Feedback on the Publication of the European Commission's Draft Capital Requirements Directive VI (CRD VI) - March 2022
On 27 October 2021, the European Commission published its Basel III implementing proposal, introducing new provisions on Third Country Branches (TCBs). In a joint letter addressed to Commissioner Mairead McGuinness and other EU policy makers, the American Chamber of Commerce to the European Union (AmCham EU), the Bank Policy Institute (BPI), the Japanese Bankers Association (JBA) and the Swiss Finance Council (SFC) have expressed concern about some of these proposed provisions.
The signatories of the letter support the Commission’s efforts towards harmonisation of banking supervision and standards across Member States, as this will bring enhanced transparency and strengthen supervision across the EU banking landscape. These provisions, however, must balance the objectives of bringing benefits to EU consumers, corporates and financial institutions through improved access, service choice as well as reduced friction and costs in financial services. Especially the obligation to set up a branch in each member state where a third country bank intends offering financial services (branch requirement) does not seem proportionate in relation to the objective. If implemented as currently drafted, it would have a detrimental impact on the ability of third-country banks to provide services to EU clients on a cross-border basis, leading to a reduction in service choice, less competition on prices of service offerings for European firms as well as a reduction in liquidity in EU financial Markets.
In our joint-position we therefore call for replacing the branch requirement with a more targeted, but not less effective harmonization approach. Existing bilateral market access agreements between EU Member States and third countries prove that national competent authorities (NCAs) can guarantee financial stability through their important role in licensing, supervising and monitoring third country bank activities in their territory without requiring banks to have a physical presence. Non-EU banks that operate under such national regimes in individual Member States must complete authorisation procedures with the competent authorities before starting cross-border activities. In the joint letter, we therefore encourage the EU legislator to reconsider a branch requirement and instead aim for minimum common standards that ensure continued cross-border market access based on sound supervisory, licensing and investor protection principles.