Financial Conduct Authority  

FCA issues dividend and buy-back warning

FCA issues dividend and buy-back warning

The Financial Conduct Authority has warned regulated firms should not be paying dividends with capital which could instead be used to protect their business against the coronavirus crisis. 

In an update published on its website today (April 17) the regulator set expectations for firms to conserve capital and urged against paying dividends or funding share buy-backs with money which could instead "credibly be required to absorb losses". 

The warning came as the watchdog asked solo-regulated firms to maintain an up-to-date wind-down plan which takes consideration of the impact of the coronavirus on the current market. 

The FCA said government schemes designed to help firms through the lockdown period could be used to pay debts as they fall due, but the regulator has previously clarified these loans cannot be used to meet capital adequacy requirements. 

In today's update the FCA said: "When considering whether to make a discretionary distribution of capital to fund a share buy-back, fund a dividend, upstream cash or meet a variable remuneration decision, we expect firms and their boards to satisfy themselves that each distribution is prudent given market circumstances, and consistent with their risk appetite.

"We may contact specific firms in relation to this, as relevant."

The regulator added: "During this time of stress, we expect firms to meet this responsibility by planning ahead and ensuring the sound management of their financial resources.

"This means taking appropriate steps to conserve capital, and to plan for how to meet potential demands on liquidity."

The FCA said if a firm was concerned about meeting its capital requirements, debts as they fall due, or if its wind-down plan had "identified material execution risks" it should contact the regulator.

The watchdog also asked firms to get in touch if they were planning to drawn down on a capital buffer, which the FCA advised were to be used in "times of stress". 

Last month the regulator promised "flexibility" to regulated firms which may struggle financially during the pandemic and its associated market fallout, allowing them to use their capital buffers to support their going concern if needed.

rachel.mortimer@ft.com

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