OSFI Updates Guidance on Dividend Distributions Amid Crisis
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.
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Keywords: Americas, Canada, Banking, Insurance, Dividend Distribution, COVID-19, Systemic Risk, Regulatory Capital, Basel, OSFI
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