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

    EBA Launches Stress Tests for Banks, Issues Other Updates

    The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.

    January 31, 2023 WebPage Regulatory News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8700