AUSTRIA Cerha Hempel Spiegelfeld Hlawati

Transcription

1 Bank Finance and Regulation Survey AUSTRIA Cerha Hempel Spiegelfeld Hlawati I. BANKS AND FINANCIAL INSTITUTIONS SUPERVISION 1) Applicable laws and regulation. Provide a list of the main laws and regulations that refer to the supervision and control of banks and financial institutions. Give a brief summary of the substance of each of them. a) Banking Act (Bankwesengesetz) The Austrian Banking Act ( ABA ) sets out the legal framework for the banking business in Austria and regulates which activities trigger the requirement to apply for and to obtain a banking license. Activities which qualify as banking business under the Banking Act include not only core banking activities such as the acceptance of deposits and the granting of loans to the public, but also any of the activities listed in our answer to question II. 6). The ABA implements the freedom of establishment and freedom to provide services as laid down in the EC Banking Directive: it defines procedures for the acquisition of qualified participations in credit institutions, and certain corporate transactions involving credit institutions; it contains detailed rules on solvability, own funds, liquidity, large exposures, and the treatment of groups of credit institutions: it limits transactions with board members and certain other persons, as well as the acquisition of participations in undertakings which do not conduct any banking activities; it contains detailed rules on savings books, consumer loans and current accounts, and further consumer protection rules; it provides for bank secrecy, but also contains detailed anti-money laundering rules; it contains special rules on financial reporting by credit institutions and on the supervision of credit institutions by the Financial Market Authority ( FMA ), and subjects credit institutions to a special insolvency regime; it also provides for deposit insurance and investor compensation; and it protects the terms "credit institution" ("Kreditinstitut"), "financial institution" ("Finanzinstitut"), "bank" ("Bank") and similar terms. b) Financial Market Authority Act (Finanzmarktaufsichtsbehördengesetz) The Austrian Financial Market Authority Act has entered into force on 1st April This Act regulates supervision of the Austrian financial market by the Financial Market Authority (FMA). All supervisory tasks and resources are transferred from the Federal Ministry of Finance (banking, insurance and pension funds) and the Austrian Securities Authority (Bundes-Wertpapieraufsicht) (securities supervision) as well

2 as the supervision on staff provision fund companies to the new supervisory body. The Financial Market Authority Act also governs the internal structure and organization of the FMA. c) Securities Supervision Act (Wertpapieraufsichtsgesetz) The Securities Supervision Act contains provisions relating to supervision of investment service activities. The Act also defines rules of conduct, determines the authority competent for supervision of trading in securities the Financial Market Authority (formerly the Austrian Securities Authority). Pursuant to the Securities Supervision Act, investment services firms are required to obtain a license from the Financial Market Authority. To obtain a license, an applicant must submit a business plan indicating the type of intended activities, the organizational structure of the entity as well as its internal control procedures. All investment service providers must be established in the legal form of a corporation or a co-operative society that has a minimum amount of own funds at the free and unlimited disposal of its managers, amongst other requirements (for further details see below II.7). The tasks and powers of the FMA with regard to securities supervision are as a whole stipulated in the Securities Supervision Act. d) Federal Act on the Oesterreichische Nationalbank, OeNB (Austrian central bank) The Federal Act on the OeNB governs the management as well as the administration of the OeNB. Furthermore business and special rights of the OeNB are regulated by this Act. 2) Entities/Authorities in charge of the control and supervision. Purposes, powers and functions of each of them- their organization and structure (i.e. public or private, independency or body of the Government to which they belong, size, etc.). a) Financial Market Authority (FMA) As mentioned above, since April 2002 the solely competent control and supervision authority relating to banks and financial institutions is the Financial Market Authority (FMA). The FMA now is the single statutory supervisory body directly responsible for banking, insurance and pension funds, securities and stock exchange supervision. The amendment in 2002 has established the FMA as an institution under public law having a separate legal personality, and its independence is secured by constitutional provision. The FMA is made up of an Executive Board and a Supervisory Board. The Executive Board consists of two directors, who are appointed on the basis of a proposal by the Federal Minister of Finance and the Austrian central bank (Oesterreichische Nationalbank, OeNB) with reappointment permissible. Their term of office is three years when first appointed, five years in case of reappointment. The Board is in charge of all FMA's operations and conducts the FMA's business. The Supervisory Board of the FMA is composed of the Chairman, the Deputy Chairman and six other members. The members of the Supervisory Board are appointed by the Federal Minister of Finance. The Deputy Chairman and two additional members of the Supervisory Board are designated by the Austrian central bank. Two co-opted members are designated by the Austrian Federal Economic Chamber. Supervisory Board members serve for a period of five years, with reappointment permissible. The Supervisory Board oversees the management and the conduct of business of the FMA. Certain undertakings require the approval of the Supervisory Board (e.g. finance plan, purchase of property, annual accounts, rules of procedure). Further the organization of the FMA is divided in five departments (Banking Supervision, Insurance and Pension Supervision, Securities Supervision, Integrated Supervision and Services). Each of the departments is further divided in Divisions. As already the state of affairs in insurance and securities supervision, the costs of supervising the banking and pension fund sectors will be borne foremost by the supervised institutions themselves. The Republic of Austria, in addition, pays an amount of EUR 3.5 million per fiscal year, and the FMA is obliged to perform in the most economical and cost efficient way. b) Austrian central bank (Oesterreichische Nationalbank, OeNB)

3 Despite the establishment of the FMA as the single, statutory supervisory body, there is a far reaching and extended operational involvement of the OeNB in the supervision of the banking system. By law, the OeNB must be entrusted with on-site inspections and the examination of credit and market risks of banks. A formal consultation process assures strong institutional cooperation between the FMA and OeNB (participation of FMA and OeNB members at on-site inspections is possible), and OeNB's position in international supervisory cooperation is enhanced. The OeNB's rights to be consulted (e.g. prior to the granting of a license or issuance of an ordinance), which are laid down in the Banking Act, remain untouched. The OeNB will continue to collect and process money and banking statistics (e.g. monthly returns, quarterly reports, major loans register) on behalf of the FMA. The OeNB is the central bank of the Republic of Austria and, as such, an integral part of both the European System of Central Banks (ESCB) and the Eurosystem. In the public interest, the OeNB contributes to monetary and economic policy decision making in Austria and in the Euro area. In line with the Federal Act on the Oesterreichische Nationalbank (1984 National Bank Act NBG), the OeNB is a stock corporation. Given its status as a central bank, it is, however, governed by a number of special provisions, as laid down in the National Bank Act. The OeNB s capital totals EUR 12 million, half of which is held by the federal government and half of which is owned by employer and employee organizations as well as banks and insurance corporations. 3) Describe briefly the activities under supervision and give a list the different types of licenses available. a) Activities under Supervision In this section only activities relating to banking and securities supervision are outlined. Banking supervision: To enhance the enforceability of supervisory measures, FMA is vested with administrative penal power and the power to enforce its supervisory rulings. Moreover, the FMA has the power to issue ordinances. No appeal of any kind is possible against rulings issued by the FMA (with the exception of administrative penal rulings). In order to fulfill its task FMA monitors and inspects the Austrian credit institutions with regard to their compliance with regulatory standards and other statutory provisions relating to banking especially those concerning risk spreading and risk limitation, e.g. in view of the credit risk, the market risk, the liquidity risk, interest rate risk or the exchange rate risk. In case of an infringement the banking supervision authority has to take the necessary measures within the bounds of its powers pursuant to the ABA. Irrespective of tasks assigned to it in other statutes, FMA shall: 1. monitor credit institutions within the meaning of 1 para 1 ABA (Austrian credit institutions); 2. monitor pursuant to 16 para 1 ABA credit institutions within the meaning of 1 para 1 ABA (Austrian credit institutions) conducting business in other Member States by way of the freedom of establishment or the freedom to provide services; 3. monitor pursuant to 15 ABA credit institutions admitted in a Member State within the meaning of Art 1 No 1 first indent of Directive 2000/12/EC that have their corporate seat in the respective Member State and conduct business in Austria by way of freedom of establishment or freedom to provide services; and 4. monitor pursuant to 17 ABA financial institutions residing in a Member State within the meaning of Art 1 No 5 of Directive 2000/12/EC that conduct business in Austria by way of freedom of establishment or freedom to provide services 5. representations of credit institutions that have their corporate seat in a Member State or in a third country pursuant to Section 73 ABA as to their compliance with the provisions of the ABA, of the Savings Banks Act, of the Housing Construction Savings and Loan Associations Act, the Introductory Regulation to the Mortgage Banks Act and to the Mortgage Bonds Act, the Mortgage Banks Act, the Mortgage Bonds Act, the Statute on the Protection of Rights of Mortgage Bond Holders, the Bank Bonds Act, the Investment

4 Fund Act, the Safe Custody Act, the Participation Fund Act and the E-Money Act. In so doing, it shall take into consideration the national economic interest in a functioning banking system and in the stability of the financial market. If a condition for the granting of a license no longer exists after the license has been granted, or if a credit institution violates provisions of the ABA, the Savings Banks Act, the Housing Construction Savings and Loan Associations Act, the Introductory Regulation to the Mortgage Banks Act and to the Mortgage Bonds Act, the Mortgage Banks Act, the Mortgage Bonds Act, the Statute on the Protection of Rights of Mortgage Bond Holders, the Bank Bonds Act, the Investment Fund Act, the Safe Custody Act, the Participation Fund Act, the E-Money Act or of a regulation or ruling passed on the basis of this federal statute, then FMA shall: 1. order the credit institution under threat of penalty to re-establish lawful conditions within a period appropriate in view of the circumstances of the case; 2. in case of repetition or continuation prohibit entirely or in part the managers of the credit institution from conducting business, unless this would be inadequate in view of the type and gravity of the breach, and restitution of the lawful conditions can be expected by repeating the proceeding pursuant to No 1; in this case the sanction initially imposed is to be executed and the order is to be repeated under threat of a higher fine; 3. revoke the license if other measures pursuant to the ABA cannot secure the functionality of the credit institution. Another task of the banking supervision authority is the protection of the creditors. In case a bank may not be able to meet its obligations towards its creditors especially if the safety of the assets entrusted to the credit institutions are at risk, the authority is obliged to interfere. However, the task of creditor protection does not include that the authority has legal powers regarding problems arising from contracts between credit institutions and their customers. Such decisions would only be binding under civil law. In case of a dispute, a civil action has to be filed with the competent courts. The tasks of the banking supervision authority might be summarized: as follows: granting of licenses for conducting the banking business catalogued in the Austrian Banking Act as well as the revocation of licenses; approval of mergers and acquisitions of participations in the banking sector; supervision of owners; supervision of legal standards, e.g. regarding the equity capital, large exposures, liquidity, open foreign exchange positions as well as in view of participations in the non-financial sector; to impose sanctions if these standards or other legal regulations are disobeyed; to take precautions to prevent possible insolvencies; international co-operation with other supervisory authorities. Securities Supervision: The tasks and power of FMA relating to securities supervision are as a whole stipulated in the Securities Supervision Act. FMA has to monitor compliance with the laws and by doing so take into account the interest of the national economy in the functioning of the capital market as well as the protection of investors. FMA monitors both stock market and the over-the-counter trade (OTC). FMA, as securities supervision authority, is responsible for the supervision of credit institutions with regard to reporting obligations pursuant to the Securities Supervision Act. The reported transactions are analyzed to counteract the misuse of inside information or other violations of the rules of propriety and fairness for trading in securities and to the end of investigating and prosecuting cases involving abusive practices (market and price manipulation).

5 FMA is responsible for the legal supervision of the stock exchange and supervises the propriety and fairness for trading in securities. In addition, the FMA examines the market surveillance system of the Vienna Stock Exchange. Another main task of FMA is the supervision of issuers and shareholders with regard to Ad-hoc-disclosure obligations, regular disclosure obligations, the notification of voting rights and also transactions of members of the executive bodies and senior executives with securities of their own company. Besides the granting of licenses for investment service providers, FMA is also charged with the ongoing supervision of these companies, e.g. the compliance with the rules of conduct and the notification and reporting obligations as well as the compliance with the capital requirements. FMA is responsible for the supervision of EEA (passported) securities firms under the freedom to provide services and the freedom of establishment. On-site inspections can be regarded as an efficient supervisory tool. FMA is authorized to have access to books, documents and data carriers of companies on-site in order to examine compliance with the Securities Supervision Act (in case of investment service providers) including, in particular, the rules of conduct pursuant to Sections of the Securities Supervision Act as well as the provisions on compliance contained in the Stock Exchange Act. Compliance related supervision by FMA does not only include credit institutions but also issuers (internal regulations for the passing on of information inside the company, organizational measures to prevent the misuse or the passing on of inside information) as well as insurance companies, staff provision fund companies (Mitarbeitervorsorgekassen) and pension funds (Pensionskassen). b) List of different types of licenses available (See below II.6). 4) Describe briefly non regulated financial and banking activities. The ABA also defines "financial institutions" which do not qualify as "credit institutions" and as their main activity, amongst others, pursue leasing business, the business of advising companies with respect to capitalization and business strategies, and mergers and acquisitions advisory business. Such financial institutions do not require a banking license but a license issued in accordance with the Austrian Trade Act (Gewerbeordnung). Licensed Austrian banks are also permitted to pursue any activity which is in direct relation with its banking activities corresponding to its scope of license or which is an ancillary activity, in particular the brokerage of investment fund shares, of deposits for building societies saving banks and the trading in bullions and gold and the lease of safes. Licensed credit institutions are, unless they have obtained an additional trade license for the brokerage of insurance policies, not the brokerage of insurance policies, not permitted to act as brokers in insurances based on their banking license or based on an ancillary or closely connected activity to their banking license. Describe briefly non-permitted financial and banking activities and/or government monopolies. Credit institutions are not entitled to act as a broker relating to insurances. Pursuant to Section 21 para 8 ABA credit institutions, which envisage to undertake such a business, require an additional approval pursuant to Section 137 Austrian Trade Act (insurance broking). Competent for the granting of such a license to credit institutions is FMA as an exemption from the general rule.

6 II. BANKING ACTIVITIES 6) Different types of banking licenses. Activities permitted under each of them. Activities prohibited. Under Austrian law, there are only two types of banking licenses whereas some near-banking activities are permitted under the Austrian Trade Act (see below a) and b)). a) A banking license requirement is triggered by the following activities conducted on a commercial basis: the acceptance of moneys of others for administration or as deposit (deposit business); the carrying out of non-cash payment transactions and clearing of checking accounts for others (checking account business); the entering into money loan contracts and extension of money loans (credit business); the purchase of checks and bills of exchange, in particular the discounting of bills of exchange (discount business); the custody and administration of securities for the account of others (custody business); the issuance and administration of means of payment such as credit cards and travelers checks; the dealing for own or other than own account in foreign means of payment (foreign exchange and foreign currency business); money market instruments; financial futures contracts, including equivalent cash-settled instruments and options to acquire or dispose of any instruments falling within lit a and d through f, including equivalent cash-settled instruments (futures and options business); forward interest rate agreements and interest rate adjustment agreements (FRAs), interest rate and currency swaps as well as equity swaps; transferable securities (securities business); instruments derived from lit b through e, unless such dealing is done in favor of private assets. the assumption of sureties, guarantees and other liabilities for others, insofar as the performance assumed is to be rendered in money (guarantee business); the issuing of mortgage bonds, municipal bonds and funded bank bonds and the investment of their proceeds in accordance with the applicable legal provisions (issuing of securities business); the issuing of the fixed income securities in order to invest the proceeds in other banking activities (other issuing of securities business); participation in the underwriting of third party issues of any of the instruments listed in No 7 lit b through f and the provision of services related thereto (third party issuing of securities business); the acceptance of housing construction savings deposits and the granting of housing construction loans pursuant to the Housing Construction Savings and Loan Associations Act (housing construction savings and loan business); the administration of investment funds pursuant to the Investment Fund Act InvFG 1993, BGBl No 532/1993 Art II (investment business); the establishment or administration of participation funds pursuant to the Participation Funds Act, BGBl No 111/1982 (participation fund business); the financing business through acquisition and resale of shares (capital financing business); the purchase of accounts receivable arising from delivery of goods or rendering of services, assumption of the risk of collection on such claims excepting credit insurance and, in connection therewith, the collection of such claims (factoring business); money brokering in the interbank market; and the brokerage of transactions set forth in No 1, unless conducted by contractual insurance companies; No 3 with the exception of the brokerage of mortgage loans and personnel loans by licensed real estate agents, personnel loan and mortgage loan brokers, and investment advisers; No 7 lit a, insofar as it concerns the foreign exchange business; and No 8; the providing of the following services relating to financial instruments, to the extent these services do not encompass the holding of money, securities or other instruments so that the provider of these services at no time places himself in debit with his clients (financial services business): investment advice concerning client funds; management client portfolios in

7 accordance with mandates given by investors; and brokerage of business opportunities for the acquisition or sale of one or more of the instruments referred to in No. 7 lit b through f; the issuing of electronic money (e-money business); the collection and investment of several payments (staff provision fund business); the purchase and sale, via the counter, of foreign exchange (currencies, checks, traveler s letters of credit, payment instructions) as well as of traveler s checks (exchange office business); the on-site transfer of assets with the exemption of physical transportation by acceptance of monies or other means of payment from a customer and the pay-out of a corresponding amount in money or other means of payment to beneficiaries by non-cash transfer, by communication, by fund transfer or by other use of a payment system or of a clearing system (financial transfer business). b) The requirement to obtain an Austrian investment services provider's license is triggered by the following activities conducted on a commercial basis: investment advice concerning client funds; managing client portfolios in accordance with mandates given by investors (discretionary portfolio management); and brokerage of business opportunities for the acquisition or sale of one or more of the following instruments: money market instruments, financial futures contracts and options, forward interest rate agreements and interest rate adjustments agreements, interest rate and currency swaps as well as equity swaps; transferable securities. The activities mentioned under a) and b) must relate to financial instruments (i.e. money market instruments, special off balance sheet financial transactions like interest rate swaps, forwards and options, foreign exchange rates related swaps, futures, options, equities and other securities related contracts like forwards and gold and metal related contracts like forwards, options and futures including sold options; securities, shares and foreign investment funds to the extent they are not securities. Within the investment services provider's licenses, there is a "small" one ( 20 subpara 4 Securities Supervision Act) covering only the brokerage of business opportunities (above c)) and investment advice concerning client funds (above a)) relating to investment fund units and securities provided that only customer orders are collected and exclusively addressed to credit institutions, investment fund companies and investment service providers located within the EU. The small license triggers the cancellation of the minimum capital requirement of EUR 50,000 provided that a professional third party liability insurance is secured, the avoidance of the requirement to have minimum two managing directors appointed and the loss of the requirement for the management directors to pursue their managing activity as main profession. In addition, minimum supervisory capital requirements for ongoing business transactions do not apply. The non-application of all these requirements is linked to the condition that the sum of the yearly turnover does not exceed EUR 730,000. Licensed Austrian banks are also permitted to pursue any activity which is in direct relation with their banking activities corresponding to their scope of license or which is an ancillary activity, in particular the brokerage of investment fund shares, of deposits for building societies saving banks and the trading in bullions and gold and the lease of safes. Licensed credit institutions are, unless they have obtained an additional trade license for the brokerage of insurance policies, not permitted to act as brokers in insurances based on their banking license or based on an ancillary or closely connected activity to their banking license. Licensed investment service providers are not permitted to trade in (purchase or sale) securities or to hold moneys, securities or other instruments in such form that their clients would become their creditors in relation to such instruments.

8 7) Procedures to be followed and requirements to be met to obtain each of the different licenses. Formalities to be fulfilled, documentation to be submitted, guaranties requested, time estimation, etc. a) Banking License Under Austrian law the operation of a credit institution requires a banking license. For "traditional" banking activities such as granting of loans, acceptance of deposits, issue of securities etc a banking license is necessary in any case, in the case of investment banking not all activities require a license. Whether a certain activity qualifies to be a banking activity requiring a license has to be legally assessed. Therefore the precise scope of activities planned should be discussed with an Austrian lawyer specialized in banking law. A license under the Banking Act may only be issued to legal entities organized either as a corporation, i.e. limited liability company or stock corporation, as a co-operative society or as a savings bank. It is possible to establish a branch of a foreign credit institution, in this case the foreign bank must meet additional licensing requirements (in comparison to those referred to below). In case the bank does not carry on banking activities in Austria, the establishment of an Austrian representative office a foreign credit institute is possible, no license but only notification with minimum content to the Financial Market Authority is required. The Austrian Financial Market Authority (FMA) is the statutory supervisory body for banking, securities and stock exchange supervision. Before the granting of a license, the FMA has to notify and consult with the Federal Ministry of Finance and the Austrian National Bank. If the banking license should contain the acceptance of deposits or the provision of securities' services, consultation with and notification of the Deposit Insurance and Investor Protection Schemes respectively is necessary as well. These notifications are effected by the FMA, however, the application for the obligatory memberships has to be made by the bank. As to the scope of the banking license, the bank has to state in its application which banking activities will be pursued. The types of banking activities (e.g. loans, acceptance of deposit, issue of securities, etc) should be specified together with an Austrian lawyer in order to determine the correct legal qualification of these activities and to avoid having to reapply for extensions to the license. The minimum capitalization initially required is five million Euros. The managing directors/members of the managing board have to satisfy certain requirements: At least one managing director or board member must have his residence in Austria and at least one member must be fluent in German. At least two managing directors or board members are necessary, the statutes/articles of association must provide for collective signing authority. Managing directors or board members are not allowed to exercise professional activity outside the banking, insurance or pension funds industry. Managing directors/board members have to satisfy certain requirements with regard to qualification and experience and certain "reliability criteria" as laid down in 13 para 1-6 Gewerbeordnung (e.g. the absence of a criminal record); for non-austrian nationals this has to be certified by the competent authority of their home country. The application for the banking license has to include a business plan, state the amount of capital available in Austria at the free disposal of the management, contain information on the shareholders and if belonging to a group, information on the group and its exact structure. The credit institution has to appoint an external independent bank auditor. Prior to submission of the application for the license by the applicant, the independent auditor should examine the business plan and incorporate therein the budget calculation.

9 A credit institution has to have internal auditors; this task can be outsourced to external auditors for smaller credit institutions (less then 30 employees and balance sheet total below EUR 110 million). Fit and proper test with regard to bank's owners: reliability and group structure has to be evidenced and neither the group structure nor any supervisory regulations of the bank's state of origin applicable to the owners may impede the FMA's supervisory activity. Internal audit rules, Standard Compliance Code of Austrian Credit Institutions and rules on employees' banking and trading activities have to be laid down in form of binding directives to officers and employees. Some non-legal, general remarks: Regular contact with the FMA is generally recommended. If the prospective managing directors / board members are individuals already known within the Austrian banking industry, this is clearly an advantage. The (not negligible) costs for membership in the Austrian Chamber of Commerce, the Deposit Insurance Scheme and the Austrian Banking Federation should be taken into account when calculating the overall cost. Membership in the Austrian Chamber of Commerce is automatic with granting of the banking license, becoming a member in the Federation of Austrian Joint-Stock Banks and Bankers is not obligatory but we would recommend it, as it is an excellent source of information. b) Schedule for the foundation of a Bank: Determination of banking activities, seat, legal form, managing directors/management board; establish contact to the Financial Market Authority ("FMA"). Preliminary meeting with FMA. Selection of internal auditors and bank auditor. Foundation of "pre-company" and signing of articles of association/statutes (incorporation not effective before registration in Company Register). The banking activities in the statutes should be drafted by a lawyer specialized in banking law. Setting up of business plan and organizational chart of group structure. The business plan usually consists of the following: Type of planned activities, organizational structure, internal controlling and audit procedure, budget calculation. Preparation and handing in of application for banking license. Preliminary examination by FMA, consultation process with Austrian National Bank and deposit insurance institutions, fit and proper test regarding managing directors / managing board and owners. Payment of nominal capital. After grant of the banking license (duration of six months minimum), registration in Company Register (incorporation) and start of operation. c) Investment Services Provider s License Under Austrian Law, the operation of an investment services provider s business requires an investment services provider s license. The license under the Securities Supervision Act will only be issued to the entities organized either as a corporation, i.e. limited liability company or as a stock corporation, or as a co-operative society. If however, only the small investment services provider s license is targeted, the business may also be pursued by natural persons or by partnerships.

10 The Austrian Financial Market (FMA) is the statutory body for the supervision of investment services providers. Before the granting of a license covering the managing of client portfolios in accordance with mandates given by investors, the FMA has to notify and consult with the Investor Protection Scheme. As to the scope of the investment services provider s license, the applicant has to state the application which investment services will be pursued. The types of investment services should be specified together with an Austrian lawyer in order to determine the correct legal qualification of these activities and avoid having to reapply for extension of the license. The minimum capitalization required is usually Euro if comprising investment advice and brokerage of business opportunities. This minimum initial capital increases up to Euro if the activities targeted comprise the managing client portfolios. The minimum initial capital requirement reduces to zero in the case of application for a small investment services provider s license provided that an adequate coverage by a professional third party liability insurance company is supplied. The managing directors/ members of the managing board have to satisfy certain requirements which are identical to those of a bank's managing directors or board members. However, investment services providers having only a small license are not required to have a least two managing directors and, in addition, the managing director may pursue his activities not as his main profession. Managing directors have to satisfy certain requirements with regard to their qualification and experience and certain reliability criteria similarly to what is prescribed for bank managers. The application for the investment services provider s license has to include the business plan, state the amount of capital available in Austria at the predisposal of the management, contain information on the shareholders and if belonging to a group, information on the group and the exact structure. The investment services provider has to appoint an internal auditor, but this task can be outsourced to external auditors. The investment services provider has to appoint an external independent auditor for having the financial statements audited (with the exemption of investment services providers with a small license who must appoint external auditors only for the examination of their compliance with the conduct of business rules). Fit and proper test with regard to the investment services provider s owners: reliability and group structure have to be evidenced and neither the group structure nor any supervisory regulations of the state of origin applicable to the investment services provider may impede the FMA supervisory activity. Rules for personal transaction of employees and electronic data protection rules have to be laid done as directives to offices and employees. Some non-legal, general remarks: regular contact with the FMA is generally recommended. If the prospective managing director/board members are individuals already known within the Austrian banking or investment services industry, this is clearly an advantage. The costs for membership in the Austrian Chamber of Commerce, and if applicable, the Deposit Insurance Scheme should be taken into account when calculating the overall cost. Membership in the Austrian Chamber of Commerce is automatic with granting of the investment services provider's license; in addition membership in voluntary associations of investment services providers is possible. d) Schedule for the foundation of an investment services provider The procedure would follow similar steps as the schedule for the foundation of a bank (apart from the fact that the Austrian national bank will not be involved).

11 8) Legal structure admitted/requested for each of the different licenses. a) Different types of legal structures that may be used, i.e. corporations, limited liability partnerships, branches, subsidiaries, etc. See above 7 a) and c), first bullet point in each case. b) Capital requirements and own fund rules. Relating to the initial capital requirements see above 7 a) and c). The ongoing own fund rules for banks in principle prescribe compliance with a solvency ratio of 8% of the bank's calculation basis. The calculation basis comprises the sum of weighted on- balance-sheet and converted off balance-sheet items. Relating to investment services providers, the ongoing capital adequacy rules require that an amount of at least 25% of the fixed overheads of the previous audited financial statement must be available at any point in time. Fixed overheads shall include the operating expenses that are independent of the investment service provider's level of activity and that are not directly allocated to the individual cost units. The own funds shall consist of paid-in capital and non-hidden reserves. c) Transfer of control and ownership regime. Is it regulated? Credit institutions shall without delay inform the FMA in writing of any acquisition and any relinquishment of shares and of any reaching of and any surpassing of or dropping below the participation thresholds (10, 20, 33 or 50 % of voting rights or capital of a credit institution) as soon as they acquire knowledge thereof. Credit institutions shall also, at least once a year, inform the FMA in writing of the names and addresses of stockholders and other shareholders holding qualifying participations and also of the size of such participations as apparent, in particular, from information received at the annual general meeting of stockholders and other shareholders or as a result of compliance with Section 91 through 94 Stock Exchange Act. A special permit by the FMA shall be required, whenever the thresholds of 10% (qualifying participation), 20%, 33% and 50% of the voting rights or the capital of a credit institution are reached, exceeded or undercut, if another credit institution either directly or indirectly holds, acquires or relinquishes these voting rights or the capital. Excepted are participations of credit institutions in their central institution. d) Personal requirements and restrictions that may apply in each case for officers, directors, shareholders, etc. See above 7 a) and c). e) Special requirements/restrictions for foreigners either individuals or legal entities (including short description of WTO/GATS commitments and exemptions). There are special rules for establishing an Austrian branch of a foreign credit institution which differ enormously if the head office is located within an EU member state or outside. In the case of branches of EU credit institutions use can be made of the notification procedure provided for by the ABA. In the case of establishing branches of foreign credit institutions with a head office located outside the EU (EEA), a special license requirement and procedure applies. This procedure demands evidence of additional facts from the applicant which are more far-reaching than those for EU credit institutions. There are no particular WTO/GATS commitments and exemptions given by Austria. 9) Is there a Deposits Insurance? Is it mandatory or based on self-regulation? Provide a brief explanation of how it operates.

12 Pursuant to Section 93 ABA credit institutions that take deposits requiring cover (see below) or carry out investment services that require cover (see below).shall participate in the cover scheme within the framework of their professional bank federation. If such credit institution fails to participate in the cover scheme (Deposit Insurance Scheme and Investor Protection Scheme), its authorization (license) for taking deposits requiring cover and for carrying out investment services that require cover shall expire. The expiration of the license shall be declared by a ruling of the FMA. Deposits requiring cover shall mean: 1) deposits pursuant to Section 1 para 1 Nos 1 (deposit business) and 12 (housing construction savings and loan business) ABA; 2) credit balances which result from funds left in an account or from temporary situations deriving from banking transactions which a credit institution must repay under the legal and contractual conditions applicable; and 3) debts evidenced by a certificate issued by a credit institution, with the exception of mortgage bonds, municipal bonds and funded bank bonds. Investment services that require cover are: 1) the custody business (Section 1 para 1 No 5 ABA), 2) the dealing for own or other than own account in investments according to Section 1 para 1 No 7 lit b through f ABA, 3) the third party issuing of securities business (Section 1 para 1 No 11 ABA), and 4) business relating to company pension plan (Section 1 para 1 No 21 ABA). Each professional bank federation shall maintain a cover scheme that is obliged to accept all those credit institutions which are members of the same professional bank federation. The cover schemes shall be operated as legal entities in the form of liable companies. The cover schemes are obliged to accept all credit institutions and branches of credit institutions that are authorized to take deposits or to carry out investment services on Austrian territory. The cover schemes shall, in total, guarantee that in case: 1) a member institution enters into bankruptcy; 2) receivership is ordered with respect to a member institution; 3) a payment stop is ordered by the competent authority with respect to the guaranteed deposits of a member institution, or 4) the competent authorities of the home Member State of a credit institution having voluntarily joined for supplementary cover (para 7) have issued the statement on the unavailability of deposits provided for in Annex II lit b to Directive 94/19/EEC, the deposits and considerations for investment services shall, up to a maximum amount of 20,000 Euro or equivalent value in foreign currency per bank customer, be paid out within three months upon the latter s demand and proof of identity. The cover scheme concerned shall inform FMA without delay if a member credit institution does not meet its obligations under the provisions described above. The cover scheme shall oblige their member institutions to pay pro rata amounts without delay. If the cover scheme cannot fully pay out guaranteed deposits or claims, then the cover schemes organized by differing professional bank federations shall be obliged to pay without delay pro rata contributions in order to cover any lacking amount. If all cover schemes are, in total, unable to fully pay out the guaranteed deposits (claims), the first-concerned cover scheme shall, in order to meet the remaining payment obligations, issue bonds for which the Austrian Federal Minister of Finance may, in accordance with special statutory authorization, assume a surety or guarantee on behalf of the Republic of Austria. 10) Interest rate. Is it regulated? Should the answer be affirmative, explain briefly its regulatory framework. In Austria a provision relating to maximum interest rates does, in principle, not exist. Civil law, however, states that interest rates agreed must not violate the prohibition on excessive interest rates (usury rates). In

13 relation to consumer contracts, there is a maximum statutory limit for default interest of 5 % on the agreed non-default interest rate. 11) Sanctions (civil, administrative, or criminal) for violations of the legal and regulatory dispositions. a) Civil sanctions Whoever conducts banking business or investment services without the necessary authorization shall not be entitled to any compensation connected with such business, such as, in particular, interest and commissions. The partial legal invalidity of such agreements does not entail the legal invalidity of the entire banking transaction. In contrary, the banking transaction remains valid. Agreements violating these limits as well as sureties and guarantees relating to such transactions are without legal effect. b) Administrative Sanctions Whoever conducts banking business or investment services without the necessary authorization commits, unless the act constitutes a criminal offence to be punished by the courts, an administrative offence and shall be punished by the FMA with monetary penalty of up to 20,000 Euro. A criminal offence could, for instance, occur by intentionally misleading investors or other customers on the existence of a banking license. In addition, FMA may take administrative measures against such violating bank which could end up in the withdrawal of the banking license. III. BANK SECRECY LAW 12) Is clients' information protected? Are there any restrictions for its use? In Austria client related information is protected by law pursuant to Section 38 of the Banking Act (Bankwesengesetz). This clause constitutes a statutory provision in the rank of constitutional law. Therefore amendments to bank secrecy (Bankgeheimnis) may be adopted by Parliament only in the presence of at least one-half of the deputies and with a majority of two-thirds of the votes cast. Besides the legal secrecy obligation, contractual provisions may be agreed with that regard. There are also exceptions from the duty to keep the bank secrecy (see below 13) b)). 13) Should answer to number 12) be affirmative, please describe the legal framework, i.e. scope, limitation, exceptions. a) Scope of Secrecy Obligation Bank secrecy is regulated by Section 38 ABA. The duty to keep customer related information secret applies to credit institutions, their shareholders, members of their organs and employees. But also all other persons acting for or on behalf of credit institutions, like auditors or lawyers are subject to this obligation. The bank secrecy encompasses any disclosure or use of secret information that has been entrusted or made accessible solely due to the business relationships with customers or pursuant to Section 75 para 3 ABA (major loan evidence list). Section 75 of the Banking Act regulates the reporting of major loans (minimum of EUR 350,000). Secrecy protection comprises all facts, transactions and relationships (in law or in fact), which are known by only a few persons and only if the interest of the concerned person requires protection. The obligation to keep the secrecy may occur even before a business relation begins to exist, as within the scope of precontractual relations. If facts which are subject to bank secrecy come to the attention of officials of any authority or of the Austrian National Bank (Oesterreichische Nationalbank) in the course of their activities, they shall keep

14 such banking secret as an official secret from which they may only be released by bodies set forth below (see b) Exceptions). The obligation to maintain the secrecy shall apply without time limit. b) Exceptions As mentioned above, the secrecy obligation ranks as constitutional law in Austria. Hence, amendments to or exceptions from the secrecy obligation must also rank as constitutional law. Section 38 para 2 ABA contains a non-exhaustive list of such exceptions. Hence, the obligation to observe the bank secrecy does not exist: vis-à-vis criminal courts in connection with initiated criminal court proceedings, and visà-vis the governmental authorities competent for the punishment of fiscal violations in connection with initiated penal proceedings for intentional fiscal violations, with the exception of fiscal misdemeanors; in case of the duty of disclosure under 41 paras 1 and 2 (concerns suspicion of Money Laundering), 61 para 1 (concerns Bank Auditors), 93 and 93.a (concerns Deposit guarantee and Investor compensation); in case of death of the customer vis-à-vis the probate court and the court commissioner; if the customer is a minor or otherwise under tutelage, vis-à-vis the guardianship or tutelage court; if the customer expressly and in writing consents to the disclosure of the secret; for generally worded information concerning the economic situation of a company, as is customary in the banking business, unless such company expressly objects to the granting of such information; to the extent disclosure is necessary for the resolution of legal matters arising. from the relationship between a credit institution and its customer; as concerns the reporting obligation pursuant to 25 para 1 of the Inheritance and Gift Tax Act; and if a duty to inform the FMA exists pursuant to the provisions of the Securities Supervision Act and pursuant to the Stock Exchange Act. Further a credit institution may not rely on its duty to keep the bank secrecy if a disclosure of the secret is required to determine its own tax liability. Authorities from other states may obtain information in areas protected by bank secrecy only upon request for administrative or judicial assistance. c) Bank Secrecy relating to taxation of saving income in the form of interest payments Council Directive 2003/48/EC on taxation of savings income in the form of interest payments has entered into force in July As a result of this, information on all savings income in the form of interest payments made in one Member States of the European Union (EU) to persons, who are individuals resident in other (EU) Member States, will be reported to the state of residence. Austria, like Belgium and Luxembourg, does not apply this automatic exchange of information, because bank secrecy provisions prevail. Hence, during a transitional period these three Member States may apply a withholding tax to the savings income, whereas they shall retain 25 % of the tax revenues and transfer 75 % of the revenues to other Member States concerned. 14) Sanctions (civil, administrative, or criminal) for violations a) Civil Law Liability Credit institutions, members of their boards and their employees (in fact all persons, who are under the secrecy obligation) may be liable for damages. In practice, the General Conditions of Business for Austrian Banks, which usually govern the business relationships between credit institutions and customers in Austria, exempt liability of credit institutions for negligence (leichte Fahrlässigkeit). However, within the Austrian Consumer Protection Act (Konsumentenschutzgesetz), such an exemption may not be validly agreed with consumers.