New EU law forces banks to rethink cross-border business

New European Union banking rules due to take effect next year are raising concerns among senior financial figures, who warn they could weaken the City of London, complicate Europe’s defence financing ambitions, and hinder efforts by UK Prime Minister Keir Starmer to reset post-Brexit relations.

At the centre of the issue is the EU’s Capital Requirements Directive VI (CRD VI), approved in 2024, the article by Financial Times says. Article 21c of the directive will significantly limit the ability of non-EU banks to provide core services—such as lending and cash management—to EU clients from outside the bloc. As a result, US and UK lenders may be forced to expand their physical presence within the EU, potentially shifting assets and staff away from London.

UK Chancellor Rachel Reeves is monitoring the potential impact, while officials say the Treasury is engaging with the financial sector to assess broader implications across major jurisdictions.

The timing is sensitive. Starmer has pledged “ambitious” steps to rebuild economic and security ties with the EU and plans to push the agenda at a UK-EU summit later this summer. However, CRD VI risks becoming a new point of friction, following other EU measures seen in London as protectionist, including a “Made in Europe” industrial push and disagreements over defence initiatives.

Regulators and industry leaders warn that the rules could also undermine Europe’s own strategic goals. Nikhil Rathi cautioned that restrictions on cross-border banking could increase the cost of investments Europe is actively trying to attract, particularly in defence. Scott Devine of TheCityUK argued that limiting access to private finance contradicts the European Commission’s push to boost defence spending, calling the move “protectionist.”

Banks are also concerned about operational uncertainty. Executives say it remains unclear whether services such as US dollar accounts—widely used by EU companies to manage global liquidity—will still be permitted. One banking executive warned these accounts could be forced to close, describing this as a likely unintended consequence.

Industry-wide concerns extend to global firms. Companies such as Booking.com, which relies on multiple foreign banks to process transactions in around 80 currencies, could face disruption under the new framework.

In a joint paper, trade associations including UK Finance and the US-based Bank Policy Institute warned that CRD VI risks actively undermining the EU’s competitiveness, even as it seeks to strengthen its financial and defence capabilities.

By Tamilla Hasanova