Circular on Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic
News    ·   04-08-2020
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AUTHOR: Andrew Caruana Scicluna; Giuseppe Gigante; Luke Mizzi

On the 28th July 2020 the Malta Financial Services Authority (“MFSA”) issued a circular in order to adopt the recommendation of the European Systemic Risk Board (“ESRB”) of 27 May 2020 on restriction of distributions during the COVID-19 pandemic.

Such recommendation stems from the economic crisis that developed following the coronavirus pandemic which has a potential to evolve into a systemic financial crisis. The ESRB’s recently issued a recommendation is aimed at systemically important investment firms (“SIIFs”). SIIFS are defined as category 2 or 3 Investment Services Licence Holders meeting all the following criteria:

(i)         Total Assets exceeding € 100m

(ii)        Number of clients exceeding 50,000

(iii)       Holds and/or controls clients’ instruments for more than € 3bn and

(iv)       Holds and/or controls clients’ monies for more than € 400m

The recommendation aims to ensure that such SIIFs have sufficient levels of capital and loss absorbing capacity remaining in order to mitigate the impact of this ongoing crisis and thereby contribute to a smoother recovery for the pan-European economy as a whole.

Restriction on Distributions

A SIIF shall at least until January 2021 refrain from undertaking any of the following actions: 

  • make a dividend distribution or give an irrevocable commitment to make a dividend distribution;
  • buy-back ordinary shares;
  • create an obligation to pay variable remuneration to a material risk taker[1], which has the effect of reducing the quantity or quality of own funds at the EU group level (or at the individual level where the authorised SIIF is not part of an EU group), and, where appropriate, at the sub-consolidated or individual level.  Such “material risk takers” are defined as a member of a category of staff whose professional activities have a material impact on the risk profile of the SIIF, including the Board of Directors, persons who effectively run the SIIF or have other key functions and other categories of staff whose professional activities have a material impact on the SIIF's risk profile.

A copy of the MFSA circular can be obtained by clicking here.

Should you require any assistance in this regard, please contact Andrew Caruana Scicluna (andrew.caruanascicluna@camilleripreziosi.com) Giuseppe Gigante (giuseppe.gigante@camilleripreziosi.com) or Luke Mizzi (luke.mizzi@camilleripreziosi.com


 

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