On 9 June 2020, the European Banking Authority (EBA) launched 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.

Article 36(1)(b) of the revised Capital Requirements Regulation (CRR) introduces an exemption from the deduction of intangible assets from Common Equity Tier 1 items in case of “prudently valued software assets, the value of which is not negatively affected by resolution, insolvency or liquidation of the institution”. In order to ensure prudential soundness in the application of the revised prudential treatment of software, a new paragraph 4 in Article 36 of the CRR was introduced, giving the EBA the mandate to develop draft RTS “to specify the application of the deductions referred in to point (b) of paragraph 1, including the materiality of the negative effects on the value which do not cause prudential concerns”. The EBA is fulfilling this mandate by amending the existing RTS for own funds requirements for institutions. The consultation paper has been developed accordingly.

The consultation closes on 9 July 2020.