The provisions concerning the treatment of prudently valued software assets, the value of which is not materially affected by the resolution, insolvency or liquidation of an institution, were amended by Regulation (EU) 2019/876 of the European Parliament and of the Council2 to further support the transition towards a more digitalised banking sector. Regulation (EU) 2019/876 also introduced Article 36(4) into Regulation (EU) No 575/2013, which requires the European Banking Authority (‘EBA’) to develop the draft regulatory technical standards specifying the application of the deductions related to software assets from Common Equity Tier 1 items. To ensure coherence of the provisions related to own funds and to facilitate their application, it is appropriate to incorporate those regulatory technical standards into Commission Delegated Regulation (EU) No 241/20143, which groups all technical standards concerning own funds.

Competent authorities are not prevented from scrutinising the software assets that an institution includes in capital on a case-by-case basis and from exercising their supervisory powers in accordance with Article 64 of Directive 2013/36/EU of the European Parliament and the Council4, in particular where the stock of investments in software could result in an undesired prudential benefit or where the degree of judgement stemming from the applicable accounting framework is suspected to be used by an institution to circumvent this Regulation.

Due to the diversity in software used by institutions, it is difficult to assess, in a general way, which software assets could have a recoverable value in case of a resolution, insolvency or liquidation, and, if so, to what extent, or to identify a specific category of software that would preserve its value even in such a scenario.

Moreover, an assessment by EBA of specific cases of past transactions suggests that all software assets, without a distinction of specific categories, have the same likelihood of being written off. Even in those cases where the value of software assets is at least in part preserved, generally the useful life of such software is revised to take into account that such software will be kept in use by the acquirer of an institution only until the end of a migration process. Such migration process, the collected evidence shows, typically ranges between one and three years. That pattern should be reflected in the prudential treatment of software assets.

Given the limited value software assets appear to have in case of a resolution, insolvency or liquidation of an institution, it is essential that the prudential treatment of such assets strikes an appropriate balance between, on the one hand, prudential concerns, and, on the other hand, the value of those assets from a business and an economic perspective. The prudential treatment of software assets should thus entail a certain margin of conservatism on the relief in Common Equity Tier 1 capital requirements.

In addition, in order not to introduce additional operational burdens for the institutions and to facilitate supervision by the competent authorities, the prudential treatment of software assets should be simple to implement and applicable to all institutions in a standardised manner. The standardised prudential treatment should not prevent an institution from continuing to fully deduct its software assets from Common Equity Tier 1 items.

Given the rapid changes in technology, institutions often invest in maintenance, enhancements or upgrades of their software. To mitigate any risk of regulatory arbitrage, those investments should be amortised separately from the software that is maintained, enhanced or upgraded, provided that those investments are recognised as an intangible asset on the balance sheet of the institution under the applicable accounting framework.

Delegated Regulation (EU) No 241/2014 should therefore be amended accordingly.

This Regulation is based on the draft regulatory technical standards submitted to the Commission by EBA.

EBA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council5.

Given the accelerated uptake of digital services as a consequence of the COVID-19 pandemic, this Regulation should enter into force on the day following that of its publication in the Official Journal of the European Union,