The Danish Financial Supervisory Authority has published observations from a review of banks’ reporting of real estate exposures under the new Capital Requirements Regulation 3 rules for the standardized approach to credit risk. It found that several institutions reported the new exposure classes incorrectly, mainly because of classification errors, and set out examples of measures that can strengthen firms’ processes and controls. Correct reporting matters because errors can affect the measurement of credit risk and capital positions. The review covered the implementation of the new rules that took effect in January 2025, including the new exposure classes for Income Producing Real Estate and Acquisition, Development and Construction. Several institutions had reported exposures in the wrong classes and with the wrong risk weights, which in some cases led to an understatement of risk-weighted exposures, although without material impact on capital surplus. The main causes were inadequate procedures and processes, insufficient system support from data centers, missing manual corrections to system-generated calculations, limited understanding of the new definitions, especially for Acquisition, Development and Construction, and weak controls. The authority did not take supervisory action. It said the observations may be relevant for all institutions with real estate exposures and pointed to measures already adopted by selected firms, including formal procedures for registering and checking Income Producing Real Estate and Acquisition, Development and Construction exposures, system upgrades, centralized manual classification in credit departments, quarterly reviews of construction and project finance exposures, ongoing monitoring and staff training, and in some cases a conservative approach to classification and risk-weight calculations where uncertainty remains.
Danish Finanstilsynet2026-07-02
Danish Financial Supervisory Authority identifies CRR3 reporting errors on real estate risk weights and outlines remedial measures
The Danish Financial Supervisory Authority found that several banks misreported real estate exposure risk weights under the new CRR3 standardized approach rules, mainly because of classification errors around Income Producing Real Estate and Acquisition, Development and Construction exposures. The review identified weak systems, missing manual corrections and inadequate processes and controls as the main causes. No supervisory action followed, but the authority outlined remediation measures that other firms may also find relevant.