UK Finance has called on the UK and EU governments to provide a formal political mandate for defence financing, arguing that without one, regulators cannot open cross-border lending to the scale that Europe’s security needs now demand. The trade body’s new report, covering banks from Lloyds to Revolut, places Article 21c of the EU’s Capital Requirements Directive (CRD) at the centre of the problem.
What UK Finance’s defence financing push is asking for
The report argues that the current regulatory framework blocks corporate lending from the UK into the EU’s defence sector and, in doing so, ‘significantly inhibits the efficient flow of investment from the UK’ at a time when, in the report’s own words, ‘the EU needs to leverage every available source of capital to meet its security needs.’
To break the deadlock, UK Finance proposes a joint UK-EU defence financing task force under the Joint Regulatory Forum, the body that facilitates regulatory cooperation between the European Commission and the Treasury. The task force would be charged with drawing up proposals to dismantle cross-border lending barriers, starting with Article 21c.
‘What is needed most is political will to match the economic logic of collaboration,’ the report states. ‘Many of the mechanisms already exist… what is missing is the political mandate to use them ambitiously.’
The report also calls on both sides to stop using financial regulations as ‘proxies for broader political debates’ and to accept each other’s regulatory standards as a workable basis for mutual market access. ‘Europe’s geopolitical and economic landscape has changed significantly, and with it comes a real opportunity to reset the UK-EU relationship in financial services,’ it argues. The UK’s capital markets, it adds, are twice as deep as the EU’s, meaning that ‘access to the UK market delivers clear benefits for EU businesses.’
Article 21c: the timeline banks are watching
Article 21c is already moving from policy to operational pressure for UK lenders. According to Taylor Wessing, from 11 July 2026 UK banks and other in-scope entities wishing to provide core banking services to the EU will need to migrate a portion of their loan book into the EU by establishing an authorised branch or subsidiary, or confirm they fall within an exemption. Bryan Cave Leighton Paisner notes that Article 21c takes full effect on 11 January 2027, giving institutions a narrow window to restructure cross-border lending arrangements.
The compliance picture carries two further wrinkles worth noting. According to LexisNexis UK, contracts entered into before 11 July 2026 can be grandfathered, offering some short-term relief for existing lending relationships. The same guidance confirms that the rule extends beyond the EU’s 27 member states to the three additional EEA states: Norway, Iceland and Liechtenstein, a detail that broadens the compliance burden for UK banks with lending exposure across northern Europe.
It is this approaching deadline that gives UK Finance’s call for action its urgency. If the task force it proposes is not established quickly, many of the structural adjustments to cross-border defence lending will be shaped by firms’ individual compliance decisions rather than any coordinated political framework.
The investment gap behind the call
The backdrop is a defence spending environment that has shifted sharply since Russia’s invasion of Ukraine in 2022. The UK has committed up to £21.8bn to support Ukraine, including £13bn in military support and £5.3bn in economic assistance. EU member states have collectively mobilised over €200bn.
A report from Mario Draghi and Enrico Letta, two former Italian prime ministers who have become leading voices for economic reform in the EU, estimated that the 27-state bloc faces a minimum annual investment gap of €750bn to €800bn to meet its defence and energy transition goals. That figure underlines why UK Finance is pressing for UK capital markets to be part of the solution rather than walled off by regulatory barriers.
Both the EU and the UK have set out parallel plans to accelerate defence readiness, including the EU’s Security Action for Europe and the UK Ministry of Defence’s 2025 Defence Industrial Strategy. In the UK, however, efforts to produce an official Defence Investment Plan have stalled: the document was originally expected in Autumn 2025, and Prime Minister Sir Keir Starmer is reported to be weighing spending cuts across government departments to assemble the necessary funding. The 11 July 2026 Article 21c migration deadline now gives both governments a concrete date to work toward if they want any coordinated UK-EU framework in place before banks are forced to act unilaterally.
