Document Properties
- Type of Publication: Advisory
- Category: Regulatory & Legislative
- Issued: April 2003
- Revised: September, 2007
- No: 2003-04-R1
Introduction:
This advisory provides an overview of how the
Office of the Superintendent of Financial Institutions (OSFI)
administers and interprets the provisions of the legislation
regarding the declaration and payment of dividends by a
federally regulated financial institution (FRFI), a bank holding
company (BHC) and an insurance holding company (IHC).
Legislative References:
- Section 79 and 722 of the Bank Act (BA)
- Section 82 of the Trust and Loan Companies Act (TLCA)
- Section 83 and 761 of the Insurance Companies Act (ICA)
- Section 86 of the Cooperative Credit Associations Act (CCAA)
Interpretation
At the time a FRFI, a BHC or an IHC is
contemplating a declaration of a dividend, its board of
directors must ensure that, following the payment of the
dividend, the entity will have adequate capital and adequate and
appropriate forms of liquidity to satisfy OSFI’s requirements.
In addition a FRFI, a BHC or an IHC is required to notify the
Superintendent of the declaration of a dividend at least 15 days
prior to the day fixed for its payment.
This Advisory provides OSFI’s views and expectations regarding
dividends that result in negative retained earnings, and dividend
notification requirements.
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Dividends that result in
negative retained earnings: When a FRFI, BHC or an
IHC contemplates making a declaration and payment of a dividend
and that entity already reports negative retained earnings or
such payment would result in the entity reporting negative
retained earnings, the entity is not required to proceed by way
of an application for the reduction of its stated capital.
Nonetheless, certain notification requirements (specified below)
must be fulfilled and, following the payment of a dividend,
OSFI’s capital and liquidity requirements must continue to be
maintained on an ongoing basis.
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Notification of the
declaration and payment of a dividend: The legislation provides
that a FRFI, BHC or an IHC must notify the Superintendent of the
declaration of dividends at least 15 days prior to the day fixed
for its payment. OSFI expects that such notice would include the
total amount of the dividend, the date on which the dividend
will be paid, and a confirmation from the entity that, following
the payment of the dividend, the entity will have adequate
capital and adequate and appropriate forms of liquidity. This
notification must be in writing and should be addressed to the
Relationship Manager for the entity.
Where the declaration and payment of a proposed dividend would
cause the FRFI, BHC or IHC to report negative retained earnings or
where the entity is already reporting negative retained earnings,
OSFI expects the entity to provide information respecting the
financial position of the entity both before and after the payment
of the dividend. This information is to be provided in the
entity’s notice of a declaration of a dividend, and it should
include:
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information respecting its capital position, in the case of:
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a deposit-taking institution or a BHC: a breakdown of
all elements used to calculate each of the risk-based Tier 1
capital ratio, the risk-based total capital ratio and the
assets to capital multiple;
-
a life insurance company or an IHC: a breakdown of
all elements used to calculate the minimum continuing capital
and surplus requirements, including the Tier 1 capital by
element and total capital required; or
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a property & casualty insurance company: details
of the minimum capital test; and
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Information respecting its liquidity position: the ratio of
gross liquid assets (less pledged assets) to total assets, and
a liquidity profile including a high-level breakdown of the
assets by category.