EBA seeks elucidation on Ucits and AIFMD guidelines in response to CRD report
The European Banking Authority (EBA) has issued a report providing clarity on the rules governing the direct provision of core banking services by third-country undertakings (TCUs) into the European Union (EU). The report focuses on Article 21c of the Capital Requirements Directive (CRD VI), which primarily prohibits TCUs from offering deposit-taking and lending services in the EU without establishing a local branch.
However, Article 21c includes several exemptions and carve-outs, such as for interbank or intragroup transactions, reverse solicitation, and notably services provided under the Markets in Financial Instruments Directive (MiFID), which excludes the application of Article 21c to investment services and related ancillary services.
In its report, the EBA was mandated to assess whether the current carve-outs and exemptions should be extended beyond EU credit institutions to all EU financial sector entities. After consultation with the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), the EBA concluded not to extend these exemptions to entities other than credit institutions.
This means that third-country undertakings will still generally be required to establish an EU branch to provide core banking services to entities under the Undertakings for Collective Investment in Transferable Securities (UCITS), the Alternative Investment Fund Managers Directive (AIFMD), and similar regimes, unless those services fall under existing exemptions like MiFID investment services or reverse solicitation.
The EBA's report does not specify which specific legislation it suggests should be clarified in relation to Article 21c. However, it notes that there is a need for clarification on the interaction between Article 21c and other legislation, such as the placement of deposits in third-country banks as eligible investments, the opening of cash accounts with third-country banks, and the delegation of the safekeeping of assets to sub-custodians.
The EBA's report also highlights that Article 21c of the CRD does not expressly address the interaction with provisions entitling EU financial service entities to receive core banking services in third countries. To address this gap, the EBA suggests that clarification on these interactions could be provided via its Q&A tool.
In summary, the EBA's report provides valuable insights into the rules governing the direct provision of core banking services by third-country firms into the EU. While MiFID-related investment services are carved out, asset managers under UCITS and AIFMD, and other financial firms must generally be serviced by third-country banks that have established an EU branch for core banking activities. The EBA's recommendations do not involve the amendment of Article 21c of the CRD but instead focus on the need for clarification on its interaction with other EU financial services legislation.
- The EBA's report indicates a need for clarification on the interaction between Article 21c of the CRD VI and other EU financial services legislation, such as the delegation of asset management, as seen in the Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers Directive (AIFMD).
- The EBA, in its report, suggests using its Q&A tool to provide clarification on the interaction between Article 21c and provisions that permit EU financial service entities to receive core banking services in third countries, which directly affects the business of asset management.
