Summary of CySEC's Circular C397
Memo #41-2020
CySEC Circular No: C397
Date: 07/07/2020
Subject: Recommendation 2020/07 of the European Systemic Risk Board (ESRB) on restriction of distributions during the COVID-19 pandemic (the ‘Recommendation ESRB/2020/7’)
Purpose: To inform CIFs that the ESRB issued on 27 May 2020 the Recommendation 2020/07 on restriction of distributions during the COVID-19 pandemic.
In Summary:
CySEC has issued the Circular C397 on 07/07/2020 in order to inform Cyprus Investment Firms (‘the CIFs’) that the European Systemic Risk Board (ESRB) issued on 27 May 2020 the Recommendation 2020/07 on restriction of distributions during the COVID-19 pandemic (the ‘Recommendation ESRB/2020/7’).
The Recommendation ESRB/2020/7 recommends that at least until 1st January 2021 the relevant authorities request financial institutions under their supervisory remit to refrain from undertaking any of the following actions:
a) make a dividend distribution or give an irrevocable commitment to make a dividend distribution;
b) buy-back ordinary shares;
c) create an obligation to pay variable remuneration to a material risk taker.
The COVID-19 crisis has developed rapidly from a dramatic medical emergency into a severe economic shock, which has the potential to evolve into a systemic financial crisis. It is neither certain for how long this crisis will last, nor how severe it may be.
Restriction of distributions (e.g. dividends, bonuses, and share buybacks) can enhance the resilience of the financial sector and reduce the risk of failures of financial institutions due to COVID-19 related risks.
Investment firms are included in the list of financial institutions under Recommendation ESRB/2020/7, as they play an important role in market functioning and may present similar risks to banks
CySEC informs that has decided to adopt Recommendation ESRB/2020/07 and urges CIFs that that have been recognized as Other Systemically Important Institutions (OSIIs) to refrain from any of the actions mentioned as a), b) and c) above.
The Recommendation ESRB/2020/7 can be found on the following link: https://www.esrb.europa.eu/pub/pdf/recommendations/esrb.recommendation200608_on_restriction_of_distributions_during_the_COVID-19_pandemic_2~f4cdad4ec1.en.pdf
Read the CySEC Circular C397
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