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
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.