Coronavirus (COVID-19) Bulletin – PRA: No Bank Dividends, Buy-Backs Or Bonuses In 2020

The Prudential Regulation Authority (PRA) confirmed on 31 March 2020 that following consultation with the seven largest UK banks, they will suspend dividends, share buy backs and not pay cash bonuses to senior staff until the end of 2020.

The PRA consultation with the seven largest UK banks (HSBC, Nationwide, Santander, Standard Chartered Bank, Barclays, RBS/Nat West and Lloyds) was very short. They were given a very short window in which to agree the PRA proposals and publish their intentions. The PRA action follows similar measures in other European countries.

The PRA justified its action in terms of banks conserving funds so that they are better placed to serve the economy during 2020. The banks will suspend dividends and buybacks on ordinary shares until the end of 2020 and cancel payments of any outstanding 2019 dividends. Banks will also conserve cash by not paying cash bonuses to senior staff. Bank boards were told to make sure they are considering the appropriateness of any accrual, payment and vesting of variable remuneration this year.

The PRA reiterated its confidence that based on the recent stress tests and actions agreed, UK banks will weather the crisis created by the Coronavirus Pandemic.

The PRA has also written to the CEOs of UK insurers. The PRA reminded insurance companies that when their boards are considering any distributions to shareholders or making decisions on variable remuneration, the PRA expects them to pay close attention to the need to protect policyholders, maintain safety and soundness and also ensure that their firm can play its full part in supporting the real economy throughout the disruption arising from the Coronavirus Pandemic.

Complyport expects the PRA (and the FCA) to extend scrutiny of board decisions regarding dividends, share buy-backs and payment of bonuses to smaller banks, insurance companies and financial institutions. The emphasis is expected to be placed on conservation of funds so that firms are better placed to ride out the economic and financial disruption arising from the Coronavirus Pandemic

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