Opinion on the Commission’s amendments to the final draft RTS on equivalent legal mechanism

General Information

This document is the opinion of the European Banking Authority (EBA) dated 20 February 2026, concerning the amendments proposed by the European Commission to the final draft regulatory technical standards (RTS) defining what constitutes an equivalent legal mechanism guaranteeing the timely completion of a residential real estate under construction, pursuant to Article 124(14) of Regulation (EU) No 575/2013 (CRR). The scope covers prudential requirements applicable to completion guarantee mechanisms in the European banking sector, focusing on the credit quality of protection providers, the national legal basis of guarantees, and application modalities within banking groups. The document comprises 15 pages.

Executive Summary

The EBA opinion addresses the modifications introduced by the European Commission to the final draft RTS initially submitted by the EBA in August 2025, aiming to define the criteria of an equivalent legal mechanism guaranteeing the completion of a residential real estate under construction within a reasonable timeframe. This topic is crucial as it conditions the application of a preferential prudential treatment to real estate exposures under construction, impacting risk management and capital requirements of credit institutions. The EBA notes that the Commission proposed substantial amendments, notably increasing the credit quality threshold of eligible guarantee providers (from a 20% risk weight to 30%, i.e., from CQS 1 to CQS 2) and removing the requirement that the completion guarantee be imposed by national law. The EBA considers these changes weaken prudential guarantees by broadening eligibility to less solid providers, including potentially unrated ones, and opening the door to purely private contractual arrangements, which compromises legal certainty and prudential consistency. On non-substantive aspects, the EBA criticizes notably the overly broad ban on intragroup mechanisms at the individual level, and modifications that may reduce the enforceability of guarantees (e.g., force majeure clauses). The opinion recommends maintaining the risk-weighted limit at 20%, retaining the national legal requirement, and adjusting certain formulations to preserve clarity, consistency, and prudential robustness. A revised draft RTS incorporating these recommendations is annexed. This document is essential for risk managers and data scientists involved in real estate risk modeling and regulatory compliance, as it specifies the conditions for applying preferential prudential treatments under the CRR.

Context and Objectives

The opinion responds to the notification from the European Commission, which intends to adopt the RTS developed by the EBA with amendments, pursuant to Article 10(1) of Regulation (EU) No 1093/2010. The objective is to define a harmonized European framework to recognize equivalent legal mechanisms guaranteeing the completion of residential real estate constructions, in order to apply preferential prudential treatment to the concerned exposures. This framework aims to ensure legal certainty, prudential consistency, and protection of credit institutions against risks related to construction non-completion. The scope covers completion guarantees, criteria for the quality of protection providers, and application modalities within banking groups. The limits concern the scope of amendments allowed by the Commission, which must remain exceptional and compatible with Union law and the principles of the financial internal market.

Summary of Key Points by Theme

Definition of the equivalent legal mechanism: The mechanism must guarantee, with a level of assurance comparable to public intervention, the completion within a reasonable timeframe of a residential real estate under construction, through legally binding commitments and the capacity for rapid intervention in case of interruption (p. 2).

Credit quality threshold of the protection provider: The EBA insists on limiting eligibility to providers whose exposure is risk-weighted at 20% (CQS 1), thus excluding unrated entities and those with higher risk. The Commission proposes increasing this threshold to 30% (CQS 2), which the EBA deems incompatible with the prudential framework's consistency and likely to weaken guarantee reliability (pp. 3-6).

National legal requirement: The EBA considers it essential that the completion guarantee be imposed by the national law of the country of construction, ensuring a legal mechanism and not a mere private contract. The Commission's removal of this requirement would weaken prudential coverage and legal consistency (pp. 5-6).

Treatment of intragroup guarantees: The EBA proposes that ineligibility of intragroup guarantees apply only at the consolidated level, allowing their recognition at the individual level, contrary to the Commission which prohibits any intragroup recognition. This approach is more proportionate and consistent with prudential reasoning (pp. 6-7).

Force majeure clauses: The EBA criticizes the Commission's broad wording that could allow the protection provider to reduce or cancel commitments in case of unforeseeable events, which would weaken the continuity and reliability of the guarantee. The EBA recommends limiting this exception to cases where another insurance covers protection without interruption (pp. 6-7).

Written documentation and enforceability: The EBA emphasizes the importance that the guarantee be formalized in writing and legally enforceable in all concerned jurisdictions, an explicit requirement removed by the Commission, which could harm legal certainty (p. 7).

Editorial corrections: The EBA notes typographical errors and recommends their correction to ensure legal clarity (p. 7).

Main Findings and Lessons Learned

Established facts: The Commission proposed to amend the EBA's RTS draft by increasing the credit quality threshold of eligible guarantee providers from 20% to 30% risk weight, and by removing the requirement that the guarantee be imposed by national law. It also extended the ineligibility of intragroup guarantees to the individual level and modified certain clauses related to force majeure and documentation (pp. 2-7).

Assumptions: The Commission considers that the 30% threshold promotes competition and avoids concentration in the guarantee provider market. It believes that removing the national legal requirement allows better contractual flexibility.

EBA interpretations: These modifications weaken prudential guarantees by broadening access to less solid providers, including unrated ones, and risk allowing purely private contractual mechanisms. The total ban on intragroup guarantees at the individual level is deemed disproportionate. Changes to force majeure and documentation may reduce legal certainty and guarantee reliability (pp. 3-7).

Uncertainties: The exact impact of the amendments on prudential stability and regulatory consistency remains to be measured, but the EBA highlights significant risks of dilution of protections and inconsistencies in CRR application.

Conclusions and Recommendations

The EBA rejects the Commission's substantial amendments regarding the increase of the credit quality threshold to 30% and the removal of the requirement that the completion guarantee be imposed by national law, considering that these changes weaken fundamental prudential guarantees and compromise regulatory consistency (p. 8).

Regarding non-substantial amendments, the EBA accepts certain adjustments aimed at improving clarity but recommends targeted corrections to avoid undesirable effects, notably on force majeure clauses, written documentation, and intragroup ineligibility (p. 8).

The EBA invites the Commission to integrate its recommendations into the final RTS text to preserve legal certainty, prudential consistency, and effective application of Article 124(14) of the CRR. A revised draft RTS is annexed to the opinion (p. 8).

This opinion will be published on the EBA website.