CSSF issued a recommendation calling on management bodies of Luxembourg credit institutions to consider not distributing (or limiting) cash dividends, not conducting share buy-backs, and moderating variable remuneration payments (especially to material risk-takers) until September 2021. In this context, CSSF has updated the frequently asked questions (FAQs) on support measures issued in response to COVID-19 pandemic. Additionally, CSSF published the results of a thematic review of the information provided by 16 issuers on the impact of COVID-19 pandemic on their operations and financial performance as of June 30, 2020. CSSF has noted improvements that issuers should consider when preparing financial information in the future. The key improvements relate to the impairment of non-financial assets and the measurement and disclosure of expected credit losses (ECLs).
The key topics covered under the thematic review were notably those identified in the ESMA public statement on the implications of COVID-19 outbreak on the half-yearly financial reports. These include disclosures reflecting significant uncertainties, going concern and risks linked to COVID-19; change in credit risk and impact on expected credit losses; impairment of non-financial assets; disclosure requirements related to the application of relief and support measures granted by public authorities; presentation of COVID-19 related items in the primary statements; and management reports and alternative performance measures. CSSF considers that there are several areas for improvement that issuers should consider when preparing their future financial information regarding the impact of this pandemic.
The main issue encountered concerns the impairment of non-financial assets. It was observed that there was insufficient disclosure in the interim financial reports. Moreover, the assessments made by management with regard to the recoverable value of non-financial assets did not always appear consistent with the impact of the COVID-19 pandemic described elsewhere in the financial reports. Another improvement area concerns the measurement and disclosure of ECLs, especially on trade and lease receivables for corporates. A number of the issuers examined hold significant receivables for which the credit risk is likely to change, as their clients could be weakened by the effects of COVID-19 pandemic. As such, CSSF expects issuers to provide precise information on their credit risk management in response to COVID-19 and on any significant adjustments made to the impairment models as well as on the impairment losses recognized.
Overall, CSSF expects issuers to provide, in their future financial reports, clear disclosures about how they have incorporated COVID-19 risks into their cash flow projections, discount rates, and long-term growth rates. Use of multiple scenarios is encouraged to better assess the recoverable values, despite the uncertainties related to the COVID-19 pandemic. In the near future, CSSF is expected to release priorities in relation to the enforcement of financial information for 2020 financial statements. In that context, and along with other priorities for the year, CSSF will focus on the information provided in relation to the effects of the COVID-19 pandemic on the operations, performance, financial position, and outlook of issuers.
- Circular on Restriction of Dividend Distribution
- FAQs on Dividend Distribution
- Results of Thematic Review
Keywords: Europe, Luxembourg, Banking, Securities, Thematic Review, Disclosure, ECL, Dividend Distribution, COVID-19, FAQ, Credit Risk, Accounting, CSSF
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
PRA published a "Dear CEO" letter that sets out findings of a review on the reliability of regulatory reporting and reiterates the supervisory expectations on regulatory reporting.
The Australian Prudential Regulation Authority (APRA) confirmed that its new data collection solution APRA Connect will go live on September 13, 2021.
The Federal Reserve System (FED) published a paper describing the landscape of partnerships between community banks and fintech companies.
The Federal Deposit Insurance Corporation (FDIC) has chosen four companies—Novantas Inc, Palantir Technologies Inc, PeerIQ, and S&P Global Market Intelligence LLC—to propose a pilot consisting of testing new reporting and analytical tools with a small group of FDIC-supervised institutions on a voluntary basis.
The Prudential Regulatory Authority (PRA), via the consultation paper CP18/21, proposed changes to the applicable requirements on the identification of material risk-takers for the purposes of the remuneration regime.
The Joint Committee of European Supervisory Authorities (ESAs) published its second 2021 joint risk assessment report for the financial sector.
The International Organization of Securities Commissions (IOSCO) published a statement reiterating the importance of continued transition to robust alternative financial benchmarks—that is, risk-free rates—to mitigate potential risks arising from the cessation of LIBOR, including the USD LIBOR.
The Board of Governors of the Federal Reserve System (FED) proposed revisions and three-year extension of the FRY-9 reports on financial statements for holding companies (OMB Control Number 7100-0128).
The Single Resolution Board (SRB) Chair, Elke König, published an article on improving the resolution framework for medium-size banks.
The French Prudential Control and Resolution Authority (ACPR) announced that the testing environment for the ACPR information system and the OneGate portal will be available to receive test reports with the Legal Entity Identifier (LEI) from September 08, 2021.