Featured Product

    EBA Finalizes Standards for Prudential Treatment of Software Assets

    October 14, 2020

    EBA published the final draft regulatory technical standards specifying the methodology for prudential treatment of software assets by banks. The technical standards implement a simple approach based on a prudential amortization of software assets calibrated over a period of up to three years. These standards amend the Delegated Regulation 241/2014, which supplements the Capital Requirements Regulation (CRR), with regard to the regulatory technical standards for own funds requirements for institutions. Following the feedback received during the public consultation, the calibration of the maximum prudential amortization period of software has been extended to three years. In line with the recent targeted "quick fix" amendments to CRR, the date of entry into force of the draft standards has been anticipated to the day following that of its publication in the Official Journal of the European Union.

    As part of the Risk Reduction Measures package adopted by the European legislators, CRR has been amended. The package introduced, among other things, an exemption from the deduction of intangible assets from common equity tier 1 items for prudently valued software assets, the value of which is not negatively affected by resolution, insolvency, or liquidation of an institution. EBA had been mandated to develop draft regulatory technical standards to specify how this provision shall be applied. In the opinion of EBA, a prudential treatment of software assets based on their amortization for prudential purposes 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. In addition, it reflects the pattern under which the recoverable value of software is expected to decrease over time.

    The proposed approach is designed to be simple to implement and is applicable to all institutions in a standardized manner. Based on the feedback received from stakeholders, EBA has calibrated the proposed approach on a three-year timeframe. Moreover, the final draft standards have been revised to envisage that prudential amortization shall be calculated starting from the date on which a software asset is available for use. This would result in a better alignment between the starting date of the accounting and the prudential amortization, thus facilitating the implementation of the new prudential treatment of software. EBA intends to 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 such as cyber risk or digitalization.

    As part of its mandate, EBA investigated the quantitative and qualitative aspects related to the amount of software assets held by EU institutions, their valuation and expected useful life, and amortization methodology (particularly in the case of resolution, insolvency, or liquidation) as well as the implications of a change in the regulatory treatment. In developing these draft technical standards, consideration has been given to the differences in valuation and amortization of software assets and to the value realized from their sale. EBA has also considered the international developments and differences in regulatory treatment of investments in software, the different prudential rules that apply to insurance undertakings, and the diversity of the financial sector in EU, including non‐regulated entities such as financial technology companies. The final standards have been sent to EC for their adoption as EU Regulations that will be directly applicable throughout EU.

     

    Related Links

    Effective Date: OJ+1 Day

    Keywords: Europe, EU, Banking, Software Assets, Regulatory Technical Standards, Prudential Treatment, CRR, Cyber Risk, Own Funds, Regulatory Capital, Regulatory Capital, Basel, EBA

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514