The European Banking Authority (EBA) has published its final draft regulatory technical standards (RTS) clarifying what constitutes an "equivalent legal mechanism" for unfinished property exposures under the Capital Requirements Regulation (CRR), as amended by the CRR3. These RTS form part of the initial phase of the EBA's roadmap for implementing the EU Banking Package. 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.
The EBA is mandated under Article 124(14) to specify what constitutes an equivalent legal mechanism to ensure that the property under construction is completed within a reasonable timeframe. These draft RTS have been developed under that mandate, as amended by the CRR3. 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. The final draft RTS also take a broader approach than the proposals consulted on in May 2024. The revised approach recognises existing national completion guarantee schemes in certain EU member states, subject to harmonised safeguards such as minimum creditworthiness (20% risk weight cap) and enforceability conditions.
[View source.]
