The Austrian Financial Market Authority (FMA) has decided to impose the recommendations of the European Systemic Risk Board (ESRB) on funding stability of financial institutions onto Pensionskassen and occupational Vorsorgekassen.
The ESRB recommended financial institutions to refrain from distributing dividends, or committing to making a dividend distribution; buying back ordinary shares and creating an obligation to pay remuneration to executives.
The recommendations last until 30 September. Financial institutions also include insurance and reinsurance undertakings.
The ESRB, which has the task of overseeing the European Union’s financial system, wants financial institutions to maintain a “sufficiently high level of capital” to reduce systemic risks and contribute to economic recovery from the pandemic.
Financial institutions should also look at the risks of a possible deterioration of the solvency position of corporations and households in view of the pandemic, it added.
The recommendations are in line with the requirements of the European Banking Authority (EBA), the European Insurance and Occupational Pension Authority (EIOPA) and the European banking supervisory system Single Supervisory Mechanism (SSM).
Their main goal is to guarantee that financial service providers always have sufficient own capital to contain systemic risks and support economic recovery if further economic shocks occur.
The FMA “fully supports the recommendations of the ESRB and will consistently implement and enforce them” in view of the risks caused by the economic consequences of the COVID-19 pandemic and the challenges that the Austrian financial sector is facing, the regulator’s managing board members Helmut Ettl and Eduard Müller said in a statement.
Financial institutions need to take the necessary precautionary measures to reinforce their capital resources to prepare as early as possible to face the risks of a deterioration of the solvency position of companies and private households, when the state aid and support programs expire, they added.
Earlier last year, the ESRB issued the same set of recommendations – ESRB/2020/7 – with the deadline set for 1 January.
FMA noted that the pandemic might cause further health and economic distress, with an impact on the economy and financial institutions.
It added that the stability of the financial system remains the highest priority while markets and authorities “lack information on the long-term impact of the crisis on the financial sector and credit markets”, and financial institutions depend on public policy support.