The European Banking Authority (EBA) today published its final Regulatory Technical Standards (RTS) specifying what constitutes an “equivalent legal mechanism” for unfinished property exposures under the Capital Requirements Regulation (CRR). These RTS are part of the first phase of the EBA’s roadmap for implementing the EU Banking Package and take into account the stakeholders’ feedback, including targeted amendments to ensure both prudential soundness and practical applicability across the EU.
The RTS specify the conditions that a legal mechanism should meet in order to recognise a property under construction in the own fund requirements calculation under the Standardised Approach for credit risk, by defining strict requirements for the protection provider and the guarantee terms. Against this background, the final RTS replace the narrower approach consulted on with a broader one that recognises existing national completion guarantee schemes in certain Member States, subject to harmonised safeguards such as minimum creditworthiness (20% risk weight cap) and enforceability conditions.
Legal basis and background
Article 124 of the CRR sets out the requirements for assigning risk weights to exposures secured by mortgages on immovable property, including conditions under which exposures to properties under construction may qualify for preferential treatment. Specifically, Article 124(14) mandates the EBA to specify what constitutes an "equivalent legal mechanism" to ensure that such properties are completed within a reasonable timeframe. These draft RTS have been developed under that mandate, as amended by CRR3.
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