On 30 December 2020, the PRA issued a statement following the publication in the Official Journal of the EU of European Commission Delegated Regulation 2020/2176 which adopts the European Banking Authority (EBA) regulatory technical standards on the prudential treatment of software assets per Article 36(1)(b) of the amended Capital Requirements Regulation (CRR).

In the statement the PRA reminds firms that Article 36(1)(b) of the CRR exempts software assets from the deduction requirement for intangible assets from Common Equity Tier 1 (CET1). In accordance with the European Union (Withdrawal Agreement) Act 2020, this requirement applies to PRA-regulated firms. However, the PRA also states that this revised regulatory treatment of software assets does not derive from the Basel Standards and is concerned that exempting software assets from the CET1 capital deduction requirements could undermine the safety and soundness of UK firms.

The PRA states that it intends to consult in due course to maintain the earlier position whereby all software assets continue to be fully deducted from CET1 capital. In the meantime, while the revised EU requirement now applies to PRA-regulated firms, the PRA recommends firms not to base their distribution or lending decisions on any capital increase from applying this requirement. Firms should also take into account any significant software assets included in their regulatory capital in making capital management decisions.