The prudential amortisation period should be revised by nature of intangible assets in order to reflect an homogeneous economic life by type of assets across the UE.
The useful life of an intangible asset used to determine the amortization period may significantly vary depending on the nature of such assets.
Indeed, heavy IT developments especially concerning core infrastructure of institutions such as a Core Banking System have a longer useful live (10 years for example) than other software (3 to 5 years).
Applying a more granular approach to the prudential amortization period depending on the nature of the intangible asset will avoid penalizing these kind of investments, despite a potential negative impact in case of M&A operations.
Moreover, the prudential amortization is the opportunity to harmonize across UE amortization period of software as the useful life is based on judgment and thus can lead to significant discrepancies between institutions. Doing so
will place institutions on the same level of playing field on a prudential point of view.
Thus, the amortization period should be adapted to the nature of investment, differencing at least core infrastructure investments (and applying a longer prudential amortization period) from other intangible assets.
The proposed prudential amortisation period (2 years) is considered as too short and/or too systematic compared with the accounting amortisation period that shall reflect the useful life of the intangible assets (IAS 38).
Banks’ software assets are of most importance in their business and in particular for core banking software (CBS) whose useful life may reach at least 10 years.
Our view is to calibrate the prudential amortisation period over the economic useful life of the intangible assets capped to 5 years, thus avoiding an excessive gap between the accounting and the prudential frameworks.
Option A has to be privileged especially in the context of projects which are developed over a long time period. Indeed, the amortisation process could start even a long time after the date of initial capitalization. Thus, Option A will avoid penalizing entities which are engaging such investments as it will afford a smoother ratio impact avoiding such project being fully deducted from CET1 capital till the software becomes available for use.