Featured Product

    EC Amends Rule on Deduction of Software Assets from CET1 Items

    December 22, 2020

    EC published the Delegated Regulation 2020/2176 that amends prudential requirements on deduction of software assets from the common equity tier (CET1) capital items of banks. EBA had been mandated, under the revised Capital Requirements Regulation (CRR2), to develop the draft regulatory technical standards to specify the application of deductions related to software assets from CET1 items. To ensure coherence of the provisions related to own funds and to facilitate their application, it is appropriate to incorporate these technical standards into Regulation 241/2014, which groups all technical standards concerning own funds. Therefore, Regulation 2020/2176 is amending Regulation 241/2014 and it shall enter into force on the day following that of its publication in the Official Journal of the European Union.

    CRR2 amended provisions of the treatment of prudently valued software assets to further support the transition toward a more digitalized banking sector. Due to the diversity in software used by institutions, it is difficult to assess, in a general way, which software assets could have a recoverable value in case of a resolution, insolvency, or liquidation and to what extent, or to identify a category of software that would preserve its value even in such a scenario. Given the limited value software assets appear to have in case of a resolution, insolvency, or liquidation of an institution, it is essential that the prudential treatment of such assets strikes an appropriate balance between prudential concerns and the value of those assets from a business and an economic perspective.

    The prudential treatment of software assets should thus entail a certain margin of conservatism on the relief in CET1 capital requirements. In addition, in order not to introduce additional operational burdens for the institutions and to facilitate supervision by the competent authorities, the prudential treatment of software assets should be simple to implement and applicable to all institutions in a standardized manner. The standardized prudential treatment should not prevent an institution from continuing to fully deduct its software assets from CET1 items. Given the rapid changes in technology, institutions often invest in maintenance, enhancements, or upgrades of their software. To mitigate any risk of regulatory arbitrage, those investments should be amortized separately from the software that is maintained, enhanced, or upgraded, provided that such investments are recognized as an intangible asset on the balance sheet of the institution under the applicable accounting framework. After considering these factors, Regulation 241/2014 has been amended by replacing point (f) in Article 1 and by adding Article 13a on the deduction of software assets that are classified as intangible assets for accounting purposes.

     

    Related Link: Regulation 2020/2176

     

    Keywords: Europe, EU, Banking, Software Assets, CRR2, Regulatory Capital, Basel, EBA

    Featured Experts
    Related Articles
    News

    BIS Innovation Hub Sets Out Work Program for 2021

    BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.

    January 22, 2021 WebPage Regulatory News
    News

    EC Plans to Consult on Crisis Management and EDIS Framework Revisions

    In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.

    January 21, 2021 WebPage Regulatory News
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6488