On 14 October 2020, the European Banking Authority (EBA) published a report containing final draft regulatory technical standards (RTS) specifying the prudential treatment of software assets.
Article 36(1)(b) of the Capital Requirements Regulation (as amended) (CRR), provides for 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 order to ensure prudential soundness in the application of the revised prudential treatment of software, Article 36(4) of the CRR, gives the EBA a mandate to develop draft RTS ‘to specify the application of the deductions referred to in 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 new mandate by amending the existing RTS on own funds requirements for institutions.
The draft RTS have been sent to the European Commission for their adoption as EU Regulations that will be directly applicable throughout the EU.