCBs, are not fully harmonised, resulting in different regulations among Member States concerning the requirement for establishing a branch and obtaining a licence in the EEA. The new provisions aim to harmonise these requirements by introducing minimum standards that such banks will need to follow when conducting business with EEA-domiciled clients. However, Member States may still enforce stricter regulations.

In line with this harmonisation effort, CRD VI is set to impact the simplified exemptions that currently benefit Swiss banks operating cross-border in Germany. Given that it is an EU directive, CRD VI has to be adapted into German law, which will affect the country’s Banking Act (KWG) and Solvency Regulation (SolvV). Owing to legislative delays, the process has been postponed to the 21st legislative period, with a draft bill anticipated by summer. Whether Germany will meet the CRD VI implementation deadline of 11 January 2026 and revoke simplified exemptions remains uncertain. Consequently, Swiss banks need to prepare for the potential loss of waivers by reevaluating compliance strategies and considering establishing subsidiaries or branches to align with the forthcoming regulatory landscape.

Swiss banks have three options when it comes to providing services to EEA clients:

EU passport rights allow financial institutions authorised in one EEA member state to operate throughout the EEA without the need for additional authorisation from each member state. A subsidiary in the EEA with EU passport rights can directly offer its services across other EEA countries, whereas an EU third-country branch without these rights must obtain separate authorisation to operate in each Member State where it wishes to conduct business.

The extent of cross-border services depends on the national rules of individual member states:

Restrictive jurisdictions: Cross-border services from third countries are prohibited (e.g. France and Italy). Licensed subsidiaries or third-country branches are required.
Non-restrictive jurisdictions: Cross-border services from third countries are effectively possible where services are not subject to national regulation (e.g. Ireland and Luxembourg).
Restrictive jurisdictions with exemptions: Licensed subsidiaries or third-country branches are required, but waivers are offered subject to defined conditions (e.g. Germany and Spain).

Impact on Swiss banks

Establishing a subsidiary within the EEA grants Swiss banks EU passport rights, providing full access to the EEA market for seamless operations and service diversification across Member States. In contrast, an EEA branch offers local market presence and aids compliance with local regulations but does not provide inherent passport rights for cross-border activities.

CRD VI aims to standardise the requirements for providing banking services to EEA clients from third countries outside the EEA. The objective of Article 21c of CRD VI is to achieve harmonisation. This encompasses two key elements: the restriction of cross-border services and the requirements for third-country branches.

Requirement to provide core banking services to EEA clients only via EEA branches or subsidiaries. Cross-border banking services from Switzerland are not allowed, with certain exceptions detailed in the section below.
Additional requirements for TCBs regarding authorisation, capital and liquidity endowment, internal governance and risk management, reporting and supervision.

Article 21c of CRD VI will restrict Swiss entities’ cross-border banking services to EEA clients and counterparties.

Who and what is affected by the restrictions under article 21c CRD VI?

CRD VI restricts services from third countries to EEA clients or counterparties. The new rules apply to certain non-EEA entities with regards to core banking activities:

Exemptions from restriction of cross-border services

The restriction of cross-border core banking services is subject to exemptions, including the following:

CRD VI is particularly relevant for Swiss banks that actively pursue business strategies focused on offering core banking services within the EEA. CRD VI mandates these banks to establish a branch in any EEA member state where they actively solicit clients for specific core banking services. This TCB requirement ensures that non-EEA banks conduct their operations within a regulated environment when providing services within the EEA. The requirement is supported by a standardised authorisation process and a set of minimum regulatory standards. By overseeing the activities of TCBs within the EEA, these measures aim to create a level playing field and reduce the risk of regulatory arbitrage by banks attempting to take advantage of differences in national regulations.

Exemptions from the restriction of cross-border services

The framework provides several exemptions to mitigate the impact on non-EEA banks serving EEA clients, as highlighted in the table above. These exemptions are particularly relevant for banks whose business strategies do not involve active solicitation for core banking services within the EEA or those focusing on specific niche markets with limited cross-border interaction.

If a client independently requests services from a third-country bank without any encouragement or influence from the bank, the bank is not required to establish a branch within the member state. However, the reverse solicitation exemption does not allow the third-country entity to promote additional types of products, activities or services beyond what the client initially requested, unless these are promoted via a branch established within a member state. Furthermore, if a third-country entity solicits clients or potential clients within the EEA through an intermediary or affiliate acting on its behalf, this action does not qualify as being solely initiated by the client.

Third-country credit institutions are granted an exemption from establishing a branch within a member state for specific investment services. Annex I, Section A of Directive 2014/65/EU, known as MiFID II, outlines these exemptions specifically for interbank and interdealer transactions. However, this does not equate to unrestricted authorisation to operate in the EEA without regulatory oversight. When making use of this exemption, it’s essential to maintain compliance with MiFID II in addition to AML/CTF EU regulations.

Third-country banks currently offering core banking services across borders may utilise a grandfathering clause, although its scope is somewhat limited. Contracts regarding core banking services established before 11 July 2026 are exempt from the new requirements, although it remains uncertain whether the grandfathering provision is applicable if substantial changes are made to existing contracts. Additionally, grandfathering is available for third-country branches licensed under a Member State’s domestic law by 10 January 2027. This provision is subject to the discretion of the supervisory authority within the relevant Member States and may only be granted if, according to the applicable law of the Member State, these branches already adhere to standards equivalent to those imposed on third-country branches under CRD VI.

Proportionality principle

CRD VI introduces a classification system on the basis of which TCBs are subject to different scopes of requirements. Minimum requirements regarding TCBs are proportionate to the risk they pose to the financial stability and market integrity of the EU. This classification may also affect existing EEA branches, as detailed below.

As a result, TCBs are divided into two categories:

Class 1: riskier third-country branches
Class 2: small, non-complex branches that do not pose a significant financial stability risk

A Member State may impose stricter requirements on branches within its territory, including mandating Swiss banks to set up a subsidiary instead of a branch. These conditions are not harmonised across member states and may vary. However, all member states must empower their national authorities to require a subsidiary if:

A Swiss bank’s existing branch in a member state has previously or is currently providing core banking services to clients in other member states
A Swiss branch is systemically important and poses substantial financial stability risks to the EU or its host member state
The total assets of all Swiss branches belonging to the same third-country group in the EU are EUR 40 billion or more, or the assets of the branch itself in its host member state amount to EUR 10 billion or more.

Requirements regarding authorisation, internal governance, reporting, supervision and capital/liquidity endowment

CRD VI outlines the basic criteria that a branch must satisfy to obtain authorisation, including capital requirements. Furthermore, the branch’s activities must fall under the authorisation granted to its head office in the third country where it is incorporated and regulated. Additionally, it is crucial for the competent supervisory authority in the member state where the branch is located to be able to access all necessary information about the main entity from its home supervisory authorities and coordinate its supervisory efforts effectively with those of the third country. To facilitate this, supervisory authorities may establish cooperation agreements with their counterparts in third countries.

Approval for TCBs depends on their meeting various essential regulatory requirements. Firstly, the TCB must show compliance with the regulatory standards set by the relevant authorities. Secondly, the activities for which the third-country entity’s head office seeks approval within the Member State must align with the authorisation it holds in its home country. Finally, there should be no valid grounds to suspect that the TCB could be exploited for money laundering or terrorist financing activities.

The minimum capital required for third-country branches varies depending on whether they are classified as “Class 1” or “Class 2” branches. The capital requirements are as follows:

Class 1 branches must hold capital amounting to 2.5% of their average liabilities over the past three years or, for newly authorised branches, based on their liabilities at the time of authorisation time, with a minimum of EUR 10 million;
Class 2 branches are required to maintain capital equal to 0.5% of their average liabilities over the past three years or, for new branches, based on their liabilities at authorisation, with a minimum of EUR 5 million.

Additionally, branches must comply with internal governance and risk control standards and establish booking arrangements to monitor assets and liabilities related to their operations within the member state.

Third-country branches are required to maintain a minimum level of unencumbered liquid assets at all times, sufficient to cover liquidity outflows for at least 30 days. Member States may impose further requirements. Moreover, Class 1 third-country branches must adhere to the liquidity coverage requirements specified in the CRR.

Third-country branches are required to keep a registry with accurate records of all assets and liabilities booked or generated by the branch. These assets and liabilities must be independently managed within the branch. Additionally, branches must have a booking policy that clearly explains the reasoning behind the booking arrangements.

Competent authorities are tasked with conducting regular assessments of TCBs to ensure their compliance with regulatory requirements, including those pertaining to anti-money laundering (AML). Should non-compliance be identified, supervisory measures are to be enacted to secure or re-establish compliance with regulatory requirements.

For TCBs falling within Class 1, competent authorities are further required to integrate these branches into the supervisory colleges of the corresponding banking group, if such a college exists. In the absence of an existing college, authorities are to establish an ad-hoc supervisory college for Class 1 TCBs operating within multiple Member States.

What should Swiss banks consider

Swiss banks that currently offer cross-border banking services must evaluate the extent of their EEA activities.. They should also analyse the impact of CRD VI and include it in their cross-border strategy. Banks relying on cross-border waivers, such as those in Germany, should anticipate and assess what the impacts and strategies are if there is the possibility that these waivers may not be available after Q4 2026. They need to consider whether they can utilise any exemptions, particularly intra-group and interbank exemptions, or if they can depend on reverse solicitation, acknowledging its limitations. If no exemptions apply and obtaining TCB authorisation in each member state is not practical, banks should explore restructuring options such as transferring in-scope business lines to:

Entities outside CRD VI's scope (i.e. entities that don't qualify as a credit institution or CRR investment firm)
Existing EU subsidiaries within the same group
Current EEA branches, with a key focus on whether re-authorisation will be necessary. Branches should determine whether national competent authorities might grandfather existing authorisations and evaluate any additional CRD VI requirements beyond current TCB obligations. They must also consider whether they will fall into Class 1 or Class 2, the possibility of being systemically classified and the risk of being required to establish a subsidiary. If systemic classification is possible, restructuring options, such as reallocating certain business lines to out-of-scope entities or EEA subsidiaries, should be considered.

Need more information?

Contact us for expert guidance on the CRD VI regulatory requirements and their impact on your cross-border strategy. We can help you effectively navigate the regulations and enhance your market presence.

Our proposed approach for Swiss banks in response to CRD VI includes conducting impact and gap assessments, updating strategies to align with new requirements, identifying optimal target countries for branch expansion and defining competitive policies for the EU market.

Our services

We will provide in-depth analysis of CRD VI and facilitate awareness campaigns to ensure that decision-makers within your organisation are fully informed of the upcoming changes and their implications.

Our team will conduct a thorough analysis of how the new regulations will impact your firm. This includes:

Developing scenarios to anticipate potential outcomes
Quantifying the main impacts to provide a clear understanding of the directive’s implications
Identifying key areas of your business that will be affected and qualifying the extent of these impacts.

We can provide support with:

Restructuring your business operation to ensure compliance with the new regulatory requirements
Establishing a branch or subsidiary in the EEA
Reauthorisation.