Reform Of The Austrian Financial Market Supervision

2002, January 1

he Financial Market Supervision Act (Finanzmarktaufsichtsgesetz – "FMAG") came into force on 1 April 2002. The main aims of the Financial Markets Supervision Act are the following:

· The FMAG provides for the establishment of the Financial Market Supervision Authority (Finanzmarktaufsichtsbehörde –"FMA"). The new authority encompasses the supervision of banking, insurance, securities transactions and pension funds and has lead to the "merger" of all supervisory authorities in one all-finance supervision authority.

· Further, supervision law has been amended. It is the aim of the Austrian legislator to increase the speed and the enforceability of supervisory measures. For example, the requirements for bank auditors have been made more rigorous. The position of the supervisory board of financial institutions has been strengthened. Inter alia, the supervisory board has been granted the power to carry out audits itself.

· Last but not least, the competences for supervisory procedures, enforcement und administrative penal procedures have been concentrated within one authority, the FMA.

The Structure Of The Financial Market Supervision


The new authority – similar to the Austrian Securities Supervision

(Bundeswertpapieraufsicht – "BWA")

, which has now been merged in the FMA – has been established as an independent institution under public law. Shortly before entering into force, the new law and the legislator´s efforts to establish an independent all-finance supervision authority (not subject to the directions of the Federal Minister of Finance) were quashed. In December 2001 the Austrian Constitutional Court judged that the structure of the Austrian Supervision Authority is partially in contradiction to the Austrian Constitution. The Court ruled that the setting-up of the BWA as a separate unit restricted the competence of the Austrian Minister of Finance in direction and supervision matters and the minister´s parliamentary responsibility. Now this problem seems to have been solved; the relevant provisions have been enacted with a parliamentary ¾-quorum as constitutional law.


Highlighted Amendments


In the following, the major amendments of various provisions by the FMAG are highlighted:


· The amended Commercial Code


provides for a more severe liability of the auditors. Auditors are obliged to conduct a conscientious and impartial audit and shall be obliged to confidentiality. Their liability is raised to EUR 2 million for slight and EUR 10 million for gross negligence.


· Auditors, who have audited a corporation for the last six years are exempted from ongoing audits. This so called "rotation principle" is a novation within the Austrian legal landscape.


· The provisions concerning the appointment of bank auditors (sec 63 Austrian Banking Act –


) have been made stricter. The FMA is empowered to prohibit the appointment of a non-eligible auditor or – in case of imminent danger – even appoint another auditor if certain prerequisites are met. Until now, this power was conferred to the courts.


· Most of the costs of the FMA have to be borne by the supervised institutions themselves. Sec 69a BWG provides for banks that only financial institutions having their seat or a branch in Austria are liable to pay the costs. Thus banks rendering services cross-border are not included. The costs are calculated on the basis of the capital resources requirement for the respective financial institution.


· Prospectively, the FMA may inform the public about the existence and extent of a license granted to a credit institution or securities service provider. This is to inform and to protect clients against services rendered illegally. The establishment of a database is envisaged which will be accessible over the Internet.


· Sec 12 para 3 Securities Supervision Act

(Wertpapieraufsichtsgesetz – "WAG")

has been adjusted to the provisions of sec 101 Telecommunications Act

(Telekommunikationsgesetz - "TKG")

, stating that all telephone calls made by a provider of investment services to customers are subject to the ban on ´cold (unsolicited) calling´. This ban covers telephone advertising, advertising via fax und e-mail. Undesired advertising during a valid business relation is – differently to the TKG – permissible. The consumer is entitled to withdraw his consent at any time.


· Similar to the banking secrecy, sec 21a WAG obliges securities service enterprises (investment firms) to keep confidential secrets of which they have become aware exclusively from securities transactions. This obligation to secrecy does not apply if legal obligations for disclosure exist or the client agrees to the disclosure of the secret information. An offence is subject to a judicial penalty.


· According to sec 44a Federal Reserve Bank Act


, the supervision over the payment systems is transferred to the Austrian Federal Reserve Bank

(Oesterreichische Nationalbank – "OeNB")

. The supervision covers the inspection of the security of payment systems and implements the European Finality Directive. The OeNB is entitled to make inquiries und establish standards for the organisation of payment systems.


· Individual statutory offences in the Austrian Stock Company Act


and the Austrian Limited Liability Company Act


concerning members of the executive and supervisory board, managing directors, commissioners and liquidators have been amended and the maximum term of imprisonment in case of an offence has been lowered to one year. The sentence has been adapted to the newly established sec 159 Austrian Criminal Code


concerning the infringement of creditor interests in a grossly negligent way.


Taxation Of Foreign Unit Trust Funds To Be Amended

By Andreas Zahradnik, a partner of DORDA BRUGGER & JORDIS, Austria.

The author may be contacted by telephone at (43 1) 533 47 95 42,

by fax at (43 1) 535 39 41, or by E-mail at

AUSTRIA – With judgment of 7 March 2002 the Austrian Constitutional Court abolished the unequal treatment of domestic and foreign unit trust funds in the field of final taxation. To allow legislative amendments the decision only becomes effective at the beginning of April 2003.


The Unconstitutional Legal Situation


The taxation of capital gains of domestic and foreign investment funds is – according to the present legal situation – non-uniform.


Whereas domestic investment funds are integrated in the system of final taxation, effecting a settlement of all other tax duties (e.g. duty payable on death), capital gains of foreign investment funds are not subject to final capital-yields taxation, but income tax without final taxation-privilege.


The Austrian Constitutional Court found this provision of the Austrian Income Tax Act

(Einkommenssteuergesetz – "EStG")

not in conformity with the Austrian Constitution, because capital gains of foreign investment funds, were excluded from the effect of final taxation.


Effective Date


As mentioned previously, the abolishment only becomes effective on 1 April 2003. In its judgment the court was concerned that in the field of foreign unit trust funds, due to the abolishment, certain capital gains could become subject to the effect of final taxation, which in fact should not take place according to the Austrian Final Taxation Act


or other tax policy related considerations.


In view of the late date of effectiveness of the abolishment the Austrian legislator has been given a sufficient period to create a new regulation in conformity with the court´s legal opinion.


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