Recommendation of the European Systemic Risk Board (ESRB) on the restriction of distributions during the COVID-19 pandemic

MNK Risk Consulting > Regulatory Developments > Recommendation of the European Systemic Risk Board (ESRB) on the restriction of distributions during the COVID-19 pandemic

The Cyprus Securities and Exchange Commission (“CySEC”) issued Circular C425 on the 2nd of February 2021 informing Cyprus Investment Firms (‘CIFs’) that the ESRB issued on 18 December 2020 the Recommendation ESRB/2020/15 on the restriction of distributions during the COVID-19 pandemic (amending Recommendation ESRB/2020/07).

More specifically the ESRB recommends that at least until the 30th September 2021 the relevant authorities request financial institutions under their supervisory remit to refrain from undertaking any of the following actions:

  1. make a dividend distribution or give an irrevocable commitment to make a dividend distribution;
  2. buy-back ordinary shares;
  3. create an obligation to pay variable remuneration to a material risk taker.

CIFs and other financial institutions are encouraged to refrain from the above-mentioned actions as they have the effect of reducing the quantity or quality of own funds, unless they apply extreme caution and the resulting reduction does not exceed the conservative threshold set by their competent authority.

This Recommendation applies at the EU group level (or at the individual level where the financial institution is not part of an EU group), and, where appropriate, at the sub-consolidated or individual level.

The measures covered are of a temporary nature and the ESRB will continue to monitor their implications for financial institutions and their ability to contribute to economic recovery.

CySEC Circular C425 can be found here.

Recommendation ESRB/2020/15 can be found here.

Recommendation ESRB/2020/7 can be found here.

In case you have any queries or need assistance in implementing any of the above provisions contact us on [email protected]

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