On 26 February 2026, the European Banking Authority (EBA) issued an Opinion following the European Commission’s (Commission) amendments to the final draft regulatory technical standards specifying what constitutes an equivalent legal mechanism to ensure the completion of a residential property under construction within a reasonable timeframe, as laid down in the Capital Requirements Regulation.
The Opinion considers that two of the Commission’s proposed amendments introduce substantive changes that are not consistent with the prudential safeguards underpinning the preferential treatment for residential property exposures.
The two proposed amendments are that the Commission propose to:
- Increase the cap on the risk weight applicable to the protection provider from 20% to 30% under the Standardised Approach. The EBA considers that maintaining the original 20% threshold is important to preserve consistency within the overall prudential framework. As a general principle, the capital treatment of an exposure should not be more favourable than what is justified by the credit quality of the counterparty providing the protection. Allowing eligibility for protection providers attracting a 30% risk weight could, in certain cases, lead to a preferential capital treatment that is not fully aligned with this principle.
- Remove the requirement that the completion guarantee be mandated by the law of the Member State where the residential property is being built. The EBA considers this requirement fundamental to ensuring that the mechanism qualifies as a legal mechanism, rather than a purely private contractual arrangement. It’s removal could reduce legal certainty and dilute the robustness of the framework.