CRD VI - Key considerations for the aviation finance industry

From 11 January 2027, key regulatory changes will apply to cross-border lending into the EU. This follows amendments made to the EU’s Capital Requirements Directive (Directive 2013/36/EU) (CRD IV) by Directive (EU) 2024/1619 (CRD VI) in July 2024. Some of these amendments introduced, for the first time, a harmonised regulatory regime for third country (i.e. non-EU) entities carrying out ‘core banking activities’ in EU Member States through branch establishments.

Key takeaways

• From 11 January 2027, the EU regulatory regime for the provision of ‘core banking activities’ to EU borrowers (including business lending) will change significantly.
• Non-EU banks (and some large investment firms) will no longer be able to lend to Irish borrowers in the same way as they do now. For the Irish aviation leasing sector, which has historically benefited from significant lending by non-EU banks (US, Asia and, post-Brexit, the UK), the new regime has the potential to impact how a non-EU bank structures its financing to EU borrowers.
• The changes to the existing EU regime will require significant planning by impacted non-EU banks but will also have implications for affected borrower groups in Ireland.
• This insight examines the key features of the third country branch regime under CRD VI, the exemptions and exclusions that may be available, and the practical implications for aircraft lessors and their banking counterparties.

What is the branch licensing requirement in CRD VI?

Under the current CRD IV framework, the provision of banking activities into the EU by non-EU entities is largely a matter of national law, and there is no EU-wide restriction. In Ireland, while lending to consumers is a licensable activity (and certain specific regulatory requirements may apply, such as credit reporting and AML/CFT compliance and registration), lending to corporates is not currently a licensable activity. Ireland is one of the more permissive EU jurisdictions for commercial lending, in contrast to some of the larger continental jurisdictions, which have more heavily regulated commercial lending and treat it as a licensable banking activity.

CRD VI introduces a harmonised third country branch regime, which, when implemented into EU Member State law, will require certain non-EU entities to set up and establish a licensed (i.e. authorised) branch in each EU Member State where they carry out ‘core banking activities’.  

In practical terms, it is likely that relatively few non-EU banks will use an EU branch to carry out core banking activities because of restrictions on the ability of EU branches to conduct cross-border activity within the EU and the associated costs. Instead, CRD VI will likely focus non-EU banks’ attention on setting up, or using, an existing EU bank subsidiary (with rights to conduct business across the whole EU) or looking for exemptions that allow them to continue to carry out core banking activities with EU customers on a non-licensed basis. In this context, the regime may be more impactful on smaller and/or regional banking groups that do not already have established EU banking subsidiaries, or larger banks that may not want to book loans in the EU for capital or other reasons.    

What are the ‘core banking activities’ that give rise to the branch licensing requirement?

The ‘core banking activities’ which the new third country branch licensing requirement will apply to once it is implemented in Ireland are:

1. lending, guarantees and commitments provided by non-EU credit institutions or large non-EU investment firms (together, “non-EU banks”)
2. deposit-taking by any non-EU entity             

As indicated at limb 1 above, the third country branch licensing requirement will not apply to lending, guarantees and commitments provided by unauthorised / unregulated non-EU lenders who are not, in broad terms, banks or large investment firms (such as broker-dealers).

For corporate lending and guarantees and commitments, the result of the new third country regime is that these activities will be licensable for non-EU banks operating in Ireland and other EU Member States unless an exemption or exclusion applies (see below for details on the exemptions and exclusions).

Once established and authorised, third country branches will be subject to a new prudential framework, which imposes requirements relating to booking arrangements, capital endowment, liquidity, internal governance and reporting.

When will the branch licensing requirement apply?

EU Member States are required to publish final transposing measures to implement CRD VI into national law by 10 January 2026 and apply the provisions regarding the third country branch regime from 11 January 2027.

To date, the Irish Department of Finance has not published transposing measures. We understand that it is hoped this will be completed in advance of Ireland’s Presidency of the Council of the European Union, commencing on 1 July 2026.

As there are no Irish transposing measures yet, we do not know how the third country branch regime, and the applicable exemptions and exclusions, will be implemented in Irish law. Despite this, we do not expect gold-plating as Ireland generally adopts an intelligent copy-out approach to EU Directives.

How might bank lenders outside of the EU be affected?

Where a non-EU bank is subject to the new licensing requirement and no exclusion or exemption applies (whether under CRD VI or otherwise), there are limited practical options available to it.

Firstly, it is possible to establish and authorise a branch in the EU Member State in which the bank intends to conduct (or continue to conduct) core banking activities.   

However, as mentioned, setting up a third country branch is a significant task requiring substance, resources and regulatory capital, and the branch will not have cross-border passporting rights within the EU. Given this, if a client is considering this option, we would advise them to carefully consider if it may be more beneficial to establish a ‘full’ EU bank subsidiary, to avail of full EU market access through the EU’s cross-border passporting regime.

Other potential options include:

• Migrate or run the business line through an appropriately authorised EU group subsidiary (where possible), which will have cross-border passporting rights within the EU. This option would involve moving relevant contracts (assets, liabilities and service contracts) to the EU group subsidiary and other operational considerations. In addition to operational considerations, there would likely be an impact for the EU group subsidiary regarding large exposures, regulatory capital and liquidity requirements, risk management and governance to account for the extra business.
• Restructure lending activities to originate loans from a non-bank group entity. As the CRD VI third country branch regime only applies to third country banks, non-bank lenders should not be directly impacted.

Please also see our section on ‘Potential longer term industry impacts’ below.

Are there any exemptions from CRD VI?

Yes. CRD VI contains five key exemptions or exclusions from the application of the third country branch regime.

1) Legacy contracts ‘grandfathering’

There is an exemption for existing contracts for core banking activities that are entered into before 11 July 2026.

It is unclear how this cut-off date will operate in practice. For example, it is unclear how the exemption applies to contracts entered into prior to 11 July 2026 but which are amended, renewed, extended or restated after that date (in particular, if any amendments are to be made to core terms). In this regard, variation of existing contracts may risk the creation of a new contract such that grandfathering would not apply.

2) Inter-bank services

Lending and provision of guarantees and commitments by a non-EU bank to an EU bank are excluded from the third country branch regime. This would include, for example, interbank lending and correspondent banking arrangements.

3) Intra-group services

Lending and provision of guarantees and commitments between entities within the same group are excluded from the third country branch regime. This would include treasury and liquidity arrangements and other intra-group funding arrangements with aircraft lessor groups.

4) Reverse solicitation

There is a reverse solicitation exemption available in circumstances where borrowers and other counterparties approach a non-EU bank at their own exclusive initiative for the provision of credit or a guarantee or commitment. 

The exemption is carefully restricted. Non-EU banks cannot rely on the exemption to market other categories of products or services than those that the client or counterparty had initially solicited. In addition, the exemption cannot be relied on where a non-EU bank solicits a client or counterparty through an entity acting on its own behalf or having close links with the non-EU bank or through any other person acting on its behalf. It is not yet clear what the effect of intermediaries in the chain of sourcing finance (such as arrangers or other borrower group entities) will have on the interpretation and use of this exemption.  

However, it is helpful that the exemption clarifies that there is no requirement to establish a third country branch in relation to any services, activities or products “necessary for, or closely related to the provision of the service, product or activity originally solicited by the client or counterparty, including where such closely related services, activities or products are provided subsequently to those originally solicited”.

Given the caveat for products and services “necessary for, or closely related to” those initially solicited, the exemption may allow for a broad interpretation and application by individual EU Member States. We understand that EU Member States are interpreting the exemption differently. It is not known how the exemption will be interpreted in Ireland in the absence of transposing legislation.

5) MiFID exemption

There is a specific exemption for the provision of activities and services listed in Annex I, Section A, to MiFID II and “any accommodating ancillary services”, such as related deposit taking or the granting of credit or loans the purpose of which is to provide services under MiFID II. This exemption is not directly relevant to the aviation finance sector, but it is worth noting that there have been discussions at domestic, EU and industry levels regarding the interpretation and practical impact of the exemption.

Characteristic performance

Following the application of a ‘place of characteristic performance’ text in Luxembourg’s CRD VI transposing legislation, there has been industry debate as to whether a similar approach could be adopted in Ireland. The characteristic performance test (an analysis based on where the service is characteristically performed, rather than where the customer/delivery of the service is based) has historically been applied in Luxembourg and Germany for determining whether a licence or authorisation is required to provide certain regulated financial services within the jurisdiction. The test has not been specifically provided for under Irish legislation to date, but it has been recognised in Ireland/by the Irish regulator in the context of another specific circumstance. It is at this stage unclear whether the test will be applied to the CRD VI regime in Ireland. The characteristic performance test is not provided for in the text of CRD VI, and the European Commission has not issued guidance or a statement on its potential relevance or application to the third country branch regime in CRD VI. That said, there may be arguments as to why the characteristic performance test could be available in some narrowly defined situations, especially where some old guidance is considered.

Potential longer term industry impacts

Given the international cross-border nature of aviation finance, we believe that CRD VI will impact the approach taken by non-EU banks to lending and finance arrangements in the sector. Some potential key impacts may be as follows:

• Aviation lessor borrowers may see changes in their relationships with non-EU banks, including in relation to their distribution and origination channels (in particular, borrowers may see more credit originated from EU entities). While the majority of any changes will arise on the bank’s side, lessors and other borrowers may see changes to documentation and new or additional legal and tax issues arising as a result of any lender entity changes.
• Borrowers may also see an increase in lending from or through non-regulated EU entities who are not subject to CRD VI. While such entities are already very active in the aviation finance space, for example including through lessor or private equity sponsored entities, such non-regulated entities will not be required to restructure their lending and origination arrangements in the same manner as regulated banks.
• For existing loans and relationships, lessor borrowers may see migrations and/or transfers of loans and contracts with non-EU banks to EU entities (and may be required to give consents or sign other documentation in relation to any such transactions). It is also possible that some non-EU banks may decide to terminate or sell off certain lending business lines or use bank-bank arrangements to access the EU market.
• Depending on how CRD VI is implemented in EU member states, some non-EU banks may begin to insist that lessors and other borrowers structure their borrower entities through jurisdictions which are consistent with the lenders CRD VI structure. Lessors and other borrowers will need to consider very carefully whether to agree to such changes to their borrower entities, in particular having regard to existing carefully structured capital and borrower arrangements which address both legal and tax consequences.
• Lending documentation and structures may also need to be revisited and structured – we are already discussing additions of separate EU tranches in syndicate deals, consent rights for adding EU borrowers and ‘yank-a-bank’ mechanics to allow lenders to transfer their commitments, and review of illegality concepts in the context of the new rules.

This is an evolving area which we continue to monitor closely. For further information on the CRD VI third country branch regime (or on any of the points raised above) and how we can assist your firm, please contact any of our Aviation partners, Marie O’Brien, Séamus Ó'Cróinín, Maria McElhinney, Keith Mulhern, or any of our Financial Regulation partners, Eoin O’Connor, Patrick Brandt, Eimear O’Brien, Louise Hogan, or Sarah Lee, Senior Practice Development Lawyer.

Date published: 4 June 2026