Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

Update on New EU and UK Regimes for Third-Country Branches: Key Developments and Implications

Skadden Publication / The Capital Ratio

Sebastian J. Barling Eva Legler Wilf Odgers

Executive Summary

  • What’s new: The European Banking Authority has published draft guidelines for the authorisation of third-country branches under the revised Capital Requirements Directive, operationalising a new harmonised regime across the EU from 11 January 2027.
  • Why it matters: The new regime introduces minimum harmonisation of authorisation and prudential requirements, new powers for national authorities to request subsidiarisation, and restrictions on passporting and cross-border provision of services, impacting international banks operating in the EU.
  • What to do next: International banks should closely monitor the finalisation of these guidelines and assess their readiness to meet the new requirements, engaging early with home and host supervisors and planning application materials and internal arrangements.

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Following our previous review of the evolving UK and EU approaches to the regulation of third-country bank branches and subsidiarization (for details, please see our client alert of 11 December 2024), the European Banking Authority (EBA) has now published a significant Consultation Paper on draft guidelines for the authorisation of third-country branches (the Guidelines) under the revised Capital Requirements Directive (CRD). These Guidelines, published on 3 November 2025, are a critical step in operationalising the new harmonised regime for third-country branches across the EU, which will largely apply from 11 January 2027.

In this article, we summarise the key features of the Guidelines, highlight practical implications for international banks, outline next steps in the regulatory process and provide a short stock-take on the recent changes to the UK regime for third-country branches.

1. Background: The New EU Regime for Third-Country Branches

As previously discussed, the EU’s recent banking package, including CRD, introduces a harmonised framework for the authorisation and supervision of third-country branches. The new regime aims to conform divergent national practices, enhance supervisory convergence and ensure a level playing field for foreign banks operating in the EU. Key features include:

  • Minimum harmonisation of authorisation and prudential requirements for third-country branches.
  • New powers for national authorities to request subsidiarisation in certain circumstances.
  • Restrictions on passporting and cross-border provision of services.

Under the new regime third-country firms will be required to establish a physical presence in the EU if they wish to provide core banking services — i.e., accepting deposits and other repayable funds, lending, and issuing guarantees or commitments — to clients and counterparties domiciled in the EU. Moreover, the branch will not permitted to passport its services across EU member states. The only exceptions to this restriction are intragroup funding transactions with other third-country branches of the same entity and transactions initiated through reverse solicitation. As a result, a third-country firm aiming to operate in multiple EU member states would need to obtain separate branch authorisations in each relevant jurisdiction or, alternatively, consider establishing a licensed subsidiary within the EU.

2. Key Elements of the Guidelines

The Guidelines are designed to provide clarity and consistency in the authorisation process for third-country branches. They address in particular the information requirements for the application, the assessment methodology and procedural steps for the competent authorities, standard forms and templates for the provision of the information as well as conditions under which the competent authorities may rely on information from prior authorisation procedures.

A. Brief Overview of the Information Requirements

The information requirements for the application include:

Comprehensive Information on the Applicant

  • Applications must include detailed information on the applicant head undertaking and its group, including legal structure, regulatory status, management, financial statements and a group chart.
  • A “statement of non-opposition” from the third-country supervisory authority is required, confirming the head undertaking’s compliance with prudential requirements and it being in good standing in particular from an anti-money laundering/counter-terrorism financing (AML/CTF) perspective.
  • A third-party legal opinion must confirm that there are no legal impediments under third-country law to compliance with EU and national requirements.

Business Plan

  • A three-year business plan (base case and stress scenario) must be submitted, covering all planned activities, financial projections, prudential forecasts and the rationale for the establishment of the third-country branch.
  • The business plan must demonstrate the third-country branch’s initial viability and ongoing sustainability, with credible and realistic assumptions.

Internal Governance and Risk Management

  • The application must detail the organisational structure of the third-country branch, management, internal controls, risk management and reporting lines.
  • At least two persons must be identified as effectively directing the third-country branch, including information for the related suitability assessment as well as the latest internal suitability assessments.
  • Policies on credit risk, remuneration, information and communication technology outsourcing, and business continuity are required.

Information on AML/CFT Requirements

  • The third-country branch must provide information on the person designated to be responsible for AML/CFT compliance and provide a business-wide ML/TF risk assessment.
  • The adequacy of AML/CFT systems, controls and resources must be demonstrated.

Capital Endowment and Liquidity

  • The application must include a forecast of capital endowment and liquidity requirements, with supporting documentation (e.g., escrow account contracts, evidence of deposit).
  • The third-country branch must demonstrate arrangements to meet these requirements on a continuous basis.

Booking Arrangements

  • Policies and procedures for maintaining a registry of all assets and liabilities booked or originated by the third-country branch must be provided. The branch must not operate as an “empty shell” and must manage its assets and liabilities autonomously.
  • The third-country branch has to provide the policy on booking arrangements for the management of the registry book, demonstrating a clear rationale for the booking arrangements, including planned intragroup funding transactions, hedging arrangements or other transfers of risk.

B. Exemption From the Submission of Information

If the applicant has already submitted an application for authorisation to establish a third-country branch to the competent authority, information regarding the applicant and its group may be omitted. This is subject to several conditions, including the submission of a declaration confirming that there have been no material changes to the previously submitted information. The declaration must also confirm that all such information remains true, accurate and up-to-date.

C. Assessment Methodology

The Guidelines establish that the fundamental rationale for the assessment of the third-country branch applications by the competent authorities is to ensure that the proposed third-country branch will operate in a sound, prudent and compliant manner within the EU, safeguarding the stability and integrity of the financial system.

The review is designated to, in particular:

  • Ensure that the competent authorities can access all necessary information and coordinate effectively with third-country supervisors.
  • Confirm the viability and sustainability of the branch’s business model.
  • Prevent the use of third-country branches as vehicles for circumventing EU rules, ensuring that branches are not mere booking entities or conduits for cross-border business in breach of the territorial scope of their authorisation.
  • Make certain that the third-country branches will not be used to facilitate money laundering or terrorist financing, by ensuring that the branches have robust AML/CFT systems in place and that key individuals and shareholders are of good repute.

D. Application Process

The guidelines also set out a structured and transparent process for the authorisation of third-country branches by the competent authorities. Key procedural elements include:

  • Upon receiving an application, the competent authority must promptly send an acknowledgement of receipt to the applicant.
  • The competent authority reviews the application to ensure it contains all required information and documents as specified in the Guidelines and fulfills any additional requirements under national law. If any information is missing, the authority will ask the applicant to provide the outstanding items.
  • Once the application is deemed complete, the competent authority informs the applicant thereof and communicates the start and end dates of the assessment period.
  • The competent authority is expected to complete its assessment within six months from the start of the assessment period, and in any case, no later than 12 months from the initial receipt of the application.

3. Implications for International Banks

The Guidelines provide a clear roadmap for the authorisation of third-country branches, reducing uncertainty and harmonising expectations across member states. The level of detail required in applications, particularly regarding group structure, governance and risk management, reflects the EU’s heightened  focus on operational resilience and financial stability. The requirement for a statement of non-opposition and ongoing cooperation with third country authorities underscores the importance of robust home-host supervisory relationships.

4. Stock-Take on the Recent Changes to the UK Regime for Third-Country Branches

In the UK, the current rules by the Prudential Regulation Authority (PRA) regarding branch and subsidiary supervision of international banks are contained in the Supervisory Statement SS5/21 – International Banks: The PRA’s approach to branch and subsidiary supervision (Supervisory Statement). The Supervisory Statement was updated in May 2025 by Policy Statement PS6/25 – International Firms: Update to SS5/21 and branch reporting (Policy Statement), which made changes to the indicative criteria for establishing a branch or subsidiary, booking models, and liquidity reporting. Please see our 28 May 2025 client alert for more details on the amendments made by the Policy Statement.

In contrast to the EU’s move towards a fully harmonised and prescriptive regime for third-country branches under CRD and the draft EBA Guidelines, the UK approach remains more principles-based and supervisory-led. In particular, the UK regime continues to allow a greater degree of flexibility for third-country banks to operate on a cross-border basis or through branches or subsidiaries where this is assessed as appropriate having regard to the nature, scale and risk profile of UK activities, subject to ongoing supervisory judgement under SS5/21. By contrast, the EU regime places greater emphasis on territoriality, limits on cross-border service provision and formalised powers for national authorities to require subsidiarisation, which together materially raise the regulatory threshold for branch-based access to EU-wide markets.

5. Conclusion

The EBA’s consultation on the draft Guidelines is open until 3 February 2026. Following public consultation and finalisation, the Guidelines will apply from 11 January 2027. They present a major step in the implementation of the EU’s new regime for third-country branches. International banks should closely monitor the finalisation of these Guidelines and assess their readiness to meet the new requirements. Early engagement with both home and host supervisors, as well as careful planning of application materials and internal arrangements, will be essential for a smooth authorisation process under the new framework.

From a UK perspective, the requirements for establishing a UK branch for cross-border business are less prescriptive. Recent PRA updates reinforce a clear supervisory expectation that international banks proactively assess the sustainability and risk profile of their branch models, particularly where material wholesale, trading or intragroup activities are conducted from the UK. However, the UK framework continues to offer comparatively greater structural optionality than the emerging EU regime, allowing firms to calibrate their UK presence through cross-border services, branches or subsidiaries based on business strategy rather than prescriptive regulatory design. For international banks operating across both jurisdictions, this divergence underscores the importance of a jurisdiction-specific structuring analysis: Models that remain viable and efficient in the UK may no longer be permissible or scalable in the EU under the new CRD framework, increasing the likelihood of parallel branch and subsidiary structures across Europe.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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