On 21 November 2018, the Austrian Federal Government announced its plans to reform the national banking supervisory system. You can find the announcement HERE (in German only). This client briefing summarises the envisaged amendments.

Status quo

Currently, the Austrian banking supervisory system is a dual one. Supervision of banks operating in Austria, and not directly overseen by the ECB’s Single Supervisory Mechanism (SSM), is shared between the Financial Market Authority (FMA), Austria’s independent, integrated financial supervisory authority, and the OeNB, Austria’s central bank.

While the OeNB is in charge of on-site inspections and off-site analysis, the FMA interprets and oversees compliance with banking regulations. The FMA is also responsible for conducting official measures, such as imposing supervisory measures and administrative sanctions.

Envisaged reform of banking supervision

In the course of 2019, the Austrian government wants to bundle all banking supervisory responsibilities under the roof of the FMA. The Austrian Minister of Finance, Mr Loeger, said he wants to make sure that there will be no duplications and overlaps in supervising banks.

According to an official statement, the respective legal framework shall be established in the first half of 2019. The implementation of all organisational changes shall be finalised until the end of 2019.

The reform means around 170 staff currently conducting inspections and analysis at the OeNB should be switched to the FMA.

Separation of supervision and regulation

In the future, also regulatory and supervisory tasks shall be better separated. While the FMA shall concentrate its efforts on supervising banks, its current regulatory tasks shall be shifted to the Ministry of Finance.

Accordingly, the FMA will lose its current responsibility to issue regulations. Such regulations detail respective statutory financial market laws, e.g. the Banking Supervisory Act, the Securities Act 2018, the Insurance Supervision Act 2016 and in the Payment Services Act 2018.

In order to enable the Ministry of Finance to issue such regulations in the future, an additional organisational unit shall be established therein. Furthermore, it is expected that respective FMA staff shall be transferred to the Ministry of Finance.

Macro-prudential responsibilities

While the OeNB shall lose its banking supervisory responsibilities, competencies to oversee financial market stability shall remain with the central bank. In order to fulfil these macro-prudential tasks, the OeNB shall be entitled to require the FMA to carry out respective inspections.

Furthermore, a competence centre for financial market strategy and development shall be established in the OeNB. This expert pool shall assist the Ministry of Finance with overseeing the FMA’s supervisory work. For this purpose, OeNB staff shall be integrated into the FMA’s audit activities.

According to the government’s plans, the OeNB’s competencies in the fields of statistic, supervisory reporting and oversight of payment systems remains unchanged.

Regulatory sandbox

In order to support innovation in financial products, a regulatory sandbox shall be established in Austria. It shall allow businesses to test innovative products / business models in the market, with real consumers.

We understand the sandbox shall be open to authorised firms as well as unauthorised firms that require authorisation. With the regulatory sandbox, firms may be able to test products and services in a controlled environment and reduce time-to-market at potentially lower cost.

We assume, like in other countries, sandbox tests will be conducted on a small scale, so firms will be able to try their innovations for a limited period of time with a limited number of customers. Until now, little has been said about the potential sandbox tools, e.g. such as individual guidance, informal steers, waivers and no enforcement action letters.

The government mentioned that the admission of a firm to a sandbox test shall be conducted by the FMA and based on a proposals from a ‘sandbox advisory board’, which will include members of the OeNB and the Ministry of Finance.

Next steps

We expect the Austrian government will present more detailed legislative proposals to implement the aforementioned reforms in the first quater of 2019. We will provide a respective update once new information is available.