European Banking Authority to Allow Banks to Include Software based Assets in their Capital Requirement Estimates

The European Banking Authority, a regulatory body of the European Union that’s headquartered in Paris, has revealed plans to allow banks to include software-based assets in their capital requirement calculations. This should help lenders with strengthening their safety buffers, the agency noted.

At present, banking institutions have to deduct the estimated value of software from their capital buffers. However, banks have said that this discourages or makes it challenging for them to spend financial resources on key areas such as cybersecurity and their digital transformation strategies.

The EBA confirmed that it’s now willing to make certain changes to its rules so that it can “strike an appropriate balance between the need to maintain sufficient conservatism in the prudential treatment of software assets and their relevance from a business and an economic perspective.”

The EBA’s draft of its Regulatory Technical Standards (RTS) notes that banking platforms will now have the option to amortise the total value of their software assets for a three-year period. This should help boost capital across 64 European banks by an estimated €20 billion in 2021.

The RTS document has been shared with the European Commission, which will most likely approve the recommendations later this year.

The European Commission has been working on regulations that pertain to crypto-assets and blockchain tech (as they apply to the financial services sector). European policymakers seek to foster an “innovation-friendly” approach that assures a common approach for all European member states.

Since the publication of the EU Fintech Action Plan, the Commission has been reviewing the applicability and suitability of the existing financial services regulatory framework to crypto-assets. The Commission asked the European Securities and Markets Authority (ESMA) and European Banking Authority (EBA) to comment on this sector of Fintech some time ago.

Last year, the European Banking Authority released a report stating that the European Commission needs to pick up the pace when it comes to cross border activity in banking, payments and more. Of course, removing barriers to cross border economic activity is core to the European Union but while the concept is simple, it has been quite difficult to actually get things done

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