The freedom of establishment and the freedom to provide services are fundamental EU freedoms which credit institutions from all member states have used extensively to expand their business across borders within the EU. These freedoms are recognised in the Treaty on the Functioning of the European Union (Articles 49-55 and 56-62 respectively) and their exercise within the EU requires the submission of the relevant passport notifications to the credit institution’s supervisor. 

Triangular provision of cross-border services by EU institutions’ branches located in third countries

Credit institutions may also provide services within the EU, based on the freedom to provide services, on a “triangular” basis, whereby a credit institution licensed in country A uses the relevant branch in country B to provide banking services in country C through that branch.

In this type of scenario, it was not clear whether the provision of services in a member state through a branch of an EU credit institution located in a third country would be allowed. However, the European Central Bank (ECB) publicly clarified (in the context of Brexit) that branches of EU credit institutions located in third countries should be limited to meeting local needs and should therefore not provide services back to EU customers.[1]

Provision of cross-border services in the EU through third country undertakings

In 2021, as part of the new banking package, the European Commission proposed a general prohibition for the provision of cross-border banking activities “by undertakings established in a third country” into the EU, unless a branch is established in that member state. This would be subject to prior authorisation, as mentioned in the proposal for a Directive amending the Capital Requirements Directive[2] as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks (CRD VI) — in particular, in the proposed Articles 21c and 48.c.(1) of CRD VI. The aim of the new banking package in relation to third country branches (i.e. branches from third country undertakings established in the EU) is to create an EU harmonised framework in order to avoid divergent national requirements which, together with fragmented supervision, are believed to undermine financial stability and market integrity in the EU.

During the trilogue in the framework of the EU legislative process, these articles were deleted from the CRD VI’s proposal adopted by the Council of the European Union. In this regard, the Council proposed that the EBA and the European Securities and Markets Authority (ESMA) submit a joint report on the merits and modalities of harmonising the conditions under which a third country group may be required to establish a branch in a member state in order to provide services there.

Finally, the European Parliament’s proposal of CRD VI followed the European Commission’s original proposal in requesting that a branch in the EU needs to be set up but with certain adjustments in terms of exemptions (e.g. excluding from the prohibition’s scope other credit institutions and intragroup provision of services) and the scope of activities. In particular, it expressly excluded the provision of services listed in Annex I, Section A of Directive 2014/65/EU on markets in financial instruments (MiFID) and the services listed in Annex I Section B of MiFID for the sole purpose of conducting the activities and services listed in Annex I, Section A of MiFID. In addition, in terms of the scope of application of the requirement to set up a branch, the European Parliament’s proposal would affect not only new cross‑border activities but also those that were currently being provided, a step beyond the European Commission’s proposal. In particular, it states in the proposed Article 48.c.(1) of CRD VI that: “Member States shall require that third country undertakings establish a branch in their territory before commencing or continuing the activities referred to in Article 47(1)”.

Concerning the commencement of activities by the third country branch, the European Parliament proposed that new third country branches should not commence their activities until the EBA and the relevant third country authority have concluded a memorandum of understanding (MoU) establishing a framework for co-operation between the competent authorities, including the exchange of information for the purposes of ongoing supervision, crisis management and resolution. Thus, once a MoU has been concluded between the EBA and the supervisory authority of a third country, all third country branches of undertakings from that third country would be able to operate in any member state — after the relevant authorisation has been granted.

Next steps

A political provisional agreement was reached between the European Parliament, the European Commission and the Council in June 2023. While the technical text is still in the process of being finalised, the cornerstones of this political agreement are known: (i) as a general rule, the cross-border provision of services by third country undertakings in a member state will require the establishment of a branch, unless certain exemptions apply (including reverse solicitation); and (ii) for already existing cross-border provision of services, grandfathering of existing contracts and a transitional agreement (the details of which are still to be determined) will be applicable. On another note, and considering the aforementioned legal framework, the triangular provision of cross-border services through branches of EU credit institutions located in third countries back to the EU will still not be permitted.

In any case, the EBA will be mandated to assess the impact of the requirement to establish a branch (as set out in the proposed Article 21.c of CRD VI) on other financial sector entities and whether additional exemptions from the scope are necessary. This report will have to be submitted before the transposition date of CRD VI (as in the case of the daisy-chain amendment) in order for the European Commission to present a legislative proposal before that date.


[1]              ‘Relocating to the euro area’ (European Central Bank - Banking supervision, 7 April 2022) <> accessed 12 December 2023

[2]              Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC [2013] L176/338.