Financial Supervisory Authority extends the validity of its profit distribution recommendation until 1 January 2021 and clarifies expectations related to capital and liquidity buffers
On 28 July 2020, the European Central Bank (ECB) issued a recommendation to the credit institutions under its supervision to refrain from distributing profits until 1 January 2021. The ECB recommendation calls on national supervisors to extend similar principles to cover the credit institutions under their own supervision. On 27 May 2020, the European Systemic Risk Board (ESRB) also issued a recommendation on the restriction of profit distributions until 1 January 2021.
Based on the recommendations of the ECB and the ESRB, the Financial Supervisory Authority (FIN-FSA) extends the validity of the profit distribution recommendation it issued on 28 March 2020 that credit institutions under its direct supervision do not pay nor commit to pay dividends or other profit distributions for financial years 2019 and 2020 until 1 January 2021. The recommendation also applies to repurchases and redemptions of shares when the purpose of the purchases and redemptions is to distribute profits.
The ECB has also clarified its stance on the use of capital and liquidity buffers in the exceptional economic situation caused by the coronavirus pandemic (ECB press release 28 July 2020). The FIN-FSA applies similar principles to credit institutions under its direct supervision. Credit institutions are expected to continue to use their capital and liquidity buffers for lending purposes and loss absorption.
In addition, the FIN-FSA recommends that the credit institutions under its supervision exercise great caution when deciding on variable remuneration in situations where remuneration could lead to a deterioration of the institution's capital adequacy position.
In Finland, the ESRB recommendation not only applies to credit institutions but also to insurance companies. The FIN-FSA has issued a supervision release to insurance companies to refrain from profit distribution and payment of variable remuneration (supervision release 6 April 2020 – 19/2020) and it remains unchanged.
For further information, please contact
Jyri Helenius, Deputy Director General of the FIN-FSA, and on the practical application of the recommendation, until 7 August, Aleksi Kaakinen, and from 10 August, Minna Sahari. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030 (weekdays 9.00–16.00).
- ECB recommendation on profit distribution: Recommendation of the ECB on dividend distributions during the COVID-19 pandemic and repealing Recommentation ECB/2020/19
- ECB blog post 28 July 2020: The coronavirus crisis and ECB Banking Supervision: taking stock and looking ahead and appendix Buffer Use and Lending to the Real Economy
- ESRB recommendation on profit distribution: Recommendation of the European Systemic Risk Board on restriction of distributions during the COVID-19 pandemic
- Report published by the ESRB on 8 June 2020 on the justifications of the profit distribution recommendation: System-wide restraints on dividend payments, share buybacks and other payouts
- Previous supervision releases to credit institutions under the direct supervision of the FIN-FSA : supervision release 28 March 2020 - 11/2020 and supervision release 30 March 2020 - 12/2020
- ECB press release of 27 March 2020 on profit distribution recommendation: ECB asks banks not to pay dividends until at least October 2020
- EBA statement of 31 March 2020: Statement on dividends distribution, share buybacks and variable remuneration
- EIOPA statement of 2 April 2020: EIOPA statement on dividends distribution and variable remuneration policies in the context of COVID-19
The corresponding Finnish-language supervision release was published on 28 July 2020.