Recently further developments in the organization of the supervision of domestic financial markets have taken place. The Federal Security Supervision Authority's (FSSA) legal structure has caused the Constitutional Court concern as to its compliance with the Federal Constitution Act.

The FSSA was established in 1997. It supervises proper and fair trading with instruments that are admitted to the securities market in order to:

  • ensure that the interests of investors are protected;
  • inform the minister of finance of new developments; and
  • combat the abuse of insider information.

In order to fulfil these tasks the FSSA was given powers of enforcement with regard to administrative offences as well as supervisory powers over the newly defined category of 'investment services providers'.

Investment services providers must obtain a licence from the FSSA. It is the FSSA's jurisdiction over certain administrative offences and its power to grant licences to investment services providers which alerted the Constitutional Court. Now the court is initiating proceedings to check whether the FSSA's authority is constitutional.


The concerns of the so-called 'guardians of the federal constitution' lie in the fact that the FSSA is an institution under public law with administrative powers and a separate legal personality. Generally, under the Constitution only the federation and the states can exercise administrative powers through their different governmental authorities. The ministers or state governments are the supreme administrative authorities who are responsible for the acts of their subordinated administrative authorities before Parliament and the Constitutional Court. This responsibility is based on the right to give instructions to the subordinated authorities. This system of giving a power of instruction to the supreme administrative authorities creates a political and legal responsibility for administrative acts before Parliament as a directly elected institution and the court, and is a fundamental concept of the Constitution for the organization of administration. Therefore, the outsourcing of administrative powers to independent legal entities has constitutional limits since the entities are not responsible before Parliament. The court has outlined these limits in previous decisions.

The legislator was aware of this issue and, in order to fulfil constitutional requirements, the FSSA was subjected to instruction by the minister of finance. Now it appears to the court that this right of instruction might not be broad enough to cover all of the areas in which the FSSA exercises its administrative powers. For example, the right of instruction does not appear to pertain to the granting of licences to investment services providers. Moreover, the right of instruction may prove inefficient in practice because the FSSA's obligation to provide information to the minister of finance seems to be too light; the court fears that the minister of finance might not even be in the position to exercise his instructive powers due to the lack of relevant information.


It remains to be seen how the Constitutional Court will judge the FSSA's organizational structure. The judgment is expected to provide important arguments for the constitutional limits of outsourcing and the privatization of market regulators in general. It will be important for proceedings pending before the FSSA because its decisions can be challenged before the court.

However, the rules on the FSSA's structure will not be in force for much longer as the supervision of domestic financial markets is being reformed. On August 7 2001 a new law was published in the Official Gazette concerning the creation of a new 'all-finance' Financial Market Supervision Authority, which is due to start operating on April 1 2002.

The new authority will replace the FSSA and will also supervise the banking, insurance, pension savings and investment services sectors. The new law provides for the new authority to be subject to the instructions of the minister of finance.

For further information on this topic please contact Tibor Fabian at Binder Grösswang Rechtsanwälte by telephone (+43 1534 80) or by fax (+43 1534 808) or by e-mail ([email protected]). The Binder Grösswang Rechtsanwälte web site can be accessed at

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