The Austrian Financial Market Authority (FMA) will consistently implement and apply the European Systemic Risk Board’s (ESRB) recommendations on distribution policy in light of the economic impact of the COVID-19 pandemic towards the entities that it supervises. In a decision dated 15 December 2020 and published last Friday, the ESRB recommends that all banks and insurance undertakings should refrain from distributions in light of the substantial challenges that still lie ahead due to the economic fallout of the COVID-19 pandemic (e.g. not distributing dividends, or making irrevocable commitments about distributions; not conducting buybacks of their own shares or making irrevocable commitments to do so; not entering into any obligation to distribute variable salary components to directors, who by the nature of their job are material risk takers). This particularly applies where such a distribution could potentially affect the quantity or quality of the institution’s own funds. A distribution is only possible where utmost caution is exercised by the undertaking, and where the undertaking does not breach a capital requirement to be set conservatively by the competent supervisory authority.
This ESRB Recommendation applies until 30 September 2021 and generally corresponds to the rules of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) as well the banking supervisory authority in the Euro area, the Single Supervisory Mechanism (SSM). Its objective is to ensure that such financial services providers always have sufficient available own funds to also absorb systemic risks, as well as to be able to support the economic recovery even in the event of there being further economic shocks.
Distributions only when the strictest conditions are met
The ESRB explicitly recognises the significance of appropriate distributions so that financial services providers are also able to raise capital on the market in the future. At the same time it also recommends the competent authorities to consider when determining the appropriate capital base for the individual risk that the economic effects of the COVID-19 pandemic will hamper and undermine many undertakings and private households’ ability to pay. Additionally, the ESRB also notes that those distributions that will nevertheless be conducted are significantly lower than the typical level of those in the years prior to the COVID-19 pandemic, and that the specificities and different shocks are appropriately addressed in the individual sectors.
“In light of the continuing high risks as a result of the economic fallout of the COVID-19 pandemic as well as the particular challenges that the Austrian financial economy still faces, we fully support the European Systemic Risk Board’s recommendations and will implement and enforce them consistently,” remarked the FMA’s Executive Directors, Helmut Ettl and Eduard Müller. It is particularly important that financial services providers proactively identify and make appropriate provisions for the risks that are in their accounts. “Financial services providers must prepare themselves as early as possible for the fact that once government assistance and support programmes subside risks undermining enterprises and private households’ ability to pay will also have affect them,” state Ettl and Müller. The most important preventative measure to take is increasing the quantity and quality of their own funds, or at least not to weaken it by making distributions.
ESRB Recommendations to also be applied to Pensionskassen (pension companies) and corporate provision funds.
The FMA will also apply the ESRB recommendations to the Pensionskassen and corporate provision funds (BVKs) that it supervises, even though the recommendations do not directly address them.
Journalists may address further enquiries to:
Ms. Annemarie Bauer
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+43 / (0)676 / 88 249 519