Extraordinary exceptions for non-recurring special dividends

Document Properties

  • Type of Publication: Letter
  • Date: December 14, 2020
  • To: All Federally Regulated Financial Institutions

In March, OSFI announced and more recently the Superintendent confirmed the expectation that institutions not increase regular dividends, undertake common share buybacks or raise executive compensation. Such capital distributions remain inappropriate at this time to ensure institutions have adequate capital to cushion the impacts of shifts in the economy during an unprecedented time.

OSFI maintains its commitment that any regulatory or supervisory adjustments made in response to the pandemic be credible, consistent, necessary and fit-for-purpose. There remains too much uncertainty to change our expectation on regular dividends. While conditions seem stable now, the financial impacts of the COVID-19 pandemic are yet to be fully realised. That is why the existing restrictions on certain capital distributions remain appropriate in this uncertain environment.  

Through our ongoing monitoring and supervisory work, OSFI has concluded that there may be exceptional circumstances where a non-recurring payment of special, or irregular, dividends may be acceptable. Under all circumstances, OSFI’s intention is to protect institutions' creditors, depositors, or policyholders while allowing institutions to compete and take reasonable risks.

The following principles guide the limited circumstances under which OSFI will consider exceptions for non-recurring special / irregular dividends. Each request will be reviewed individually and in context with the institution’s risk profile.

  • Resilience and Risk Management: The resilience of the institution’s capital and liquidity to severe but plausible scenarios must continue to be strong after the special dividend payment and factoring in the impacts of any COVID-19 regulatory measures and risk exposures.
  • Context: The special dividend payment should be non-recurring, limited to a specific business objective, and not for distributing capital to a broad group of shareholders. OSFI will consider the purpose, rationale and recipient of the special dividend, if the decision is time-sensitive, or other relevant details, circumstances and representations submitted by the institution to support its request for an exception.
  • Communication: OSFI expects institutions to request exceptions to pay special dividends at least 30 days prior to the declaration. OSFI requires institutions to submit all necessary information prior to making a determination.

Further details can be found in OSFI’s Frequently Asked Questions for federally regulated deposit-taking institutions and insurers.

Consistent with our mandate, OSFI recognizes that institutions must be able to compete effectively and take reasonable risks. In this regard, we further recognize that the risks individual institutions face related to COVID-19 may also vary. OSFI is committed to continuing to review, adjust and communicate our guidance and expectations as circumstances warrant.