European banks under siege from digital challengers and sophisticated cyber attackers could face some relief from a possible change in accounting rules that will enable them to spend more on new software.
A Reuters report states that European Commission is considering a change to banking rules in line with the US which could free up more than €20bn in capital for IT investment
The current rules list spending on software as a 'cost' rather than an 'investment'. This means that banks have to set aside capital to cover any software expenditure, which is estimated to be roughly half of banks' total technology spend.
European banks have long lobbied for such a change in order to help fend off the challenge from fintech upstarts able to invest in new software and up to now the Commission has resisted, including a planned overhaul of banking rules last year.
However the Commission's position appears to have changed. "The Commission services are in a dialogue with stakeholders to gain a better understanding of the interaction between accounting and prudential treatment of software," a European Commission spokeswoman told Reuters. "We will envisage appropriate action if needed."
Such action would be widely welcomed by Europe's banks that not only face competition from fintech challengers but also have to finance the digital transformation of their infrastructure and bolster their defences against ever more sophisticated cyber attacks. "It would help immensely if the Commission recognised the importance of this issue," said Wim Mijs, head of the European Banking Federation.
Expenditure on software is estimated to be roughly half of banks' total digital investment and should the rules be amended to mirror the US, it would free up more than €20bn according to one banking lobbyist cited by Reuters. A report from consultant Celent forecast that European banks would spend more than €60bn on IT and software this year.
Banks argue that software is a key component of their business due to growing customer demand for mobile payments and online banking services. and as the softyware becomes more bank-specific, it increases in value and therefore should be classified as capital in the same way as other tangible assets like buildings or hardware.
Meanwhile the European Banking Authority has warned that any changes should be treated "with the highest caution" given that it would lower their captial ratio which could increase risk.