The European Systemic Risk Board (ESRB) in its Recommendation ESRB/2020/07, recommended that at least until 1 January 2021 macroprudential authorities and competent authorities in the EU, request financial institutions under their supervisory remit to refrain from undertaking dividend distributions, bonus pay-outs and buy-backs of own shares (pay-outs).
The aim of this Recommendation is for financial institutions to maintain the quality and quantity of their capital during the COVID-19 pandemic so that they can mitigate systemic risks and contribute to the economic recovery.
Further to the recommendation of the Central Bank of Cyprus (CBC) dated 6 April 2020, the CBC decided to extend the restriction for a) dividend distributions or giving an irrevocable commitment to make dividend distributions, b) buy-backs of ordinary shares and c) creating an obligation to pay variable remuneration to any material risk taker, until 1 January 2021, as per this ESRB Recommendation. This decision was communicated to the less significant credit institutions through the recommendation of the CBC dated 31 July 2020.
The CBC was informed by the Insurance Companies Control Service (ICCS) that the ICCS issued a circular letter, through which it recommended to insurance companies and re-insurance companies to refrain from undertaking pay-outs until 1 January 2021, as per this ESRB Recommendation.
Further to the above, the Cyprus Securities and Exchange Commission (CySEC), informed the CBC that CySEC issued a circular letter, through which it recommended to Cyprus Investments Firms (CIFs) that are designated by the CBC as other systemically important institutions (O-SII institutions), to refrain from undertaking pay-outs until 1 January 2021, as per this ESRB Recommendation.
Based on the above, the CBC ensured that all Cyprus financial institutions that fall within the scope of this ESRB Recommendation, taking into account the principle of proportionality, are subject to the pay-out restrictions recommended by this ESRB Recommendation.