BoE releases consultation on deducting software assets from CET1

The Bank of England released a consultation paper on the implementation of international standards through a new capital requirements regulation, which included the treatment of software assets with respect to common equity Tier 1 ratio.

The regulator's proposal suggests deducting all intangible assets, including software assets, from CET1 unlike the European Union, which recently amended regulation to exempt software assets from the deduction requirement for intangible assets from CET1.

The British central bank said in a Dec. 30 statement that it found no credible evidence that software assets can absorb losses effectively in stress. Meanwhile, the U.K. Prudential Regulation Authority said exempting software assets from the CET1 capital deduction requirements could undermine the safety and soundness of U.K. firms.

Andrew Bailey, governor of the Bank of England, said the Basel Standards do not include intangible assets in bank capital and doing so would give a false picture of a bank's loss-absorbing capacity.

The proposed change will lead to the loss of an approximately €3.6 billion capital uplift five of the U.K.'s largest banks gained due to EU rules, the Financial Times reported.

Lloyds Banking Group PLC will take the biggest hit, losing out on about £1 billion capital relief, followed by Standard Chartered PLC and Barclays PLC while smaller lenders in the country are also acutely exposed to the change, according to the Feb. 14 report.

EU lawmakers had pursued the change as banks in the bloc were at a disadvantage compared to U.S.-based banks, which were allowed exemption of software assets from deduction to the capital, and technology groups, which are entering the financial services space, according to the Feb. 14 report.