New Rules For Non-EU Credit Institutions in Denmark

Regulatory considerations for lending and financing arrangements.

The regulatory framework governing the provision of banking services in the European Union is undergoing significant changes. In particular, Directive (EU) 2024/1619 (CRD VI) introduces a harmonised regime for certain credit institutions authorised outside the EU that provide core banking services to customers within the EU.

In Denmark, the relevant requirements have been implemented through amendments to the Financial Business Act. With effect from 1 January 2027, certain non-EU credit institutions will be required to obtain Danish authorisation to carry out specified core banking activities in Denmark, subject to applicable exemptions.

The new framework raises a number of questions for non-EU credit institutions involved in lending and financing activities in Denmark. These include whether an undertaking qualifies as a non-EU credit institution for regulatory purposes, which types of financing activities fall within the scope of the new requirements, and whether particular exemptions may be available.

This briefing outlines the principal regulatory considerations and examines a number of common financing arrangements, including the acquisition of existing loan receivables, participation in future lending commitments, fronting arrangements and the administration or amendment of acquired loans.

1. Does the undertaking qualify as a non-EU credit institution?

The third-country branch requirement applies only to undertakings that fall within the relevant definition of a credit institution and are authorised in a third country with which the EU has not entered into an agreement in the financial area.

The question of whether an undertaking qualifies as a non-EU credit institution is therefore a threshold issue. The analysis is not necessarily limited to entities that are banks or traditional deposit-taking institutions.

For these purposes, the definition in Article 4(1)(1) of Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) is relevant. Broadly, this includes:

• undertakings whose business consists of taking deposits or other repayable funds from the public and granting credits for their own account, within the meaning of Article 4(1)(1)(a) CRR; and

• undertakings that satisfy the criteria in Article 4(1)(1)(b) CRR, assessed on the assumption that the undertaking were established in the EU, as contemplated by the relevant provisions of CRD VI.

The second limb is relevant because the definition may extend beyond conventional deposit-taking banks to certain other financial undertakings meeting the specified criteria.

The assessment may also require consideration of the wider group structure, the activities of related entities and the relationship between the relevant undertakings. The identity of the entity carrying out the relevant activities, and its regulatory status, should therefore be considered carefully.

If an undertaking falls within the definition of a non-EU credit institution, the next question is whether its activities in Denmark constitute one of the core banking services covered by the Danish rules.

2. The Danish regulatory framework

Banking and the provision of certain banking services are regulated activities in Denmark. The applicable requirements depend, among other things, on the regulatory status and place of establishment of the institution providing the services.

Broadly, the Danish framework distinguishes between:

• Danish credit institutions, which are subject to Danish authorisation and supervision requirements;

• EU and EEA credit institutions, which may generally provide services in Denmark on the basis of the applicable passporting and mutual recognition framework; and

• non-EU credit institutions, which are subject to the relevant third-country regime.

Under Chapter 2 of the Financial Business Act, as amended, certain credit institutions authorised in third countries will, from 1 January 2027, be required to obtain Danish authorisation in order to carry out specified activities in Denmark. These include the acceptance of deposits and other repayable funds, lending activities and the provision of security and guarantees, subject to the statutory exemptions.

The requirement implements the third-country branch regime introduced by Article 21c of CRD VI. Depending on the circumstances, the relevant activities may need to be carried out through an authorised Danish branch or subsidiary.

A Danish authorisation requirement may have consequences beyond the immediate regulatory approval process, including ongoing supervisory obligations and potential tax and operational considerations. A Danish branch also does not benefit from the EU passporting rights available to EU credit institutions.

The scope of the requirement is therefore important for non-EU credit institutions considering how to participate in the Danish lending market.

3. What constitutes lending?

The scope of the lending activity covered by the new regime is central to the analysis.

The relevant categories of regulated activity are set out in Annex 2 to the Financial Business Act. The concept of lending is not necessarily limited to conventional bilateral loans. It may also encompass other forms of financing and credit provision, including factoring and discounting.

A common feature of traditional lending is that the lender makes funds or credit available to a borrower. This provides a relevant starting point when considering the treatment of different financing arrangements.

However, the legislation does not expressly distinguish between primary lending, involving the origination or provision of new credit, and secondary lending, involving the acquisition of an existing loan or credit exposure from another lender. Nor has the relevant regulatory guidance conclusively resolved how secondary loan acquisitions should be treated.

It is therefore necessary to consider the nature and substance of the relevant activity. In particular, it may be relevant to distinguish between arrangements involving the provision of new funding to a borrower and arrangements involving the transfer of an existing credit exposure between lenders.

The following categories illustrate some of the principal issues.

3.1 Acquisition of existing, fully disbursed loans

The acquisition of an existing loan receivable is a common feature of the secondary loan market. In such arrangements, an institution acquires all or part of a loan exposure from an existing lender after the loan has been originated and the relevant funds have been advanced to the borrower.

The regulatory treatment of this activity under the new Danish regime is not expressly addressed in the legislation.

There is, however, an arguable basis for distinguishing the acquisition of an existing, fully disbursed loan from the provision of new credit. In a conventional secondary-market acquisition, the acquiring institution pays the purchase price to the selling lender rather than advancing new funds to the borrower. The credit has already been extended by the original lender, and the transaction involves the transfer of an existing receivable.

On this interpretation, the acquisition does not itself involve the provision of new credit to the borrower and may therefore be distinguished from primary lending.

The nature and extent of the acquiring institution's involvement may also be relevant. Factors that may support the characterisation of an activity as a secondary-market acquisition include the absence of involvement in the origination of the underlying loan, the absence of any commitment to provide future funding and limited or no substantive interaction with the borrower in connection with the acquisition.

These considerations may strengthen the argument that the activity is an acquisition of an existing financial asset rather than the provision of a banking service to the borrower.

This is nevertheless an area of regulatory uncertainty. Neither the Danish legislation nor Article 21c of CRD VI expressly establishes a distinction between primary and secondary lending, and the relevant guidance from the European Banking Authority (the EBA) does not provide a definitive answer as to whether the acquisition of an existing loan receivable falls within the concept of lending.

Accordingly, the distinction described above represents an interpretation of the existing framework rather than an express statutory exemption or established regulatory position.

3.2 Assumption of future lending commitments

A different issue arises where a non-EU credit institution assumes an existing lender's commitment to make funds available to a borrower in the future.

This may occur, for example, where an institution takes over an undrawn commitment under a loan facility and becomes responsible for funding future drawings.

In this type of arrangement, the institution does not merely acquire an existing, fully disbursed loan receivable. It assumes an obligation to make credit available to the borrower at a later stage.

There is consequently a stronger basis for treating the activity as the provision of lending services. The institution is assuming a funding commitment and may be required to advance funds directly to the borrower when the relevant conditions are satisfied.

Such arrangements are therefore more likely to fall within the lending activities covered by Section 2 of the Financial Business Act, assuming the institution otherwise falls within the scope of the third-country regime.

3.3 Fronting arrangements and the purchase of future drawings

Financing structures may also involve an existing lender acting as a fronting bank while a non-EU credit institution provides the economic funding or commits to acquire future drawings under a facility.

The precise contractual structure may vary. For example, the fronting bank may remain the lender of record and advance funds to the borrower, while the non-EU credit institution undertakes to purchase the relevant drawings or otherwise provide the funding.

The regulatory analysis is likely to depend on the substance of the arrangement rather than the formal allocation of roles between the parties.

Where the non-EU credit institution has committed to fund future advances, there is a risk that the arrangement will be regarded as the indirect provision of credit to the borrower. The fact that another bank formally advances the funds or remains the lender of record would not necessarily determine the regulatory characterisation.

A substance-over-form assessment may therefore be relevant. In particular, the extent to which the non-EU credit institution has assumed the funding risk or committed to provide the economic substance of the credit may be important.

These arrangements should accordingly be distinguished from the straightforward acquisition of existing, fully disbursed loans. They are more likely to be regarded as involving lending activity for the purposes of the new regime.

4. Administration and amendment of acquired loans

The acquisition of an existing loan may also result in the acquiring institution becoming the lender of record and assuming responsibility for the ongoing administration of the loan.

Ordinary activities associated with holding and administering an acquired loan would not necessarily amount to the provision of new credit. These may include:

• receiving principal, interest and other payments;

• monitoring compliance with the loan documentation;

• exercising contractual rights and remedies;

• communicating with the borrower in relation to the administration of the loan; and

• taking enforcement action where required.

If the acquisition of the existing loan does not itself constitute lending, there is an arguable basis for treating ordinary administration of that loan as part of the management of an existing credit exposure rather than as a separate lending activity.

A different consideration arises where the institution agrees to amend the commercial terms of the loan.

Changes to the maturity date, principal amount, pricing or other material terms may, depending on their nature and substance, be regarded as involving the provision of new credit rather than the mere administration of an existing loan.

The distinction is not necessarily determined by the label or form of the amendment. The extent to which an amendment changes the borrower's access to credit or the lender's funding commitment may be relevant.

There is therefore a need to distinguish routine administration and enforcement from material changes to the underlying financing arrangement. The latter should be assessed separately to determine whether they could amount to new lending for the purposes of the Danish regime.

5. Exemptions from the branch requirement

Even where an activity falls within the scope of the third-country branch requirement, a statutory exemption may be available.

Section 2 of the Financial Business Act provides for a number of exemptions, including in relation to certain interbank and intragroup activities, activities ancillary to investment services and reverse solicitation.

The availability of an exemption will depend on the precise circumstances and the conditions set out in the legislation.

5.1 Interbank and intragroup activities

The interbank and intragroup exemption may apply to certain activities where the customer or counterparty is itself a credit institution or belongs to the same group as the service provider.

The exemption is relevant to the identity of the customer or counterparty to the regulated service. The fact that a bank acts as an intermediary or fronting institution does not necessarily mean that the exemption applies where the underlying financing is provided to a separate borrower.

The group relationship between the relevant entities must also be considered. The exemption will not generally be available merely because the service provider and the borrower have a commercial relationship or participate in the same financing arrangement.

5.2 Activities ancillary to investment services

A further exemption concerns certain activities that are ancillary to investment services within the scope of the relevant MiFID framework.

This may be relevant to financial institutions whose activities combine investment services with certain forms of financing. However, the exemption is limited to the activities and circumstances covered by the relevant provisions.

It should not be assumed that lending or loan acquisition activities fall within the exemption simply because they form part of a broader investment or financing business.

5.3 Reverse solicitation

The reverse solicitation exemption may be particularly relevant where a non-EU credit institution provides services following an approach initiated by the customer.

Broadly, the exemption concerns circumstances in which the customer approaches the non-EU credit institution on its own exclusive initiative, either directly or through a third party acting on the customer's behalf.

The EBA has emphasised the importance of the customer's own initiative and the role of marketing, solicitation and intermediation by persons acting on behalf of the non-EU credit institution.

A question arises where a borrower appoints a bank or other arranger to organise a financing and the arranger subsequently approaches prospective lenders, including non-EU credit institutions.

There may be an argument that the arranger is acting on behalf of the borrower when approaching potential financing providers. However, it is not clear whether an approach by an arranger in these circumstances will necessarily satisfy the requirements of reverse solicitation.

The analysis may depend on the scope of the borrower's mandate, the arranger's role and the extent to which the relevant non-EU credit institution was identified or contemplated as a potential financing provider.

The fact that a bank has been appointed as arranger does not, in itself, establish that every approach made by the arranger is attributable to the borrower for purposes of the exemption.

The EBA has been asked to clarify aspects of this issue in the context of syndicated lending, but the relevant Q&A process has not produced a substantive answer. The position therefore remains subject to interpretation.

Reverse solicitation should not be treated as a general exemption for non-EU credit institutions participating in financing transactions. Its availability requires a fact-specific assessment of how the customer initiated the relevant relationship and the role played by any intermediary.

6. Regulatory guidance and remaining uncertainty

The third-country branch regime is relatively new, and a number of interpretative questions remain unresolved.

The EBA has issued guidance concerning the authorisation of third-country branches and the exemptions from the branch requirement. This guidance provides relevant context for interpreting the regime, but it does not address every question that may arise in connection with lending and loan-market activities.

In particular, the guidance does not conclusively determine whether the acquisition of an existing loan receivable constitutes lending. Nor does it provide a definitive answer to the question of whether an approach by an arranger acting under a borrower's mandate can satisfy the reverse solicitation exemption.

The Danish Financial Supervisory Authority may also have regard to the relevant EBA guidance and the wording and purpose of the Danish implementing legislation when applying the new requirements.

In the absence of more specific guidance, the regulatory treatment of certain financing arrangements will therefore depend on an interpretation of the applicable legislation, the substance of the activities and any relevant supervisory practice.

7. Practical considerations for non-EU credit institutions

Non-EU credit institutions considering lending or participating in financing arrangements in Denmark should assess the potential application of the new regime at an early stage.

The analysis should generally address the following questions:

1. Regulatory status: Does the relevant undertaking qualify as a non-EU credit institution under the applicable CRR definition, including when considered in the context of its wider group?

2. Nature of the activity: Does the institution provide a core banking service covered by Section 2 of the Financial Business Act?

3. Primary or secondary activity: Does the institution provide new credit or assume a future funding commitment, or does it acquire an existing and fully disbursed loan exposure? Although the legislation does not expressly distinguish between these categories, the distinction may be relevant to the interpretation of the lending requirement.

4. Role in the financing: What is the institution's substantive role in the arrangement, including its involvement in origination, funding, borrower interaction and ongoing administration?

5. Potential exemptions: If the activity falls within the scope of the regime, is an exemption available, and can the relevant conditions be demonstrated?

The analysis should focus on the substance of the institution's activities rather than solely on the contractual form of the financing arrangement. This is particularly important for structures involving fronting banks, future drawings or other arrangements in which the formal lender and the institution providing the economic funding may differ.

Conclusion

The new Danish third-country regime introduces important considerations for non-EU credit institutions involved in lending and financing activities in Denmark.

The application of the rules depends first on whether the relevant undertaking qualifies as a non-EU credit institution and, if so, whether its activities fall within the scope of the specified core banking services.

A particular area of uncertainty concerns the treatment of secondary loan acquisitions. The legislation does not expressly distinguish between primary lending and secondary lending. Nevertheless, there is an arguable basis for distinguishing the acquisition of an existing, fully disbursed loan from arrangements involving the provision of new credit or the assumption of future lending commitments.

Other activities, including fronting arrangements, loan administration and material amendments to existing loans, raise separate questions concerning the nature and substance of the activity being carried out.

The availability of statutory exemptions, particularly reverse solicitation, may also be relevant, although the conditions for relying on these exemptions should be considered carefully.

As the regime takes effect and further regulatory practice develops, greater clarity may emerge. Until then, non-EU credit institutions should approach the assessment of Danish lending activities with due regard to the remaining areas of legal and regulatory uncertainty.

Further Information

For more information on banking or capital markets transactions in Denmark, please contact Dr. Andreas Tamasauskas Dr. Parwis Tikrani or Michael Carsted Rosenberg at Carsted Rosenberg.

This briefing is intended for general information purposes only. It does not constitute legal advice and should not be relied upon as a substitute for advice on the application of the relevant rules to particular circumstances. The regulatory framework and relevant guidance may develop, and the position should be reviewed in light of any subsequent legislative or regulatory developments.