Shearman & Sterling LLP | FinReg | European Central Bank Sets Out Expectations of Eurozone Banks' Dividend and Variable Remuneration Policies
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  • European Central Bank Sets Out Expectations of Eurozone Banks' Dividend and Variable Remuneration Policies
    01/21/2020
    The Banking Supervision arm of the European Central Bank has set out its expectations of Eurozone banks regarding their dividend distribution and variable remuneration policies. The ECB is responsible for direct prudential supervision of certain significant banks based in the Eurozone as part of the Single Supervisory Mechanism and has certain powers relating to the supervision by national Eurozone regulators of smaller banks. The ECB has published a letter addressed to significant banks warning them to take a "prudent, forward-looking stance" when setting the banks' remuneration policy and has also published a Recommendation (dated January 17, 2020) on requiring significant banks to "establish dividend policies using conservative and prudent assumptions". The Recommendation will apply directly to significant Eurozone banks. The ECB expects national Eurozone regulators to consider how it might be applied proportionally to the smaller banks. The ECB expects Eurozone banks to consider how their variable remuneration policies and dividend distribution policies will impact their ability to continue to meet their regulatory capital requirements, particularly taking into account the transitional provisions of the Capital Requirements Directive (version IV) and the transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds.

    View the ECB's letter.

    View the ECB's Recommendation.

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