Submission #10

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European Federation of Building Societies

Question 1: In case some software assets are classified within tangible assets in your institution, what are the main reasonsfor doing so and what isthe percentage of this classification compared with the classification as intangible?

If software is an integral part of the hardware, it can be accounted for as a tangible asset. If an asset combines tangible and intangible components, it is at the discretion of the company to determine which component predominates. Software is not an intangible asset in itself if it is identified as an integral part of the related hardware and is therefore not clearly identifiable and separable but is part of the tangible component (accounting as property, plant and equipment).

Question 2: Do you have any comment on the proposed approach for the prudential treatment of software assets?

The introduction of prudential amortisation will initially involve considerable implementation effort for the institutions. This should be kept as low as possible, see also questions 4 and 7.

Question 3: What is your view on the calibration of the prudential amortisation period?

We consider a prudential amortisation period of two years for regulatory purposes to be too short and not appropriate.
As EBA has already indicated in the consultation document, a short amortisation period has a negative impact on large software and IT infrastructure investments that have a longer useful life. Such investments could contribute to improving the competitiveness and resilience of the EU banking sector so that a short amortisation period would contradict EBA's objectives in this context. It should also be noted that the introduction of a short amortisation period has a negative impact on banks that have made a large part of their software investments early on. They should rather be encouraged. On the contrary, the planned amortisation schedule penalises banks that have invested in their software at an early stage. After reviewing our inventory of software assets, we consider a useful life for regulatory purposes of more than 2 years to be appropriate and still sufficiently conservative.

Question 4: What is your view on the proposed alternative approaches illustrated above?

We prefer option B. Prudential amortisation should start at the same time as the software asset is amortised for accounting purposes. In existing systems, only parallel treatment between regulatory and accounting amortisation can be implemented. No data are available yet for a different regulatory amortisation process.
A deviation between the regulatory and accounting start date would involve a high effort for the institutions and would unnecessarily increase the complexity of the exemption rule. In addition, we advocate waiving the capital deduction until the software is put into operation. The recoverability of the assets prior to putting them into operation will be confirmed by the auditor as part of his audit certificate.

Question 5: If considered needed, please provide any complementary information regarding the costs and benefits from the application of these draft RTS. NA

Question 6: If considered material, please provide your own estimate on the difference in the impact of prudential amortisation treatment between (i) assuming the capitalisation date of software assets as the starting point for prudential amortisation (ie. Option A illustrated in this CP) and (ii) assuming the date of accounting amortisation as the starting point for prudential amortisation, but fully deducting from CET1 items the costs capitalised until this date is (i.e. Option B illustrated in this CP) . NA

Question 7: Please provide any additional comments on the Consultation Paper.

We are in favour of making the exemption rule for avoiding capital deduction an option for institutions.

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Name of the organization European Federation of Building Societies