An EU's new banking directive, Directive (EU) 2024/1619, introduces stricter rules for non-EU bank branches, directly impacting Moroccan banks operating in Europe. Yabiladi outlines the changes that could affect Moroccan banking branches in the EU, from new compliance reviews and a classification system to the risk of being forced to become subsidiaries. The European Union is set to implement a new regulation targeting branches of banks from outside the EU. With a set of tighter rules, this regulation will affect Moroccan banking institutions operating in the EU, and consequently, the financial transactions of EU-based Moroccans. Adopted by the European Parliament and the Council in May 2024, the new Directive (EU) 2024/1619 amends sanctions and regulations surrounding third-country branches, among other areas, including supervisory powers, sanctions, and environmental, social, and governance (ESG) risks. It basically amends an existing law (Directive 2013/36/EU) that governs banking supervision in the European Union (EU). The purpose of the amendments is to «further the harmonization of the banking supervisory framework and, ultimately, deepen the internal market for banking», according to point 1 of the Directive. National law vs. a common prudential framework How will these amendments affect Moroccan banks currently operating in the European Union? To understand that, it's important to know how third-country branches operate within the EU. Currently, third-country branches in the EU, including the Moroccan ones are regulated under national law, which the new regulation sees as a sign of «very limited harmonization at the EU level». European Union regulators argue that third-country branches are subject only to very general information requirements, but not to any Union-level prudential standards or supervisory cooperation arrangements, according to point 17 of the new directive. This, according to the document, creates an «absence of a common prudential framework», leading to «third-country branches being subject to disparate national requirements of varying levels of prudence and scope». This means that the authorities responsible for overseeing banks lack the necessary tools and information to effectively monitor the risks posed by third-country banks operating in multiple EU Member States. Classifying third-country branches To address this, the new directive imposes a framework for third-country branches with minimum common requirements for authorization, prudential standards, internal governance, supervision, and reporting. The framework will be based on existing regulations that EU Member States already apply to third-country branches, taking into account international practices to ensure consistency with similar regulations in other countries. The Directive outlines the ABCs of this regulatory framework for third-country branches operating in the EU, with a system of classification. The new amendments propose classifying third-country branches based on their risks, the supervision of those branches, and the criteria for requiring authorization for their activities in the EU. «Third-country branches should, therefore, be classified as either class 1, where they are deemed riskier, or class 2, where they are considered to be small, non-complex, and not to pose a significant financial stability risk», reads point 19 of the Directive. According to the document, third-country branches should be classified as «class 1» if their parent company's regulatory framework is not deemed at least equivalent to the EU's standards set by Directive 2013/36/EU and Regulation (EU) No 575/2013. To check if a third country's banking rules are similar to EU standards, the European Commission can ask the European Banking Authority (EBA) to assess the country's regulations. The EBA will carry out this assessment carefully and transparently, working with the country's authorities and relevant stakeholders. The EBA will then publish a report explaining their findings. Additionally, branches from third countries listed as high-risk for anti-money laundering (AML) or counter-terrorist financing (CFT) deficiencies, according to Directive (EU) 2015/849, would be classified as class 1. These branches are considered as posing a higher risk to financial stability in the EU, especially when the regulations in their home countries are deemed as not adequately managing risks related to their operations in the EU. Becoming a subsidiary Another significant amendment brought by the new regulation is that, when necessary, third-country branches must apply for authorization to become subsidiary institutions. Point 21 of the directive firmly states that «competent authorities should have an explicit power to require, on a case-by-case basis, that third-country branches apply for authorization». This could happen in the following cases: 1- If a third-country branch engages in activities that breach EU internal market rules or pose a significant risk to the financial stability of the EU or its Member States. 2- If the branch has EUR 10 billion or more in assets in the Member State, or if the total assets of all branches of the same third-country group in the EU exceed EUR 40 billion. The directive sets other strict supervisory regulations, including compliance reviews that would allow the competent authorities to regularly assess third-country branches' compliance with EU requirements, particularly Directive 2013/36/EU. Moreover, common supervisory and financial reporting should be provided to authorities using standardized templates developed by the EBA. This ensures that all activities of third-country groups operating in the EU are subject to comprehensive supervision and that risks to financial stability are managed. Directive 2024/1619 sparks Moroccan resistance Since its adoption, Morocco has been fighting back against what it sees as a very restrictive regulation for Moroccan banks operating branches in the EU. Moroccan banks see this directive as a threat to the remittances of Moroccans living abroad, which account for 20% of bank deposits. In response to this threat, Morocco has formed a «permanent task force» consisting of Bank Al-Maghrib, the relevant ministries, and the affected banks, to negotiate with the European Commission and authorities in key countries such as France, Spain, Italy, Belgium, and the Netherlands in order to find solutions that ensure the continuity of these remittances. «Authorities are examining all solutions, including digital ones, to overcome the obstacles these new regulations will impose on the operations of Moroccan banks», reassured Bank Al-Maghrib Governor Abdellatif Jouahri in a recent update on Morocco's efforts regarding the new EU Directive. Jouahri even stated back in March, when asked about the EU directive following a Bank Al-Maghrib Council meeting, that Morocco was not pleased with it, adding: «The way the directive was drafted makes it seem as though they practically want financial flows to remain within the EU». It is worth mentioning that Directive (EU) 2024/1619 entered into force on July 9, 2024, 20 days after its publication in the Official Journal of the European Union on June 19, 2024. Member States are required to transpose its provisions into national law by January 10, 2026, meaning the new regulations must be adopted and implemented at the national level by this date.
