Contributed by Act Legal WMWP Rechtsanwalte.
I. LEGAL FRAMEWORK
1.1. Which main legislative and regulatory provisions govern the banking sector in your jurisdiction?
The banking sector in Austria is governed by several national and European legislative and regulatory provisions, in particular, the following:
- The Banking Act (Bankwesengesetz; BWG) is the core regulation and provides the legal framework for banking and financial services in Austria. It regulates the establishment, operation, and supervision of banks, as well as the licensing and approval processes for banks and financial institutions.
- The Payment Services Act (Zahlungsdienstegesetz 2018; ZaDiG) regulates payment services in Austria, including electronic payments, money transfers, and other related services. It sets out the rights and obligations of payment service providers and their customers, as well as the requirements for payment service licenses.
- The Financial Market Anti-Money Laundering Act (Finanzmarkt-Geldwaschegesetz; FM-GWG) aims to prevent money laundering and terrorist financing in Austria. It requires banks and other financial institutions to implement measures to detect and prevent money laundering and to report suspicious transactions to the authorities.
- The Consumer Protection Act (Konsumentenschutzgesetz; KSchG) provides consumer protection in Austria in the relation between entrepreneurs and consumers. The KSchG is also relevant for the banking sector. It sets out the rights of bank customers and the obligations of banks to provide clear and transparent information about their products and services. Besides the KSchG, also the Consumer Credit Act (Verbraucherkreditgesetz; VKrG), the Distance and Outward Transactions Act (Fern- und Auswartsgeschafte-Gesetz; FAGG), and the Distance Financial Services Act (Fern-Finanzdienstleistungs-Gesetz; FernFinG) are important for the business of banks with consumers.
- The Capital Requirements Regulation (CRR): This European regulation, which is part of the Basel III framework, sets out the minimum capital requirements for banks and other financial institutions. It aims to ensure that banks have sufficient capital to withstand financial shocks and maintain their solvency.
- The Capital Markets Act (Kapitalmarktgesetz 2019; KMG) regulates the issuance of certain securities and investments into collective schemes (Veranlagungen).
- The Securities Supervision Act (Wertpapieraufsichtsgesetz 2018; WAG) governs securities regulation in Austria. It sets out the regulation of securities firms and the rules of financial services related to securities.
- The Electronic Money Act (E-Geld Gesetz 2010) regulates the issuance of electronic money and sets out the requirements for the safekeeping of customer funds used for the issuance of electronic money.
- Financial Market Supervisory Authority Act (Finanzmarktaufsichtsbehoerdengesetz; FMABG): This act established the Financial Market Authority (FMA) as the primary regulator of the financial sector in Austria.
Besides those a manifold of regulatory acts by FMA in form of Minimum Standards, Circulars, or Guides specify the statutory provisions and explain the regulatory approach to applying the statutory provisions.
- FMA Minimum Standards are used by the authority to set out requirements and publish recommendations. These cover for example Minimum Standards for BWG Compliance, Minimum Standards for Lending Business and other transactions with counterparty risks, Minimum Standards for the Risk Management and Granting of Foreign Currency Loans, and Loans with Repayment Vehicles.
- FMA Circulars are used to publish the interpretation of laws and regulatory provisions in relation to supervisory issues. Those exist inter alia in the context of Principles of Remuneration Policies and Practices, on Due Diligence Obligations for the Prevention of Money Laundering and Terrorist Financing, on Internal Organization for the Prevention of Money Laundering and Terrorist Financing or on the Criteria for the Assessment of Knowledge and Competence of Investment Advisors and Persons providing Information about Investment Products.
- FMA Guides are intended to provide supervised institutions with know-how and to promote the development of a common understanding. Those are not obligatory and exist for example for Managing Sustainability Risk.
1.2. Which bodies are responsible for enforcing the applicable laws and regulations? What are their main competencies?
The banks are split up throughout Europe into significant and less significant credit institutions or groups of credit institutions. The significant credit institutions are directly supervised by the European Central Bank with the Single Supervisory Mechanism (SSM). The less significant institutions remain under the supervision of the national supervisory authorities and are only indirectly supervised by the European Central Bank.
In Austria, several bodies are responsible for enforcing the applicable laws and regulations in the banking sector. These include:
- The Financial Market Authority (FMA) is the central regulatory body for the financial sector in Austria. It is responsible for supervising banks and other financial institutions, ensuring compliance with applicable laws and regulations, and protecting the interests of consumers and investors. The FMA has the power to impose fines and other penalties for non-compliance with applicable regulations and can revoke licenses or authorizations in case of serious breaches.
- The Austrian National Bank (Oesterreichische Nationalbank; OeNB) is Austria’s central bank and is responsible for implementing monetary policy, maintaining financial stability, and supervising the banking sector. In the area of banking supervision, the OeNB is responsible for fact-finding. It conducts on-site inspections and prepares analyses and expert reports. In addition, the OeNB is responsible for processing supervisory reports.
- The Ministry of Finance: The Ministry of Finance is responsible for setting fiscal policy and overseeing the implementation of financial regulations. It works closely with the FMA and the OeNB to ensure the stability and integrity of the banking sector.
- The Resolution Authority: The Resolution Authority is responsible for managing the resolution process of failing banks. In Austria, the Resolution Authority is integrated within the FMA and is responsible for planning and executing the resolution of banks and other financial institutions in financial difficulties. The Authority aims to ensure that any resolution is carried out in a manner that is least disruptive to the wider financial system while also minimizing the cost to taxpayers and depositors.
The local authorities are integrated into the Single Supervisory Mechanism (SSM), thus the European Central Bank and the European Banking Authority have a leading role in the banking supervision in Austria.
- European Central Bank (ECB): The ECB has been responsible for the supervision of banks in the euro area since November 4, 2014. It is directly responsible for the supervision of significant credit institutions and indirectly responsible for the supervision of less significant credit institutions.
- The European Banking Authority (EBA): The EBA has the task of creating a uniform set of rules for harmonized banking supervision on the basis of European legal texts (e.g., Capital Requirements Regulation or Capital Requirements Directive). It fulfills this mandate primarily by developing binding technical standards and guidelines.
1.3. What are the current priorities of regulators and how does the regulator engage with the banking sector?
FMA informs the public about its supervisory priorities for the next year. Currently, in 2023, the priorities are (source: Financial Market Authority, Facts and Figures, Trends and Strategies 2023):
- Resilience and Stability: strengthening the crisis resilience of supervised financial service providers as well as safeguarding the stability of the Austrian financial market as a whole.
- Digital transformation: exploiting the opportunities arising from digitalization while simultaneously addressing the associated risks in a consistent manner.
- New business models: accompanying innovative business models in terms of supervision from as early a stage as possible, in order to promote the innovative power of the Austrian financial market, ensuring fair competitive conditions and guaranteeing appropriate consumer protection.
- Collective consumer protection: further development of consumer protection in a rapidly changing environment under the buzzwords: digital transformation, changing consumer behavior, demographic development, and the change in interest rates.
- Sustainability: To support the financial market and all its participants in regulatory and supervisory terms during the changeover to a sustainable economic model.
- A clean financial center in Austria: safeguarding the orderliness and reputation of Austria as a financial center at all levels.
2.1. What licenses are required to provide banking services in your jurisdiction? What activities do they cover?
The list of banking transactions that require a license can be found in Article 1 para. 1 of the BWG and it covers the following activities:
1. The acceptance of funds from other parties for the purpose of administration or as deposits (deposit business);
2. The provision of non-cash payment transactions, clearing services, and current-account services for other parties (current account business);
3. The conclusion of money-lending agreements and the extension of monetary loans (lending business);
4. The purchase of cheques and bills of exchange, and in particular the discounting of bills of exchange (discounting business);
5. The safekeeping and administration of securities for other parties (custody business);
6. The issuance and administration of payment instruments such as credit cards, bankers’ drafts, and travelers’ cheques, with no limitation applicable to the term of crediting in the case of credit cards;
7. Trading for one’s own account or on behalf of others in:
a) Foreign means of payment (foreign exchange and foreign currency business);
b) Money-market instruments;
c) Financial futures contracts, including equivalent instruments settled in cash as well as call and put options on the instruments listed in lit. a and d to f, including equivalent instruments settled in cash (futures and options business);
d) Interest-rate futures contracts, forward rate agreements (FRAs), interest-rate and currency swaps as well as equity swaps;
e) Transferable securities (securities business);
f) Derivative instruments based on lit. b to e; unless these instruments are traded for private assets;
7a. trading on one’s own account or on behalf of others in financial instruments pursuant to Article 1 no. 7 lits. e to g, j and k of WAG 2018; published in Federal Law Gazette I No. 107/2017, except in the case of trading conducted by persons pursuant to Article 2 para. 1 nos. 6, 12, and 13 WAG 2018 as well as trading provided that it is conducted using private assets;
8. The assumption of suretyships, guarantees and other forms of liability for other parties where the obligation assumed is monetary in nature (guarantee business);
9. The issuance of covered bonds in accordance with the Pfandbrief Act (Pfandbriefgesetz; PfandBG) published in Federal Law Gazette I No. 199/2021 (securities underwriting business);
10. The issuance of other fixed-income securities for the purpose of investing the proceeds in other banking transactions (miscellaneous securities underwriting business);
11. Participation in underwriting third-party issues of one or more of the instruments listed under no. 7 lit. b to f as well as related services (third-party securities underwriting business);
12. The acceptance of building savings deposits and the extension of building loans in accordance with the Building Society Act (Bausparkassengesetz; BSpG) (building savings and loan business);
13. The management of investment funds in accordance with the Investment Fund Act 2011 (Investmentfondsgesetz; InvFG 2011), Federal Law Gazette I No. 77/2011 (investment fund business);
13a. The management of real estate investment funds in accordance with the Real Estate Investment Fund Act (Immobilien-Investmentfondsgesetz; ImmoInvFG), Federal Law Gazette I No. 80/2003 (real estate investment fund business);
15. The business of financing through the acquisition and resale of equity shares (capital financing
16. The purchase of receivables from the delivery of goods or services, assumption of the risk of non-payment associated with such receivables – with the exception of credit insurance – and the related collection of such receivables (factoring business);
17. The conduct of money brokering transactions on the interbank market;
18. The brokering of transactions as specified in
a) No. 1, except for transactions conducted by contract insurance undertakings;
b) No. 3, except for the brokering of mortgage loans and personal loans by real estate agents, personal loan and mortgage loan brokers, and investment advisors;
c) No. 7 lit. a where this applies to foreign exchange transactions;
d) No. 8.
21. The acceptance and investment of severance payment contributions from salaried employees and self-employed persons (severance and retirement fund business);
22. The purchase of foreign means of payment (e.g., notes and coins, cheques, traveler’s letters of credit, and payment orders) over the counter and the sale of foreign notes and coins as well as travelers’ cheques over the counter (exchange bureau business);
(Please note that the above numbering is pursuant to Article 1 para. 1 of BWG and that numbers 14, 19, 20, and 23 have been repealed)
Pursuant to Article 1 para. 3 of BWG credit institutions are entitled to conduct exchange bureau business and or leasing operations without requiring an additional license. Credit institutions are allowed to perform activities ancillary to the respective banking transaction, in particular, brokering of
- building savings plans,
- undertakings and companies,
- investment fund shares, and
- equity shares.
Furthermore, credit institutions are allowed pursuant to Article 1 para. 3 BWG to provide services in the field of automated data processing as well as sale activities relating to credit cards, trading of coins, medals, and gold as well as the renting of safety deposit boxes (safes).
Credit institutions are also authorized to carry out the activities listed in Article 3 para. 2 nos. 1 to 3 of WAG 2018 (investment advice, portfolio management, receiving and transmitting of orders in relation to financial instruments) and – in the event that licenses are held for specific banking transactions – are authorized to conduct the payment services listed in Article 1 para. 2 of the ZaDiG (see also Article 1 para. 3 of BWG).
In the event that a license is held in accordance with Article 1 para. 1 nos. 1 and 3, or pursuant to para. 1 no. 2 or no. 6, credit institutions may also issue electronic money in accordance with the Electronic Money Act 2010 (E-Geldgesetz 2010; E-GeldG 2010).
2.2. What is the procedure for obtaining a banking license? How long does this typically take?
The European Central Bank is competent for the licensing procedure for credit institutions pursuant to Article 4 (1) 1 CRR (“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) with regard to the Common Procedures
All credit institutions headquartered in Austria that are not directly supervised by the European Central Bank (referred to as “non-CRR credit institutions”) are granted their license directly by the Financial Market Authority.
All applications are to be submitted with the FMA. In the case that the institution making the application fulfills the definition in accordance with the CRR, the FMA then forwards the applications together with a draft decision and the relevant documentation to the European Central Bank for the decision-making process. Since January 31, 2022, the IMAS Portal can be used for such applications,
The procedure for obtaining a banking license in Austria is a complex and lengthy process that involves several steps. The specific requirements and timelines may vary depending on the type of banking license being sought and the complexity of the applicant’s business model.
Good cooperation and continuous communication with the FMA are crucial for having an efficient and successful licensing process. It is also necessary to pre-inform FMA about the plans to submit an application and to discuss the business plan beforehand.
Already in this phase before the formal submission of an application of the applicant’s business plan, financial projections, risk management framework, and other key aspects of its proposed banking activities will be discussed between the applicant and the FMA.
The application must include detailed information about the applicant’s business model, corporate structure, ownership structure, management team, financial projections, and compliance with applicable laws and regulations.
Once the application is received, the FMA will conduct a thorough review to assess the suitability of the applicant and its proposed business activities. This may involve a review of the applicant’s financial and regulatory history, as well as interviews with key personnel.
Once the FMA is satisfied that it has received all required information and that the applicant meets all the necessary requirements for a banking license, it will grant the license. The license will specify the activities that the licensee is authorized to engage in, as well as any conditions or restrictions that apply.
The length of time it takes to obtain a banking license in Austria can vary depending on a range of factors, such as the complexity of the applicant’s business model, the experience of the main personnel, infrastructure, and the capability that all services can be provided solidly and the completeness.
2.3. Can a foreign bank operate in your jurisdiction on the basis of its domestic license?
If a foreign bank may operate a business in Austria depends on the home authority which granted the license to the foreign bank.
- License from an EEA Member State:
Credit institutions authorized in an EEA Member State are in principle already authorized on the basis of their license in their home member state to also provide banking operations in other Member States (single license principle).
Those credit institutions may provide cross-border activities either through a branch on the basis of the freedom of establishment or without a branch under the freedom to provide services. The intention to conduct banking activities on a cross-border basis must be notified by the credit institution to the respective home supervisory authority which will notify this intention to the FMA under the EU/EEA passporting regime.
- License from a home state outside the EEA
Foreign banks that wish to conduct banking activities in Austria must obtain a banking license from the FMA in Austria as the regulatory body responsible for overseeing the banking sector in Austria and has the authority to grant banking licenses to both domestic and foreign entities. Foreign banks must meet the same requirements as domestic banks in order to obtain a banking license in Austria.
2.4. What are the restrictions on ownership, including foreign ownership of banks?
Pursuant to Article 21 para. 1 No 2 of BWG any case in which the limits of 10% (qualifying holding), 20%, 33%, and 50% of the voting rights or capital of a credit institution or CRR-credit institution based in a third country are reached, exceeded or not reached requires special approval by the FMA.
Regarding restriction, please see the requirements for special approval below in Point 2.5.
2.5. What are the requirements for a proposed acquisition and acquirer of a qualified holding in a bank? Would the same requirements apply in the case of an increase of a qualifying holding?
The FMA shall appraise the suitability of the proposed acquirer and the financial soundness of the proposed acquisition against all of the following criteria, in order to ensure the sound and prudent management of the credit institution in which an acquisition is proposed and having regard to the likely influence of the proposed acquirer on the credit institution:
1. the reliability of the interested acquirer pursuant to Article 5 para. 1 nos. 6, 7 and 9 of BWG;
2. the reliability, professional qualifications, and experience pursuant to Article 5 para. 1 nos. 6 to 9 of BWG of any person who will direct the business of the credit institution as a result of the proposed acquisition;
3. the financial soundness of the proposed acquirer, in particular in relation to the type of business pursued and envisaged in the credit institution in which the acquisition is proposed;
4. whether the credit institution will be able to comply and continue to comply with the prudential requirements based on Directives 2009/110/EC, 2002/87/EC, 2013/36/EU and Regulation (EU) No 575/2013 and, in particular, whether the group of which it will become a part has a structure that makes it possible to exercise effective supervision, effectively exchange information among the competent authorities and determine the allocation of responsibilities among the competent authorities (Article 5 para. 1 nos. 4 and 4a of BWG);
5. whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, money laundering or terrorist financing within the meaning of Article 1 of Directive (EU) 2015/849 is being or has been committed or attempted, or that the proposed acquisition could increase the risk thereof.
III. REGULATORY CAPITAL AND LIQUIDITY
3.1. How are banks typically funded in your jurisdiction?
Banks in Austria are typically funded through a combination of several sources, such as:
- Deposits: The primary source of funding are customer deposits. Austrian banks offer a range of deposit products, including savings accounts, current accounts, and term deposits, which provide customers with a safe and convenient place to store their money.
- Interbank lending: Austrian banks also borrow from other banks and financial institutions in the interbank market. This allows them to access additional funding when needed and to manage their liquidity more effectively. The interest rates on interbank loans are typically lower than those on other forms of borrowing.
- Debt securities: Austrian banks also issue debt securities, such as bonds and commercial paper, to raise funds from investors. These securities typically offer higher yields than bank deposits and can be traded on financial markets.
- Capital markets: Austrian banks may also access the capital markets to raise funds through the issuance of shares or other securities.
The funding mix of Austrian banks may vary depending on a range of factors, including market conditions, regulatory requirements, and the specific needs of the bank. Banks in Austria typically aim to maintain a diversified funding base, which helps to ensure that they have access to funding from a variety of sources and are not overly reliant on any one type of funding.
3.2. What capital and own funds requirements apply to banks in your jurisdiction?
Banks in Austria are subject to capital and own funds requirements that are designed to ensure that they have sufficient financial resources to absorb potential losses and maintain a sound financial position. These requirements are set out in BWG as well as related regulations and are consistent with the requirements set by the European Union’s Capital Requirements Directive (CRD IV) and CRR.
Further, banks are subject to ongoing supervisory review to ensure that they comply with these requirements and that they maintain a strong financial position.
The main capital and own funds requirements that apply to banks in Austria are:
- Minimum capital requirements: Banks must maintain a minimum level of capital, which is expressed as a percentage of their risk-weighted assets. The minimum capital requirement is set at 8% of risk-weighted assets, but banks are generally expected to maintain a higher level of capital to reflect their risk profile.
- Capital conservation buffer: Banks must maintain a capital conservation buffer of 2.5% of risk-weighted assets. This buffer is designed to ensure that banks have sufficient capital to withstand future periods of stress.
- Countercyclical capital buffer: The Austrian National Bank (OeNB) may require banks to maintain a countercyclical capital buffer of up to 2.5% of risk-weighted assets, depending on the state of the economy and the credit cycle.
- Additional own funds requirements: Banks may be required to maintain additional own funds, such as for systemic risk purposes, based on their size and importance to the financial system.
- Total loss-absorbing capacity (TLAC) requirements: Banks that are designated as global systemically important banks (G-SIBs) must maintain a minimum level of TLAC, which is designed to ensure that they have the sufficient loss-absorbing capacity to prevent taxpayer bailouts in the event of a failure.
3.3. Has your jurisdiction implemented the Basel III framework? Are there any major deviations?
The CRD IV and the CRR are either directly applicable or implemented through statutes in Austria as an EU member state. The CRD IV and the CRR set out the requirements for capital, liquidity, and risk management for banks in the EU.
While there are no major deviations from the Basel III framework in Austria, the EU has implemented some modifications to the framework in order to better suit the specificities of the EU banking sector. For example, the EU has imposed stricter limits on the use of internal models for calculating risk-weighted assets and has introduced additional capital buffers for systemically important banks.
IV. REPORTING, ORGANISATIONAL REQUIREMENTS, INTERNAL GOVERNANCE, AND RISK MANAGEMENT
4.1. What key reporting and disclosure requirements apply to banks in your jurisdiction?
Banks in Austria are subject to a range of reporting and disclosure requirements that are designed to promote transparency and ensure that regulators and other stakeholders have access to accurate and timely information about their financial condition. These requirements are set out in the BWG and related regulations and are consistent with the reporting and disclosure requirements set by CRD IV and CRR.
The key reporting and disclosure requirements that apply to banks in Austria include:
- Financial reporting: Banks are required to prepare and publish annual financial statements that provide a comprehensive overview of their financial condition, including information about their assets, liabilities, equity, income, and expenses.
- Capital adequacy reporting: Banks are required to report on their capital adequacy, including information about their capital levels, risk-weighted assets, and capital ratios.
- Liquidity reporting: Banks are required to report on their liquidity position, including information about their liquidity ratios, funding sources, and liquidity risk management.
- Large exposures reporting: Banks are required to report on their large exposures to individual counterparties, groups of connected counterparties, and related parties.
- Stress testing: Banks are required to conduct stress tests to assess their ability to withstand adverse economic conditions, and to report on the results of these tests.
- Disclosure of related party transactions: Banks are required to disclose their related party transactions, including transactions with their shareholders, directors, and senior management.
- Public disclosures of information: Banks are required to make certain information available to the public, including information about their ownership structure, organizational structure, risk management policies, and internal controls.
In addition, banks are subject to ongoing supervisory review to ensure that they comply with these requirements and that they maintain a strong financial position.
4.2. What are the organizational requirements for banks, including with respect to corporate governance?
The organizational requirements for banks in Austria are set out in the BWG and various related regulations. These requirements are designed to promote effective corporate governance and ensure that banks are managed in a prudent and responsible manner. The key organizational requirements for banks in Austria include:
- Governance structure: Banks are required to establish a clear and transparent governance structure that includes a management body and a supervisory board.
- Fit and proper assessment: The members of the management body and key function holders are subject to a fit and proper assessment to ensure that they have the necessary skills, experience, and integrity to carry out their roles effectively. This assessment is conducted by the competent supervisory authority and is based on factors such as the individual’s education, professional experience, and reputation.
- Risk management: Banks are required to establish a robust risk management framework that includes policies, procedures, and controls for identifying, assessing, and managing the various risks that they face.
- Internal control framework: Banks are required to establish an effective internal control framework that includes systems and procedures for monitoring and controlling their operations and ensuring compliance with applicable laws and regulations.
- Compensation: Banks are required to establish a compensation policy that aligns the interests of employees with the long-term interests of the bank and its stakeholders, and that does not encourage excessive risk-taking.
The fit and proper assessment process in Austria is an important tool for assessing the suitability of individuals who hold key positions in banks, and for promoting a culture of integrity and accountability within the banking sector. It involves a detailed review of the individual’s background, qualifications, and experience. The competent supervisory authority evaluates whether the individual has the necessary skills, knowledge, and experience to effectively carry out their role, and assesses their reputation and integrity. The assessment process includes a review of criminal records, any regulatory or legal sanctions, and potential conflicts of interest. The supervisory authority may also conduct interviews with the individual and seek references from previous employers or other relevant parties.
Besides that governance regulation of the Joint Stock Company Act (AktG) and for listed companies also the Corporate Governance Codex applies.
4.3. What are the local rules for loans to the management body and their related parties?
Austrian rules for loans to the management body and their related parties are set out in the BWG and related regulations. Under the BWG, banks are prohibited from granting loans to their management board members, supervisory board members, or any other related parties, except under certain conditions. Such loans can only be granted if they are:
- in the normal course of business;
- on market terms; and
- with the approval of the supervisory board.
In addition, banks must ensure that loans to related parties do not exceed a certain threshold. According to the BWG, loans to any individual related party or group of related parties must not exceed 2% of the bank’s own funds, while loans to all related parties combined must not exceed 10% of the bank’s own funds.
The term “related party” is broadly defined under Austrian law and includes, among others, the spouse, children, and parents of a management board member or supervisory board member, as well as any legal entity in which a management board member or supervisory board member has a significant ownership interest.
The purpose of these rules is to prevent conflicts of interest and ensure that banks do not provide preferential treatment to their management board members or related parties. By requiring that loans to related parties be made on market terms and with the approval of the supervisory board, the rules aim to ensure that the bank’s resources are used prudently and in the best interests of its stakeholders.
4.4. What are the main legal provisions governing risk management in the banking sector in your jurisdiction?
The regulatory framework in Austria is designed to be in line with international standards, including the Basel Committee’s standards, to promote the safety and soundness of the banking sector in Austria.
The main legal provisions governing risk management in the banking sector in Austria are:
- The Austrian Banking Act (BWG): The BWG requires banks to establish an effective risk management system that identifies, measures, monitors, and controls all types of risks, including credit risk, market risk, liquidity risk, operational risk, and reputational risk.
- The Capital Requirements Regulation (CRR): The EU regulation sets out the prudential requirements for banks, including capital adequacy, risk management, and reporting and disclosure obligations, is directly applicable in Austria and is implemented through BWG.
- The Austrian Regulation on Risk Management (Risikomanagementverordnung): The regulation requires banks to establish a risk management policy and a risk management framework that includes procedures for identifying, assessing, monitoring, and controlling risks.
- The Austrian Regulation on Liquidity Risk Management (Liquiditatsrisiko-verordnung): The regulation requires banks to establish a liquidity risk management policy and a contingency funding plan to ensure that they have sufficient liquidity to meet their obligations under various stress scenarios.
- The Austrian Regulation on Credit Risk Management (Kreditrisikoverordnung): The regulation requires banks to establish a credit risk management policy and to implement procedures for the identification, measurement, and monitoring of credit risk.
- The FMA Minimum Standards for Lending Business and other transactions with counterparty risks
- The FMA Minimum Standards for the Risk Management and Granting of Foreign Currency Loans and Loans with Repayment Vehicles
- The FMA Minimum Standards for the Credit Business and other Transactions entailing Counterparty Risks
4.5. What are the legal requirements applicable to banks in combating money laundering and terrorist financing area?
Banks in Austria are subject to a comprehensive set of legal requirements aimed at combating money laundering and terrorist financing. The main legal requirements applicable to banks in Austria in this area include:
- The Austrian Banking Act (BWG): This law requires banks to establish and maintain an effective anti-money laundering (AML) and counter-terrorism financing (CTF) program. The program should include internal policies, procedures, and controls designed to prevent and detect money laundering and terrorist financing activities.
- The Austrian Criminal Code (Strafgesetzbuch; StGB): The Criminal Code criminalizes money laundering and terrorist financing activities in Austria. Banks are required to report any suspicious transactions to the relevant authorities and cooperate with law enforcement agencies in investigations related to money laundering and terrorist financing.
- The Austrian Implementation of the EU Anti-Money Laundering Directive: The 4th and 5th EU Anti-Money Laundering Directive was implemented in Austria through the following Acts:
The Austrian Financial Markets Anti-Money Laundering Act (FM-GwG; cf. section I.1.1): The FM-GwG regulates the activities of financial institutions, including banks, and aims to prevent money laundering and terrorist financing in the financial markets. This regulation sets out the detailed requirements for customer due diligence (CDD) measures that banks must undertake to prevent money laundering and terrorist financing. Banks are required to identify their customers and beneficial owners, verify their identities, and assess the potential money laundering and terrorist financing risks associated with the customer relationship. In addition, the FM-GwG requires banks to report suspicious transactions to the relevant authorities and maintain records of all transactions for at least five years.
Beneficial Owners Register Act (Wirtschaftliche Eigentuemer Registergesetz; WiEReG) requires legal entities, trusts, and similar arrangements to maintain accurate and up-to-date information on their beneficial owners, or the individuals who ultimately own or control them, in order to prevent money laundering and terrorist financing, and to increase transparency in the ownership structures of Austrian companies and trusts. Companies and other legal entities must identify their beneficial owners and provide certain information about them to a central register, known as the Beneficial Ownership Register (BOR), keep their information up-to-date and notify the BOR of any changes. The BOR is maintained by the Austrian Ministry of Finance and is accessible to designated authorities, such as law enforcement and financial regulatory bodies. Failure to comply with the WiEReG can result in fines and other penalties.
- Several FMA-Regulations (Verordnungen) in relation to the prevention of money laundering and terrorist financing and corresponding FMA-Circulars (Rundschreiben) as guidance for the obliged entities, and which reflect the FMA’s legal position in this field.
4.6. Are there any legal provisions regulating banking secrecy in your jurisdiction?
Austria has strict legal provisions regulating banking secrecy. Under Austrian law, banking secrecy is protected by the BWG and the StGB.
The BWG sets out the legal framework for banking secrecy in Austria in Article 38. It requires banks to keep confidential all information and data obtained in connection with their banking activities. This obligation of confidentiality extends to all employees of the bank and applies even after their employment has ended. The BWG also prohibits banks from disclosing confidential information without the express consent of their customers, except in limited circumstances, such as when required by law.
The StGB imposes criminal sanctions on any person who discloses confidential information obtained in the course of their work in a bank. The penalties for violating banking secrecy can include fines, imprisonment, or both.
However, banking secrecy is not absolute in Austria. Banks are required to disclose information to the authorities in certain circumstances, such as when required by law, when ordered to do so by a court, or when disclosure is necessary for the prevention or investigation of criminal activities.
5.1. What are the main trends in the banking sector in your jurisdiction?
Digitalization: Austrian banks are increasingly focusing on digital banking services, such as online and mobile banking. This trend has been accelerated due to the COVID-19 pandemic, as customers have shifted towards online banking.
Sustainability: Environmental, social, and governance (ESG) considerations are becoming increasingly important in the Austrian banking sector. Banks are incorporating ESG factors into their lending and investment decisions and are offering sustainable financial products to customers.
Consolidation: The Austrian banking sector has undergone consolidation in recent years, with several mergers and acquisitions taking place. This trend is expected to continue as smaller banks struggle to compete with larger players.
Fintech partnerships: Austrian banks are partnering with fintech companies to offer innovative financial products and services to customers. This collaboration is expected to continue as banks aim to stay competitive in the rapidly evolving financial services landscape.
Increased regulation: The banking sector in Austria is subject to increased regulation, particularly in the areas of consumer protection and data privacy. This trend is expected to continue as regulators seek to strengthen the stability and integrity of the financial system.
5.2. What are the biggest challenges in the banking sector at the moment?
Resilience and Stability: Real economic challenges such as energy, raw material and material shortages, fragile supply chains, an ailing economy and even fears of recession, persistently strong inflationary pressure, the abrupt turnaround in interest rates, and the extremely high volatility on the financial and capital markets will inevitably have direct and indirect effects on many financial market participants. It will be crucial for banks to define business strategies to make them resilient.
Digital transformation/AI: While digitalization presents opportunities for banks to improve efficiency and offer innovative services to customers, it also requires significant investment and expertise. Some banks may struggle to keep pace with the rapid changes in technology and customer expectations. Digital transformation and the expanded utilization of AI will have a massive impact on the economy and the business models of many industries.
5.3. What’s new in fintech?
Regulatory Sandbox: FMA offers a regulatory sandbox that is a type of regulatory experimental space within which innovative solutions, technologies, products, services, and business models can be developed, tested, and taken as far as regulatory maturity with the support of the FMA in a controlled environment and for a defined period of time.
The companies are supported all along the way: from the first step of admission to final authorization, with individual advice being given both from a regulatory and technological perspective.
Alternative lending: The European Crowdfunding Service Providers Regulation (ECSPR) and its transposition into Austrian law by way of the Crowdfunding Enforcement Act (Schwarmfinanzierung-Vollzugsgesetz) followed in 2021, providing for a harmonized legal basis in Europe. Only authorized and supervised crowdfunding platforms are allowed to provide cross-border crowdfunding services pursuant to the ECSPR. Funding may only take the form of loans or transferable securities. Investments such as qualifying subordinated loans, participation rights, or silent or limited partnerships are not allowed. This new regime will bring a consolidation of the service provider on one hand but also expands the field of activities for larger crowd financing platforms.
Wealth management: Fintech companies are also offering innovative wealth management solutions that use artificial intelligence (AI) and machine learning (ML) algorithms to provide personalized investment advice and portfolio management services.
Digital payments: The fintech sector has been active in developing digital payment solutions that offer greater convenience and security to customers.
Regtech: Regulatory technology (regtech) solutions to help banks to comply with the increasing regulatory requirements in the financial services industry is an interesting field of development. These solutions use AI and ML algorithms to automate compliance processes and reduce the risk of regulatory breaches.
Virtual Currencies and Blockchain technology: Despite the recent setbacks in regard to virtual currencies, this innovation still will have some impact on the banking and payment sector.