These technical standards 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 of credit risk.
The draft RTS clarify that an equivalent legal mechanism requires three conditions to be met:
- an entity should be required to or have committed in a legally binding manner to ensuring that the property under construction will be finished within a reasonable timeframe;
- this entity should have the legal powers and ability to do so;
- a counter guarantee is provided by a central government or assimilated entities.
The consultation paper also presents an alternative approach, with a more comprehensive understanding of the equivalence legal mechanism and aimed to capture completion guarantees already in place in some EU jurisdictions.
The consultation will end on 7 August 2024.
