New EU cross-border banking rules could hit the City of London, damage European rearmament efforts and undermine UK prime minister Keir Starmer’s push to reverse the effects of Brexit, senior financial figures have warned.
UK chancellor Rachel Reeves is “monitoring” the potential impact of the EU Capital Requirements Directive VI, which comes into force next year, while TheCityUK lobby group has warned it could undermine European efforts to boost defence spending.
Flowing from a directive approved in 2024, Article 21c of the rules will significantly restrict the ability of non-EU banks to provide core banking services to clients in the EU from outside the bloc, including lending and cash management.
The new rules are expected to force US and UK banks to bulk up their operations in the EU, and executives say this is likely to mean more assets and staff shifting from the UK to EU countries.
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The UK Treasury said it was “aware of developments” relating to CRD VI and that it was “monitoring the position”.
The tensions come at a crucial moment for UK-EU relations, with Starmer promising “ambitious” efforts to reverse the effects of Brexit, both in terms of economic and defence co-operation.
The prime minister said this month that he would push the agenda at a UK-EU summit in late June or early July. “We want to be more ambitious,” he told a Downing Street press conference. “Closer economic co-operation, closer security co-operation, a partnership that recognises our shared values, shared interests and shared future.”
But the looming row over the CRD VI banking rules follows other examples of the EU putting up barriers to trade, including a new “Made in Europe” plan that could hit UK-based carmakers.
Britain also refused last year to join the “Safe” EU defence initiative because of what it regarded as a prohibitively expensive entry fee demanded by Brussels.
Nikhil Rathi, head of the Financial Conduct Authority, raised the alarm last October when he said: “Just as we deepen security co-operation across Europe, proposed EU cross-border branching restrictions ... raise the cost of precisely the investment our EU colleagues say they want.”
Scott Devine, at TheCityUK, said: “The [European] Commission says defence firms need to have the best possible access to private finance. Article 21c will cripple that ambition. It’s a protectionist move that will undermine European rearmament.”
“The Treasury is considering the implications of CRD VI on the UK financial services sector,” one UK government official said. “We are engaging with the sector and seeking to understand the potential impacts on other major jurisdictions.”
A British banking executive said US and UK lenders were becoming increasingly alarmed at the lack of clarity over what the CRD VI reforms would mean for how EU companies access foreign currency transactions and services.
“The example that a lot of American banks have been pressing very hard is the provision of US dollar accounts that they provide to EU clients, which support day-to-day liquidity for their US operations,” the executive said.
“But it’s not clear these accounts can be held any more under CRD VI and they may need to be closed. I think this is an unintended consequence.”
An executive at a large US bank said: “This is an industry-wide concern to any non-EU bank serving EU clients.” Banks serving EU clients from London or New York would either have to shift activities to the EU or “prove, case by case, why they do not have to”, the person added.
Bank lobbyists have been using the example of Booking.com, the Dutch-based online travel and accommodation website, which could be heavily affected by the rules because it relies on many foreign banks to handle transactions in about 80 currencies around the world.
Booking did not respond to a request for comment.
In a recent paper, a group of financial services trade associations including UK Finance and the Bank Policy Institute in the US warned that the Brussels directive threatened to “actively undermine EU competitiveness”.
The European Commission did not immediately comment. – Copyright The Financial Times Limited 2026
