“We need banks to invest in software development to remain competitive and contribute to the digitalisation of the EU economy.
Software investments remain penalised in Europe compared to the US where software is risk weighted as an ordinary asset, like premises and equipment.”
“How can a lifeless table be worth more than a software programme, banks need both to do their work.
Banks can only invest in digital solutions if software is treated as a tangible asset and can be non-deductable.
The European Council should put this crucial issue over the table as soon as possible.”
There is a specific issue in the way bank assets in Europe are valuated. An issue that is blocking the further digital transformation and growth of banks.
Current prudential rules prescribe that the use of banking software is penalised instead of incentivised. Software is still valuated as an intangible asset, making it less worthy than basic office furniture.
In other words, EU banking rules treat software as a cost rather than an investment. Unlike in the US, European banks are forced to cover expenditure on software solutions with the same amount of capital.
Investing in software solutions, updates and development is crucial to remain competitive and to strengthen cybersecurity.
A recent survey conducted by EBF shows that European banks as of 2016 had invested more than €18 billion in software, despite the costly conditions in place.
Without a doubt, financial technology and software solutions have become critical functions of the work in banking.
Even in case of a liquidation, when bank assets are sold, software can still be used and thus proves its value.
If we want to let banks innovate, and therewith the European economy, treating software as an ordinary asset is a pure necessity.