EC adopts Delegated Regulation on equivalent mechanism for unfinished property under CRR3

The European Commission (EC) has adopted a Delegated Regulation supplementing the Capital Requirements Regulation (EU) No 575/2013 (CRR), as amended by the CRR3. It sets out regulatory technical standards (RTS) specifying what constitutes an equivalent legal mechanism to ensure that a residential property under construction is completed within a reasonable timeframe. The Delegated Regulation is based on the European Banking Authority's final draft RTS published in August 2025. Article 124 of the CRR sets out the requirements for assigning risk weights to exposures secured by mortgages on immovable property, including conditions under which exposures to properties under construction may qualify for preferential treatment. The EC has the power under Article 124(14) to specify what constitutes an equivalent legal mechanism to ensure that the property under construction is completed within a reasonable timeframe.

In particular, the RTS specify the conditions that must be met for a legal mechanism to be considered equivalent, including: (i) defining the requirements applicable to the protection provider, notably in terms of its creditworthiness; (ii) clarifying that the provider must be a regulated institution or insurance undertaking; (iii) setting out the operational and legal features of a qualifying completion guarantee, including the obligation to cover all remaining construction costs or, where completion is not possible, to repay the credit institution an amount equivalent to the outstanding exposure; and (iv) clarifying that completion guarantees must be comprehensive, legally binding and enforceable, and must not contain clauses that allow the provider to unilaterally reduce or cancel its obligations. Where the protection provider and the credit institution belong to the same group, the treatment of the property as completed may not be recognised at the consolidated level. The RTS also set out the conditions that must be met for a completion guarantee to be converted into a repayment guarantee. The Delegated Regulation will enter into force on the 20th day after its publication in the Official Journal of the European Union and is directly applicable across member states.

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