This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Austria including national authorities, regulation, licenses, organisational requirements, supervision and assets.
This Q&A is part of the global guide to Banking & Finance.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance/
What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?
The Austrian Financial Market Authority (“FMA”) is established as an integrated supervisory institution, supervising all financial service providers in Austria. The FMA shares responsibilities with the Oesterreichische Nationalbank (“OeNB”) in connection with banking supervision. While the OeNB is in charge of fact-finding, including on-site and off-site analysis of banks, the FMA is tasked with decision-making and has therefore been empowered as the competent authority in the area of banking supervision and banking recovery and resolution. The European Central Bank (“ECB”) is responsible for banking supervision in the Euro area under the Single Supervisory Mechanism (“SSM”) and supervises significant entities in Austria, in conjunction with the FMA as the national competent authority (“NCA”) and the OeNB.
Which type of activities trigger the requirement of a banking licence?
The ECB licenses CRR-credit institutions in SSM-Member States. The scope of the license granted by the ECB also covers banking transactions under national law. Pursuant to the Austrian Banking Act (“BWG”) an entity requires a license, which is issued by the competent supervisory authority, for activities listed in sec 1 para 1 BWG, in particular when carrying out one or more of the following activities for a commercial purpose: i) deposit business, ii) current account business, iii) lending business, iv) discounting business, v) custody business, vi) issuing and administration of payment instruments, vii) trading for one’s own account or on behalf of others on specific markets or with certain instruments set out in sec 1 para 1 no 7 lit a) – f) BWG or financial instruments pursuant to Securities Supervision Act 2018 (“WAG 2018”), viii) guarantee business, ix) securities underwriting business, x) building savings and loan business, xi) investment fund business, xii) real estate investment fund business, xiii) capital financing business, xiv) factoring business, xv) money brokerage transactions in the interbank market or brokerage of transactions in connection with specific banking transactions, xvii) severance and retirement fund business, and xviii) exchange bureau business.
Does the regulatory regime know different licenses for different banking services?
The license for conducting banking transactions may be granted under conditions and obligations connected to it and may be restricted to individual banking activities mentioned above. In the company database of the FMA the scope of the license granted to each entity is made publicly available.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
An entity which has been granted a license for deposit business may also conduct exchange bureau business and / or leasing operations (sec 1 para 3 BWG [“legal license”]). Further, all licensed entities may conduct ancillary activities pursuant to the legal license, which are directly connected with banking activities in accordance with the scope of the license granted. Credit institutions are also allowed to carry out certain activities pursuant to the WAG 2018, some payment services set out in the Payment Services Act (“ZaDiG”) and under specific conditions the entities may issue electronic money in accordance with the Electronic Money Act 2010 (“E-GeldG 2010”).
What is the general application process for bank licenses and what is the average timing?
In general, the ECB is competent for granting and extension of licenses for CRR-credit institutions (i.e. those credit institutions that accept deposits or other repayable funds from the general public and which grant loans on their own account pursuant to Article 4 para 1 no 1 CRR) by applying national legislation. For Austrian non-CRR-credit institutions as well as for branches of foreign credit institutions, competence remains with the FMA.
All applications are to be submitted to the FMA, regardless of whether the decision has to be taken by the FMA or the ECB. The Financial Market Authority assesses the application based on the conditions set out in the BWG. In case the institution making the application fulfils the conditions in accordance with the CRR, the FMA forwards the application with a draft decision and the relevant documentation to the European Central Bank for the decision-making process. The applicant must enclose particular information on the business plan, from which the type of planned transactions, the organizational structure of the credit institution, the planned strategies and processes for the monitoring, controlling and limitation of risks arising from banking transactions and banking operations as well as the identity and the amount contributed by owners, who possess a qualifying holding in the credit institution and information required for the purpose of assessing the reliability of these owners, is apparent. The average timing essentially depends on whether the application is for a “full” license and therefore for major banking activities and the concept presented to the FMA. However, the process should be completed within a period of twelve months.
Is mere cross-border activity permissible? If yes, what are the requirements?
The rules for banking activities on a cross-border basis are set down in Directive 2013/36/EU (“CRD IV”) and sec 9 to 19 BWG. Therefore, credit institutions being granted a license in an EEA Member State are authorized within the scope of the authorization / license of their home state to also provide banking operations in other Member States (single license principle) by way of a branch (”freedom of establishment”) or under the freedom to provide services.
Credit institutions incorporated (and licensed) within the EEA must notify the home NCA of their intention to conduct activities in Austria. This authority must in turn inform the FMA as host NCA of the institution’s intention.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
A banking license may be grated to (i) a limited-liability corporation (“GmbH”), (ii) a stock corporation (“AG”), (iii) an European public company (“SE”), (iv) a cooperative society (“Genossenschaft”), (v) an European cooperative society (“SCE”) or a savings bank (“Sparkasse”). However, most banks choose the legal form of a stock corporation for operating their business.
What are the organisational requirements for banks, including with respect to corporate governance?
The FMA has published a detailed set of guidelines and circular letters (Rundschreiben) on the application and the scope of the organizational regulations, which depend on the type of business activities envisaged by the entity. An institution has to implement and monitor a comprehensive set of organizational requirements on an ongoing basis e.g., organizational structure, clear decision-making processes, documentation and reporting obligations as well as responsibilities. Furthermore the management shall define and oversee the internal principles of proper business management, guaranteeing the requisite level of care when managing the institution, and in particular, focus on the segregation of duties in the organization and the prevention of conflicts of interest and therefore establish mechanisms to safeguard security and confidentiality of information (in particular pursuant to the Austrian Banking Secrecy [sec 38 BWG]).
Do any restrictions on remuneration policies apply?
Requirements for remuneration policies and practice of credit institutions licensed in Austria are set out in the Banking Act (Articles 39, 39b and Annex to Article 39b Banking Act). This set of rules is refined by guidelines governing remuneration policies and practices. The FMA shall take these into account according to the European convergence in respect of supervisory tools and supervisory procedures. In this respect, the guidelines and recommendations (and other measures) that are issued by the European Banking Authority (“EBA”) must be applied. Therefore, Annex to sec 39b BWG, the circular letter issued by the FMA in December 2012 (“Grundsätze der Vergütungspolitik und –praktiken; Rundschreiben der FMA zu §§ 39 Abs. 2, 39b und 39c BWG”) and the Guidelines from the EBA considering remuneration policies e.g., Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013 (EBA/GL/2015/22) contain the main rules for restrictions on remuneration.
Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
The EU implemented the Basel III framework via the CRR / CRD IV, which contain a number of discretions for Member States in relation to national implementation.
For example, additional capital buffers with regard to Global Systemically Important Institutions (G-SII) and Other Systemically Important Institutions (O-SII) may be prescribed.
Are there any requirements with respect to the leverage ratio?
Since 2015 all institutions are required to disclose their leverage ratio and its components. Supervisors will track the new ratio in order to analyse its impact more closely and to complete possible adjustments to the definition by 2017. The European Commission proposed an amendment of the CRR implementing a binding leverage ratio requirement of 3% of Tier 1 capital.
What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
The CRR requires entities to hold enough liquid assets to deal with any possible imbalance between liquidity inflows and outflows under gravely stressed conditions during a period of 30 days (Liquidity Coverage Ratio, “LCR”). The LCR as a short-term liquidity business ratio is fully phased in, in 2018. In addition the European Commission proposed that credit institutions shall also have to ensure that their long term obligations will adequately be met with a diversity of stable funding instruments under both normal and stressed conditions (Net-Stable-Funding Ratio — NSFR as a long-term liquidity business ratio).
Furthermore, entities are required by the national BWG to ensure that they are able to meet their payment obligations at any time e.g., by establishing company-specific financial and liquidity planning based on banking experience (sec 39 para 3 BWG).
Do banks have to publish their financial statements?
Pursuant to the BWG banks are required to publish their Annual Financial Statements as well as their Consolidated Financial Statements. The BWG contains some specific rules on the illustration of financial statements of credit institutions.
Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?
Parent institutions in a Member State have to comply with the consolidation obligations laid down in the CRR. The parent undertakings and their subsidiaries subject to the CRR must implement proper organizational structures and appropriate internal control mechanisms, to ensure that the data required for consolidation is duly processed and forwarded.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Any party who has taken a decision to acquire or dispose of (directly or indirectly) a participation of 10%, or to increase or decrease qualified participation by reaching a 20%, 30% or 50% threshold of voting rights or capital in an Austrian credit institution (or in such a way that the credit institution becomes a subsidiary undertaking of that party), must inform the FMA in advance. The FMA shall have a maximum of 60 working days as from the receipt of the notification and all the documents required in sec 20b para 3 BWG to prohibit the proposed acquisition in writing following an assessment according to the assessment criteria set forth in sec 20b BWG, provided there are reasonable grounds therefore or the information submitted by the proposed acquirer is incomplete.
Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
For assessing the notification provided for in sec 20 para 1 BWG, in order to ensure the sound and prudent management of the credit institution of which an acquisition is proposed, and with regard to the likely influence of the proposed acquirer on the credit institution as well as the suitability of the proposed acquirer and the financial soundness of the proposed acquisition, further the reliability of the interested acquirer, the reliability, professional qualification and experience of any person who will direct the business of the credit institution and the financial soundness of the proposed acquirer will be taken into account.
Are there specific restrictions on foreign shareholdings in banks?
The notification requirements apply to any investor in credit institutions licensed in Austria.
Is there a special regime for domestic and/or globally systemically important banks?
The BWG provides for a special capital buffer regime for national Global Systemically Important Institutions (sec 23b BWG) and Systemically Important Institutions (sec 23c BWG). The FMA can require SIIs (by FMA Regulation) to implement a capital buffer of up to 2% of CET 1 in addition to the capital requirements set out in Article 92 CRR.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
The FMA can impose sanctions in case of violations of banking regulations. The BWG provides inter alia for "penalty interests" as compensation for the benefits arising from the violation (sec 97 BWG), fines (for certain violations that do not fall within the jurisdiction of the courts), suspension of voting rights for the shareholdings, “naming and shaming”, provided that such disclosure does not seriously jeopardize the stability of the financial markets or cause a disproportionately high level of damage to the parties concerned or in severe cases a receivership.
What is the resolution regime for banks?
Austria has implemented the Directive 2014/59/EU (“BRRD”) by adopting the Federal Act on the Recovery and Resolution of Banks (“BaSAG”), thereby creating a national legal framework for dealing with banks that are failing or likely to fail. The BaSAG contains provisions (i) prescribing the preparation of recovery plans by banks and by the resolution authorities, including powers to remove obstacles to a resolution (“prevention”), (ii) enabling supervisory authorities to intervene at an early stage, including related additional powers to intervene (“early intervention”) and (iii) forming the basis for the establishment of a national resolution authority and for entrusting the authority with the necessary powers and tools (“resolution”). The following resolution tools are at the FMA’s disposal: (i) the sale of business tool, (ii) the tool to establish a bridge institution (bridge bank), (iii) the asset separation tool and (iv) the tool for bailing-in of creditors (bail-in). The bail-in tool is one of the core elements of the BRRD. It provides the resolution authority with the possibility to write down the eligible liabilities in a cascading contribution to absorb losses of an institution, or to convert them into equity capital.
How are client’s assets and cash deposits protected?
The Act on Deposit Guarantee Schemes and Investor Compensation (“ESAEG”) implements the Directive on Deposit Guarantee Schemes (Directive 2014/49/EU) and regulates the protection of deposits and credit balances including interest on accounts and savings. The ESAEG provides for a single protection scheme instead of the current five schemes of different trade associations. As of 2019, a single fund shall be established at the Austrian Economic Chambers for deposit protection purposes.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
One of the resolution tools at the FMA’s disposal is the tool for bailing-in of creditors (bail-in) as core element of the BRRD. It permits the resolution authority to write down the eligible liabilities in a cascading contribution to absorb losses of an institution, or to convert them into equity. The most important examples for exceptions to the scope of application of the bail-in tool are protected deposits, secured liabilities and liabilities against employees.
Is there a requirement for banks to hold gone concern capital (TLAC)?
The European Commission proposed new standards on the total loss-absorbing capacity (TLAC) of global systemically important institutions (G-SIIs), which are not implemented yet. All EU Global Systemically Important Banks (G-SIIs) shall meet the target (>16% of RWA / 6% of the LREM as of 2019 and >18% RWA / 6.75% LREM as of 2022).
In your view, what are the recent trends in bank regulation?
The proposed amendments of the framework for capital requirements of credit institutions and investment firms by the European Commission shall strengthen the resilience of the banking sector by introducing more risk-sensitive capital requirements. Challenges arise in particular from the fact that these concepts designed for large institutions (“big players” and global systemically important banks e.g., TLAC and MREL) may not be applied to small institutes without making adaptations, as Austria has a particularly large number of small and medium-sized banks.
What do you believe to be the biggest threat to the success of the financial sector ?
The financial sector has to face and meet recent challenges created by new ways of digitalization and data processing technology within the field of banking operations and investment service providers (Financial Technology, “FinTech”). Especially traditional financial institutions have to be aware of their new digital competitors. Another important issue is rising standards of regulation, complexity and increasing costs for the institutes. With regard to the current interest rates, the “Compliance tool” proposed by the European Commission aiming at facilitating institutions' compliance with their Regulations and Directives may enable each institution to rapidly identify the relevant provisions with which they have to comply and improve the Cost-Income-Ratio.