EC Adopts Delegated Regulation on Equivalent Mechanism for Unfinished Property Under CRR3
Summary
The European Commission has adopted a Delegated Regulation supplementing CRR (EU) No 575/2013 as amended by CRR3, establishing regulatory technical standards (RTS) for equivalent legal mechanisms ensuring completion of residential property under construction. The RTS specify conditions including requirements for protection providers, qualifying completion guarantee features, and conditions for converting completion guarantees to repayment guarantees. The Delegated Regulation is based on the EBA's final draft RTS published in August 2025.
Banks with residential mortgage exposures on unfinished property should inventory their existing completion guarantees against the new RTS requirements: providers must be regulated institutions or insurance undertakings, guarantees must cover all remaining construction costs without unilateral cancellation rights, and intra-group guarantees will not qualify for preferential treatment at consolidated level.
What changed
The Delegated Regulation introduces new RTS specifying conditions under which a legal mechanism qualifies as equivalent for purposes of preferential risk-weight treatment under Article 124 CRR. Key requirements include: protection providers must be regulated institutions or insurance undertakings with minimum creditworthiness standards; completion guarantees must be comprehensive, legally binding, enforceable, and without unilateral reduction or cancellation clauses; and guarantees must cover all remaining construction costs or equivalent repayment. Where protection provider and credit institution belong to the same group, completed-property treatment will not be recognised at consolidated level.
Banks and mortgage lenders with exposures to residential property under construction should review their existing completion guarantee structures to ensure compliance with these new standards. Financial institutions should assess whether current providers meet the creditworthiness requirements and whether guarantee terms satisfy the operational and legal features specified in the RTS.
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Apr 22, 2026GovPing captured this document from the original source. If the source has since changed or been removed, this is the text as it existed at that time.
April 21, 2026
EC adopts Delegated Regulation on equivalent mechanism for unfinished property under CRR3
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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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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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