Regulators are urging banks and insurance companies to exercise caution in handing out dividend payments to shareholders and bonuses to employees, as Europe continues to struggle to cement its recovery from the COVID pandemic.
With uncertainty over how the pandemic will evolve, and how quickly
the economic recovery will pick up, financial regulators are calling for
prudence from financial players to ensure they can weather the months
ahead.
Last month, Andrea Enria, chair of the European Central Bank’s
supervisory board, told reporters that the eurozone’s bank supervisor
was trying to keep dividends and bonuses under control.
Enria said that “few banks” wanted to pay more than it was
recommended, and in these cases, the supervisor was discussing the plans
with them.
In the case of the insurance sector, the European Insurance and
Occupational Pensions Authority (EIOPA) still holds its recommendation
of extreme caution on dividends, bonuses and share buy-backs, an
official told EURACTIV.
Last April, the ECB and EIOPA told banks and insurance companies to
temporarily suspend dividend distribution and be prudent with other
remuneration policies.
The demand was supported by EU finance ministers.
EU governments want the European Commission and regulators to take an
“ambitious” approach when interpreting the flexibility of banking rules
in the coronavirus period, to ensure that money flows to the real
economy, according to a draft statement seen by EURACTIV.com.
As the pandemic evolved, the blanket ban on dividends changed to a case-by-case approach.
“Any dividend distributions, share buy-backs or variable
remunerations should not exceed thresholds of prudency and institutions
should ensure that the resulting reduction in the quantity or quality of
their own funds remains at levels appropriate to the current levels of
risk,” EIOPA told insurers in an updated recommendation in December.
Meanwhile, the ECB recommended extreme prudence until 30 September
2021. For that reason, as from the start of this year, banks are able to
pay limited dividends and only if they are profitable and have “robust”
capital trajectories capable of coping with the pandemic impact.
In spite of the parallel recommendations for banks and insurers,
implementation has diverged on the ground, given the own nature of the
regulators.
The ECB is the single supervisor for 113 biggest banks in the eurozone and has direct powers over them.
EIOPA, however, has regulatory competences but it is not a single
supervisor for insurance companies in the EU, lacking binding powers to
impose recommendations. It is up to national authorities to decide whether they follow their recommendation or to ignore it.
As a result, while big lenders followed the same criteria for
dividends and bonuses during the pandemic, insurance companies faced
different approaches from national authorities.
Germany’s financial regulator BaFin decided not to apply EIOPA’s
recommendation and allowed Allianz to pay a dividend. Insurers in other
EU countries also made payouts to shareholders last year.
Still, insurers said they “very carefully” consider their dividend policy, especially during uncertain times such as this.
“They also take very seriously any advice or requests from their
national authorities and EIOPA,” an Insurance Europe spokesperson told
EURACTIV.
EURACTIV
© EURACTIV
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article