The EBA responds to the Commission’s proposed amendments to the draft technical standards on equivalent legal mechanism

The European Banking Authority (EBA) today published its Opinion in response to the European Commission’s amendments to the draft Regulatory Technical Standards (RTS) specifying what constitutes an equivalent legal mechanism to ensure the completion of a residential property under construction within a reasonable timeframe, as laid down in the Capital Requirements Regulation (CRR).

On 9 January 2026, the Commission informed the EBA of its intention to endorse, with amendments, the final draft RTS submitted by the EBA on 5 August 2025.

The EBA considers that two of the Commission’s proposed amendments introduce substantive changes that are not consistent with the prudential safeguards underpinning the preferential treatment for residential property exposures.

First, the Commission proposed to increase the cap on the risk weight applicable to the protection provider from 20% to 30% under the Standardised Approach. The EBA considers that maintaining the original 20% threshold is important to preserve consistency within the overall prudential framework. As a general principle, the capital treatment of an exposure should not be more favourable than what is justified by the credit quality of the counterparty providing the protection. Allowing eligibility for protection providers attracting a 30% risk weight could, in certain cases, lead to a preferential capital treatment that is not fully aligned with this principle. In the EBA’s view, retaining the 20% cap is therefore essential both to safeguard the coherence of the capital framework and to ensure that the mechanism offers a sufficiently robust level of assurance for the effective completion of the property.

Second, the Commission proposed to remove the requirement that the completion guarantee be mandated by the law of the Member State where the residential property is being built. The EBA considers this requirement fundamental to ensuring that the mechanism qualifies as a legal mechanism, rather than a purely private contractual arrangement. Its removal could reduce legal certainty and dilute the robustness of the framework.

With this Opinion, the EBA reaffirms its commitment to safeguarding a harmonised and prudent application of the preferential treatment for residential property exposures.

Legal basis and background

This Opinion is issued under Article 10(1) of Regulation (EU) No 1093/2010, which requires the EBA to submit an opinion where the European Commission intends to endorse draft regulatory technical standards (RTS) with amendments.

The relevant provisions governing the prudential treatment of exposures secured by mortgages on immovable property under the Standardised Approach are laid down in Article 124 of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR). That provision sets out the conditions and risk-weight parameters applicable to such exposures, including the circumstances under which exposures to residential property under construction may benefit from the preferential treatment (Article 124(3), point (a)(iii)(2)).

On 5 August 2025, the EBA submitted its final draft RTS to the Commission. On 9 January 2026, the Commission notified the EBA of its intention to endorse the RTS with amendments and shared a revised version. This Opinion constitutes the EBA’s formal response to these amendments.