Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Financial Services UK newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360, London (June 4, 2020, 12:51 PM BST) -- The Bank of England said Thursday it expects the country's critically important financial institutions not to make payments to shareholders during the COVID-19 crisis unless they have discussed it with the watchdog.
The central bank has published a letter it sent to the heads of the U.K.'s financial market infrastructures and specified providers — key institutions responsible for settling and recording financial transactions, such as clearing houses — asking them to think carefully before paying out dividends during the coronavirus pandemic.
These firms should "pay close attention to the additional risks and potential financial and operational demands arising from COVID-19" when they consider making payments to shareholders, the BoE warned in its letter.
"We would expect you to discuss with us in advance of making any distribution to shareholders," the central bank told chief executives.
So-called market infrastructure companies should make sure they direct resources toward staying afloat during the pandemic rather than making payments such as dividends, the BoE said.
These firms are "critically important, as financial markets rely on the continuity of the services they provide." They also face greater risks to their financial health as a result of the crisis and must take extra care, the central bank said.
Critical infrastructure firms should therefore hold back their profits to absorb losses from the crisis.
The coronavirus outbreak, which has now infected 280,000 people in Britain and killed almost 40,000, has led regulators to call for businesses in a range of industries to hold on to their profits.
The Financial Conduct Authority said in April that banks must ensure the payments they make are "prudent" because of the market circumstances. Lenders may have to cut back on share buybacks and on paying out dividends and bonuses, the FCA said.
The European Central Bank told banks in March not to pay out dividends before October and to avoid launching share buyback programs to preserve capital to lend during the coronavirus pandemic.
Insurers in Britain have also agreed to hold back on payments.
Aviva, Direct Line, specialist insurer Hiscox and RSA Insurance Group shelved plans for paying dividends to shareholders in April. Aviva said it was withdrawing its proposed £839 million ($1.05 billion) payout to shareholders, which was due in May, and would reconsider whether to make a payout in the final quarter of 2020.
--Additional reporting by Najiyya Budaly. Editing by Ed Harris.
For a reprint of this article, please contact reprints@law360.com.
