EC decision makes software investments cheaper for banks earlier than expected

At the end of April, the European Commission (EC) released its “quick fix” package, in response to COVID-19. The package implied a series of amendments to the CRR II requirements, focusing mainly on IFRS 9 transitional measures, leverage ratio buffer, leverage ratio exposure measures, treatment of publicly guaranteed loans and capital treatment of software assets.

Under the current legislative requirements of CRR II, intangible assets, net of their associated deferred tax liabilities, are deducted from Common Equity Tier 1 (CET1) capital. While according to IFRS accounting rules, software assets are registered as intangible assets, the amendments to CRR II brought by the EC, allow them to be considered an exception to this treatment, with the condition that their value is not negatively affected by resolution, insolvency or liquidation and are prudently valued.

This article provides further insight on adopting timeline for the“quick fix” package.