In a nutshell: CRD VI introduces a more uniform and comprehensive regulatory framework for third-country lenders with a branch in Germany. The impact of the new rules on businesses already active in the ship finance market depends, in particular, on the risk category of their branch. The existing exemption for services provided exclusively at the client’s request remains available in principle. However, it must be interpreted narrowly.

Background

One of the aims of Directive (EU) 2024/1619 (“CRD VI”) is to harmonise more closely the regulatory requirements applicable to credit institutions from outside the European Economic Area operating in the European Union (and the EEA as a whole), and to close existing regulatory gaps.

Until now, third-country branches of credit institutions have largely been governed by the relevant national law. CRD VI now establishes a more harmonised European framework.

In Germany, this framework has been implemented through new Sections 53c et seq. of the German Banking Act (Kreditwesengesetz – KWG). For existing third-country branches, the key question is whether, and to what extent, their existing structure and activities need to be adapted to the new requirements.

New requirements for CRD third-country branches

For third-country branches providing so-called core banking services in Germany (“CRD third-country branches”), Section 53cc KWG sets out a specific authorisation regime which, for the relevant activities, replaces the authorisation regime previously applicable under Section 32 KWG. Core banking services include, in particular:

●    the taking of deposits and other repayable funds;
●    the granting of loans; and
●    the guarantee business, including sureties, guarantees and loan commitments.

The newly inserted Sections 53c et seq. KWG apply to CRD third-country branches providing the services described above. They contain specific provisions governing the authorisation and ongoing supervision of such branches.

For businesses already active in the market, this does not automatically mean that their existing activities will be prohibited in future. They must, however, assess whether, and to what extent, their existing structure complies with the new requirements.

For businesses that do not fall within the definition of a CRD third-country branch under Section 53c KWG, Section 32 KWG remains the key point of reference when determining whether authorisation is required.

Different risk categories

In future, not all CRD third-country branches will be subject to the same requirements. Instead, branches will be assigned to different risk classes, with different regulatory requirements and supervisory tools applying depending on the relevant risk class.

Branches in risk class 1 (criteria: total domestic assets booked or originated during the year of at least EUR 5 billion; the taking of retail deposits; or a home country without adequate regulatory supervision) may be subject to stricter requirements than branches to which none of these criteria applies. The new rules relate in particular to:

●    the authorisation and organisation of the branch
●    management and internal controls
●    capital and liquidity
●    accounting
●    reporting requirements.

Possible obligation to establish a subsidiary

In certain circumstances, BaFin (the German Federal Financial Supervisory Authority) may require a third-country undertaking to conduct its business not merely through a CRD third-country branch, but through a legally independent subsidiary authorised under Section 32 KWG.

This may depend, in particular, on the size, business volume and risk profile of the branch. Individual market participants may therefore need to consider whether they can maintain their existing branch structure in the long term.

Transition period

The new requirements will apply from 11 January 2027. Certain reporting obligations have already been in force since January 2026.

Existing branches should use the remaining transition period to review their current structure and their future classification under the new regime.

Grandfathering of existing contracts

Article 21c(5) of CRD VI generally provides for the grandfathering of certain contracts entered into before 11 July 2026.

However, when the Directive was transposed into German law, no express provision on the grandfathering of existing contracts was included. The explanatory memorandum to the German Act nevertheless acknowledges that grandfathering considerations in relation to existing contracts must be taken into account.

As there is no express statutory provision, the practical scope of the grandfathering of existing contracts has not yet been clarified in all respects. This applies in particular to:

●    increases to existing financings;
●    extensions of the term;
●    changes of debtor; or
●    material amendments to the contract.

For existing financing arrangements, it should therefore be assessed on a case-by-case basis whether a contractual amendment could affect the protection afforded by the grandfathering provisions.

Finance leases

Finance leases, which are frequently used in the maritime finance sector, do not form part of the core banking services listed in Section 53c(1) KWG.

A third-country undertaking that offers only finance leases and neither takes deposits nor engages in lending, guarantee or other activities within the meaning of the relevant provisions is therefore, in principle, not subject to the special regime for CRD third-country branches. Instead, finance leasing remains subject to the authorisation requirement for financial services under Section 32 KWG.

Passive services: the existing exemption remains available in principle

The following principle will continue to apply: where a transaction is undertaken exclusively at the initiative of the client or counterparty, the activities of the foreign financier may constitute what is known as a “passive service” (“reverse solicitation”) and may therefore fall outside the scope of the German authorisation requirement under Section 32 KWG or Section 53cc KWG.

This exception must be interpreted narrowly. It is particularly important that the client or counterparty genuinely initiates the business relationship of their own accord and that the third-country financier has not previously engaged in any active solicitation of the market.

The principles that have hitherto informed BaFin’s long-standing administrative practice remain relevant, albeit within narrow limits, when distinguishing between a client-initiated enquiry and active market solicitation. Examples include approaches by post, fax or email, client visits arranged by a foreign institution, or internet-based services whose content is geared towards the German market. See, for example, BaFin’s “Guidance Note on the Licensing Requirements for Cross-Border Business Activities”, dated 1 April 2005 and last amended on 11 March 2019.

What are the consequences for the contracting parties if no authorisation is obtained?

Of particular practical significance is the question of what the consequences are if it subsequently transpires that the foreign financier should have obtained authorisation to carry out its activities in Germany but did not hold the necessary authorisation.

Civil-law consequences

First, a loan agreement is not invalid merely because the required regulatory authorisation is missing.

As a rule, a breach of Section 32 KWG or Section 53cc KWG does not render the contract void under Section 134 of the German Civil Code (Bürgerliches Gesetzbuch – BGB). This applies in particular to standard commercial loan agreements. Whether the same applies to other types of contract must be assessed on a case-by-case basis.

The position may be different if, for example, the parties agree in the contract that it is to be terminated early if entering into or continuing the contract becomes unlawful for one of the parties. In such cases, the loan will typically become repayable.

Regulatory and criminal consequences

A CRD third-country branch operating without the necessary authorisation under Section 53cc KWG must expect BaFin to take supervisory measures. These may include, in particular, a prohibition on carrying on its activities, the unwinding of unauthorised transactions or – depending on the circumstances – further measures, potentially extending to the closure of the branch.

If, on the other hand, the business is not conducted through a CRD third-country branch within the meaning of Section 53c KWG and a banking business or financial service requiring authorisation under Section 32 KWG is carried on without the necessary authorisation, this may constitute a criminal offence under Section 54 KWG. Where the conduct is wilful, the offence is punishable by imprisonment for up to five years or a fine.

Conclusion

For third-country financial institutions with an existing CRD third-country branch in Germany, CRD VI primarily changes the regulatory framework governing their activities.

The classification into risk categories and the associated requirements are becoming increasingly important. In certain circumstances, BaFin may also require licensable activities to be carried on in future not through a branch, but through a legally independent subsidiary.

The exemption for services provided exclusively at the initiative of the client or counterparty (“reverse solicitation”) remains available in principle. However, it must be interpreted narrowly and requires that the third-country financier does not specifically target the German market.

In a typical loan agreement, carrying on an unauthorised activity does not automatically render the agreement invalid. However, the contracting parties can, through careful drafting, specify the contractual consequences that a breach of regulatory requirements is to have for the financing.

Irrespective of this, BaFin may take supervisory measures against the CRD third-country branch. The specific assessment will always depend on the financier’s structure and business model, the activities of the branch and the relevant financing agreement.

If you have any questions on this matter, please do not hesitate to contact your usual contact at EHLERMANN RINDFLEISCH GADOW, Hendrik Brauns or Stefan Rindfleisch.