In a letter addressed to the federally regulated financial institutions, OSFI stated that the existing restrictions (announced in March 2020) on certain capital distributions remain appropriate in this uncertain environment, considering that the financial impacts of the COVID-19 pandemic are yet to be fully realized. In addition, OSFI outlined the principles that guide the limited circumstances under which OSFI will consider exceptions for non-recurring special or irregular dividends. However, OSFI will review each request individually in context of the risk profile of an institution. In this context, OSFI also updated and published new frequently asked questions regarding dividend payments by federally regulated deposit-taking institutions and insurers.
OSFI had announced, in March 2020, the expectation that institutions should not increase regular dividends, undertake common share buybacks or raise executive compensation. More recently, the Superintendent has confirmed that such capital distributions remain inappropriate at this time to ensure institutions have adequate capital to cushion the impact of shifts in the economy during an unprecedented time. OSFI emphasizes that the federally regulated financial institutions should not use special, or irregular, dividends to circumvent the restrictions introduced due to COVID-19 pandemic. The following principles guide the limited circumstances under which OSFI will consider exceptions for non-recurring special or irregular dividends:
- The resilience of the institution’s capital and liquidity to severe but plausible scenarios must continue to be strong after the special dividend payment and factoring in the impact of any COVID-19 regulatory measures and risk exposures.
- The special dividend payment should be non-recurring, limited to a specific business objective, and not for distributing capital to a broad group of shareholders. OSFI will consider the purpose, rationale, and recipient of the special dividend, if the decision is time-sensitive, or other relevant details, circumstances, and representations submitted by the institution to support its request for an exception.
- OSFI expects institutions to request exceptions to pay special dividends at least 30 days prior to the declaration. OSFI requires institutions to submit all necessary information prior to making a determination.
Keywords: Americas, Canada, Banking, Insurance, Dividend Distribution, COVID-19, Systemic Risk, Regulatory Capital, Basel, OSFI
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleFCA Launches First Consultation on Investment Firm Prudential Regime
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.