With the new Securities Supervision Act (Wertpapieraufsichtsgesetz - "WAG") for the first time in Austria investment services are subject to uniform regulation. In particular these investment services consist of the so called financial services - a banking business which covers investment advice, investment management and agency regarding investments - as well as the securities trade. The WAG refers to these services also as (literally translated) securities services. This term is misleading though, since the securities services are relating not only to securities, but to most common forms of investments. However, among other things, direct investments in real estate are not covered. By including the investment services in the list of banking businesses in the Austrian Banking Act (Bankwesengesetz - "BWG") and by passing the WAG also the EC-directive on investment services in the securities field (council directive 93/22/EEC - "ISD") was meant to be implemented into Austrian law. However, the implementing provisions partly exceed the scope of the ISD. Especially, the personal scope of application of the WAG is wider than that of the ISD, since Anglo-American investment firms - which would be placed in the category of credit institutions under Austrian law - are subject to the EC-directive, whereas the Austrian provisions are also applicable for investment advisors, investment managers and investment agents, who are not - like credit institutions - allowed to hold their customers´ property in custody.
Federal Securities Supervisory Authority
First, the WAG provides for the establishment of a special authority, the Federal Securities Supervisory Authority (Bundes-Wertpapieraufsicht - "BWA"), which has to supervise the capital market. Its chief executive is bound by the instructions of and controlled by the Federal Minister of Finance. The responsibilities of the BWA are, inter alia, the fight against insider trading, supervising the compliance with the provisions on the protection of investors and the granting of licences to newly established so called securities service enterprises (Wertpapierdienstleistungsunternehmen) as well as their supervision. The costs of the BWA are shared between the Federal Republic of Austria on the one hand and the institutions liable to report to the BWA (e.g, credit institutions), the issuers of securities and the securities service enterprises on the other hand in a ratio of 10:90.
Licence to Perform Investment Services
Credit institutions are entitled to render investment services as well. However, companies who intend to exclusively render financial services have to obtain a special licence. They have to comply with strict requirements. In particular they have to be run in the legal form of an Austrian public or private limited company or a registered society, they have to be headed by two managers, for whom the standards for managers of credit institutions apply, and they must have a minimum capital at their disposal (ATS 650,000.-- for investment advice and agency and ATS 1.750,000.-- for investment management). The introduction of this strict requirement for this profession led to protests from investment advisors, since - according to a transitional provision - they are authorized to carry on their activities until the end of 1998, but would then have to establish a securities service enterprise. Under the Exchange Fund Transitory Act (Börsefondsüberleitungsgesetz), published on 9 January 1998, an exception was granted to those investment advisors and investment agents (but not investment managers), whose turnovers do not exceed ATS 10.000,000.-- per annum. They do not have to comply with the requirements of establishing a public or private limited company or a registered society, appointing two agers and the provisions on equity. Instead, they have to conclude a professional liability insurance with a minimum insurance sum of ATS 10.000,000.-- (if the turnover does not exceed ATS 5.000,000.--, only half of it).
Protection of Investors
Apart from the provisions on licenses and supervision, the WAG contains obligations to report certain data to the BWA (enabling it to exercise the duty of supervision) and especially rules governing good conduct in connection with investment services. These provisions serve to protect the investors. They are applicable regardless whether the customer is a consumer under the Austrian Consumer Protection Act (Konsumentenschutzgesetz). The rules governing good conduct are applicable for all providers of investment services. They do not only cover the financial services, but also include securities trade as well as trading and agency of so called "products of the grey capital market" (e.g., participations in atypical dormant partnerships, limited partnerships with many investors as limited partners etc). The providers of such services are obliged to advise their clients according to their individual needs and skills. For this purpose, an investors profile showing his financial means and his investment objective as well as his experience with the relevant investments has to be developed. The extent of the advise required depends on the investors skills (i.e., his experience in connection with such transactions). To protect the investors interests always has priority. If the rules governing good conduct are not observed, the investor is entitled to claim damages. The investor has the right to receive copies of the contract and of the prospectus (if any). In order to make the supervision of the rules governing good conduct possible, the provider of investment services are obliged to keep and preserve records. Moreover, providers of such services have to be organized in a way that enables them to observe the provisions on good conduct. Furthermore, the WAG prohibits certain ways of initiating business relations with customers. In particular, the so called "cold calling" (unsolicited advertising calls) and the visiting of customers without invitation (door-to-door dealings) are prohibited. In certain cases (acquisition of investment fund units and "products of the grey capital market") the customers right of cancellation is extended compared to the provisions of the Consumer Protection Act to the effect that the customer is entitled to revocate door-to-door dealings even if he himself initiated the transaction. The provisions on orderly behaviour and on consumer protection took effect already in the course of the year of 1997. The obligations to report as well as the provisions on the organization and the obligation to keep and preserve records - just as the provisions on licenses for investment services - are in force since 1 January 1998. However, for investment firms authorized to do business in Austria already before 1998 - which of course is the majority - the licensing provisions entered into force on 1 January 1999.
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