2001, January 1
MMag. Walter Mühlbacher

A. Introduction

In the year 2000 and in the first half of 2001 Austrian banking and financial law was subject to major changes: The most important ones were the amendment to the Banking Act by federal law No 33 of 2000, Federal Law Gazette I No 33/2000, aiming at the transformation of CAD II into Austrian national law, and the Capital Market Offensive Act, Federal Law Gazette I No 2/2001, providing – inter alia – for a third regulated stock exchange market.

Apart from other minor changes, recently (on 5 July 2001) an important legislative proposal was accepted by the national council, one of the two houses of Austrian parliament: The so-called Financial Market Supervision Act providing for the establishment of a powerful Financial Market Supervision Authority, comprising of supervisory authorities in the whole field of banking and financial law (the consent of the second house of parliament, the federal council, is to be expected soon).

Other proposals concern the introduction of e-money institutions and real estate funds in Austria.

The present report will start with recent developments in banking law. The second part "developments in financial law" is devoted to securities supervision law, capital market law, stock exchange law and the law of investment funds. In each area of law, legislative amendments as well as pending legislative proposals are presented. Important court decisions are indicated, where available.

B. Recent developments in banking law

The core legal source of Austrian banking law is the Austrian Banking Act of 1993 which has already been amended several times since its enactment. In the years 2000 and 2001 its provisions have been changed four times.

1. Recent amendments

The most far-reaching recent amendment to the Austrian Banking Act was effected by federal law No 33 of 2000, Federal Law Gazette I No 33/2000:

Its changes affected a wide variety of provisions, such as capital adequacy rules, money laundering regulations, provisions on consumer credits, anonymous savings books, solvency ratios, risks associated with commodities trading and commodity derivatives, deposit-guarantee schemes, liability reserves ("Haftrücklage"), world-wide co-operation with banking supervision authorities and approval requirements in cases of a de-merger of banks. In most cases the statute represents a transformation of relevant EU-directives.

In transformation of Directive 98/31/EC of the European Parliament and of the Council of 22 June 1998 amending Council Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions, the rules of CAD II were implemented in the Austrian Banking Act: It was held necessary that investment firms and credit institutions comply with more accurate methods for the calculation of capital requirements for market risks associated with commodities trading and commodity derivatives. The concept of the "trading book" is extended to positions in commodities or commodity derivatives which are held for trading purposes and are subject mainly to market risks. Positions in gold and gold derivatives are treated in a similar fashion as foreign exchange positions.

International efforts to combat money laundering, especially within the Financial Action Task Force on money laundering (FATF), made it necessary to effectively prevent cases of money laundering by repealing the Austrian anonymous savings book. As of 1 November 2000 no new anonymous savings books can be opened. Investment firms and credit institutions have to record the identity of customers when taking up new permanent business relationships with them and, unless in case of the existence of a permanent business relationship, when transactions in excess of EUR 15,000 are effected. After 30 June 2002, transactions involving existing anonymous savings accounts require prior identification with the effect that the accounts cease to be anonymous. However, up until 30 June 2002 money can be anonymously withdrawn from anonymous savings accounts unless the circumstances give rise to the suspicion of money laundering.

In accordance with the work of the Basel Committee on Banking Supervision and in transformation of Directive 98/33/EC, Austria may now conclude co-operation agreements, providing for the exchange of information, with the competent supervisory authorities of third countries to enable international co-operation in banking supervision.

Furthermore the so-called "export-ban" on deposit-guarantee schemes expired: Until 21 April 2000 neither the level nor the scope, including the percentage, of cover provided when branches set up by credit institutions in other Member States were to exceed the maximum level or scope of cover offered by the corresponding guarantee scheme within the territory of the host Member State.

Federal law No 25 of 2000, Federal Law Gazette I No 25/2000, brought only minor changes due to the preparation for the full privatisation of the Oesterreichische Postsparkasse AG (Austrian Post Savings Bank plc): The possibility for banks to hold liquidity reserves at the Post Savings Bank was cancelled.

Another minor amendment was entailed by the general reduction in the years of age when children attain their majority, namely from 19 to 18 years (Federal Law Gazette I No 135/2000): The special duty of care on behalf of the banks to apply to customer relations with minors encompass restrictions when issuing credit cards and cheques to minors and the limitation of the minors’ possibility to withdraw money from their bank accounts by means of ATMs to ATS 5,000 (EUR 400).

A recent amendment introduced by federal law No 2 of 2001, Federal Law Gazette I No 2/2001, took into account the introduction of the Euro as official cash in 2002 by changing all amounts in the Banking Act from Austrian Schilling to amounts in Euro without major changes in the real value of the relevant figures.

2. Legislation in preparation

As for legislation in preparation there are primarily two legislative projects worth being mentioned: A new so-called Financial Market Supervision Act and the ‘E-Money Act’.

The Financial Market Supervision Act envisages the establishment of a new regulatory authority, the "Financial Market Supervision Authority" (hereinafter referred to as the FMA). The FMA is to perform a wide variety of tasks, such as banking supervision, insurance supervision, pension funds and securities supervision and can therefore be regarded as a powerful "super-authority". Consequently the enactment of the Financial Market Supervision Act would constitute the most important amendment in the recent history of financial supervisory law. As mentioned in the Introduction, the bill was accepted by the national council, one of the two houses of Austrian parliament on July 5, 2001. The consent of the second house of parliament, the federal council, is to be expected soon. The act shall enter into force on 1 April 2002.

In this context only the most important of the changes can be briefly outlined since the draft comprises of detailed particular amendments to the full range of statutes in the area of banking and financial law, which are only partly attributable to mere technical changes as consequence of the establishment of the FMA.

Currently, the supervision of financial institutions is split between several authorities. For the supervision of credit institutions, basically the Federal Minister of Finance (BMF) is competent. The same is the case for the supervision of insurance enterprises. However, within the Ministry of Finance the banking and insurance supervision are organized in separate departments. For the supervision of investment firms (rendering the services investment advice, investment management and agency with respect to securities transactions) the Securities Supervision Authority (BWA) is competent. The BWA however, also supervises credit institutions and partly insurers with respect to the rules of good conduct (adopted in accordance with the Investment Service Directive, 93/22/EEC – ISD), and has to investigate possible cases of insider trading. For imposing fines if financial services are rendered without a license, the District Administrative Authorities are competent.

The main focus of the draft act is twofold: On the one hand it envisages the establishment of the Financial Market Supervision Authority as a public-law institution competent for the supervision of all financial institutions. While a prior draft provided for full independence of FMA by virtue of a constitutional provision to be decided upon by a two-third majority vote in the parliament, in the current version the BMF retains the political responsibility as well as directing and supervising powers over FMA which are subject to procedural and transparency rules, although the authority is deemed to be mostly independent in its supervising activities within the daily routine. This somewhat half-hearted compromise was necessary because the opposition (whose votes would have been necessary to reach a two-third majority) declined in advance to give its consent to an independent authority (they would have preferred that the Austrian National Bank gets the competences of the FMA).

On the other hand the draft varies substantive supervisory law in the interest of expeditious and more effective supervisory measures. All competences for administrative penal proceedings reside in FMA. Eligibility criteria for certified public accountants of banks are intensified, both as regards the personal qualifications, as well as for safeguarding the reliability of audit procedures by introducing the rotational principle. The liability of certified public accountants (CPAs) for damages is also intensified.

Amendments to the Austrian Stock Corporation Act and the Act on Limited Liability Companies foresee more severe criminal provisions for the breach of information obligations and promulgation of wrong information by members of the management or supervisory board of corporations. These rules too aim at increasing the credibility of the Austrian financial market.

Another legislative project regards the taking up, pursuit of and prudential supervision of the business of electronic money institutions (so-called "e-money institutions"):

The draft transforms the relevant EC-Directive regarding e-money institutions (namely Directive 2000/46/EC) into Austrian federal law. Electronic money institutions are undertakings or any other legal person, other than a credit institution which issues means of payment in the form of electronic money (e-money). E-money is monetary value as represented by a claim against the issuer which is stored on an electronic device, issued on receipt of funds of an amount not less in value than the monetary value issued and is accepted as means of payment by undertakings other than the issuer.

E-money is supposed to substitute coins and bank notes in particular in e-business and to facilitate "micro-payments". It is provided for that a bearer of electronic money may, during the period of validity, ask the issuer to redeem it at par value in coins and bank notes or by a transfer to an account. The issuance of e-money is a banking business requiring a license.

3. Relevant court decisions

Out of the numerous cases regarding private and public law aspects of banking law, only very few cases can be presented in this context:

In its decision of 8 March 2000, ref No G23/99, the Austrian Supreme Constitutional Court had to deal with the constitutionality of temporary statutory rights of first refusal of a central institute of a specific banking sector (the sector of savings banks according to the Austrian Savings Banks Act – "Sparkassengesetz") regarding member institutions of the sector (in the case at hand, a savings bank which had been contributed into a stock corporation according to sec 92 banking act). The court acknowledged the specific interest of sector members in the maintenance of the sector and decided that such rights are not in breach with the constitutional right to equality and the guarantee of the right of ownership.

In another case the Austrian Supreme Administrative Court decided on 11 December 2000, ref No 2000/17/0237, 0239, that, in case the right to conduct business activities of a credit institution is temporarily suspended pursuant to sec 70 para 2 subpara 4 Banking Act, the institution is prohibited from the further conduct of business relationships which constitute a continuous obligation, such as the cheques, credit cards and ATM businesses. The reason is that such relationships are abstractly prone to endanger the security of entrusted property and the satisfaction of creditors’ claims.

The Austrian Supreme Civil Court of Justice decided on 25 July 2000, ref No 1 Ob 164/00z, that the "four-eyes principle" is also applicable to branch managers. Which is why, in the underlying case, the branch manager was not in a legal position that would allow him to reassign a claim for rent on his own.

In another case the Supreme Civil Court of Justice found on 6 June 2000, ref No 4 Ob 135/00g, that the business of a debt collection agency to collect debts by way of direct debit authorization, while guaranteeing the collectibility of the accounts receivable, constitutes a banking business pursuant to sec 1 para 1 subpara 8 Banking Act.

In a case of 21 October 1999, ref No 6 Ob 214/99k the Supreme Civil Court of Justice found that the lack of the articles of association of a credit institution to specify the details of the redemption of participating receipts (eg, the class of shares) impedes to assume that holders of participating receipts have a right at all to convert their receipts into shares. Participating receipts issued by credit institutions represent non-subordinated obligatory rights of the holders of the receipts to participate in profits and losses of the credit institution. Participating capital is not subject to termination and therefore a part of the bank’s supplementary capital and thus own funds according to sec 23 Banking Act. Since they are deemed to be an Austrian particularity, the intention of the legislative authority is to eliminate participating capital by providing a statutory possibility to redeem participating receipts even without the assent of their holders.

The last case to be presented in this context, is a decision of the Austrian Supreme Administrative Court of June 21, 1999, ref No 94/17/0377. In this case the BMF issued a decree, in which he temporarily appointed a commissioner to supervise a bank according to sec 70 para 2 subpara 2 Banking Act because of alleged danger to the satisfaction of creditors’ claims or to the entrusted property. The plaintiff bank, which was subject to bankruptcy proceedings later on, claimed that the statutory conditions precedent to the appointment of a commissioner were not fulfilled. The court found that the appointment of a commissioner is admissible under the Banking Act, given the predicted danger to the satisfaction of creditors’ claims or to the entrusted property, irrespective of the applicability of other possible supervisory measures. It is not necessary to lay out in detail the commissioner’s powers in the decree. An auditor’s opinion of the bank’s CPA is not binding for the BMF, who might even have to disregard his opinion. A prognosis is also necessary when deciding on the period of the appointment.


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