09 June 2020
The European Banking Authority (EBA) launched today a consultation on draft Regulatory Technical Standards (RTS) specifying the prudential treatment of software assets. As the banking sector is moving towards a more digital environment, the aim of these draft RTS is to achieve an appropriate balance between the need to maintain a certain margin of conservatism in the prudential treatment of software assets and their relevance from a business and an economic perspective. The consultation runs until 09 July 2020.
As part of the Risk Reduction Measures (RRM) package adopted by the European legislators, the Capital Requirements Regulation (CRR) has been amended and introduced, among other things, an exemption from the deduction of intangible assets from Common Equity Tier 1 (CET1) items for prudently valued software assets, the value of which is not negatively affected by resolution, insolvency or liquidation of the institution. In addition, the EBA has been mandated to develop draft RTS to specify how this provision shall be applied.
These draft RTS specify the methodology to be adopted by institutions for the purpose of the prudential treatment of software assets. In particular, these draft RTS introduce a prudential treatment based on their amortisation, which is deemed to strike an appropriate balance between the need to maintain a certain margin of conservatism in the treatment of software assets as intangibles, and their relevance from a business and an economic perspective. The proposed approach is expected to be easy to implement and applicable to all institutions in a standardised manner.
The EBA will closely monitor the evolution of the investments in software assets going forward, including the link between the proposed prudential treatment and the need for EU institutions to make some necessary investments in IT developments in areas like cyber risk or digitalisation.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 09 July 2020. All contributions received will be published following the end of the consultation, unless requested otherwise.
A public hearing will take place on 23 June 2020 from 14.30 to 17.00 CET.
These draft RTS have been developed according to Article 36(4) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which mandates the EBA to “specify the application of the deductions referred to in point (b) of paragraph 1 of Article 36, including the materiality of negative effects on the value which do not cause prudential concerns”.