Banking Regulation 2017 - phh.at · While a constant decline in the total number of credit institutions can be noticed over recent years, with approximately 2,000 customers per bank

Banking Regulation

2017Contributing Editors: Peter Hsu & Rashid Bahar

Fourth Edition

CONTENTS

Preface Peter Hsu & Rashid Bahar, Bär & Karrer Ltd.

Andorra Miguel Cases & Marc Ambrós, Cases & Lacambra 1

Argentina Javier L. Magnasco & Daniel Levi, Estudio Beccar Varela 17

Austria Annika Wolf & Wolfram Huber, PHH Prochaska Havranek Rechtsanwälte GmbH & Co KG 23

Canada Pat Forgione, Darcy Ammerman & Tayleigh Armstrong, McMillan LLP 33

Congo – D.R. Liliane Mubanga Wetungani, Thambwe-Mwamba & Associates Law Firm 44

Czech Republic LiborNěmec & Jarmila Tornová, Glatzová & Co., s.r.o. 53

Finland Niina Nuottimäki & Janni Hiltunen, Borenius Attorneys Ltd 66

France Jean L’Homme & Gaël Rousseau, Fidal 77

Germany Dr. Maximilian von Rom & Dr. Benjamin Herz, Gleiss Lutz 88

Greece Smaragda Rigakou, PotamitisVekris 101

Hong Kong Ben Hammond & Colin Hung, Ashurst Hong Kong 113

India Shuchi Sinha, AZB & Partners 125

Ireland Josh Hogan, Roy Parker & Imelda Higgins, McCann FitzGerald 139

Italy EmanueleGrippo&AndreaBanfi, Gianni Origoni Grippo Cappelli & Partners 151

Japan Koichi Miyamoto, Anderson Mori & Tomotsune 164

Macedonia Dragan Dameski & Ana Hadzieva Angelovska, Debarliev, Dameski & Kelesoska, Attorneys at Law 175

Malaysia Evelyn Ch’ng & Fiona Sequerah, Christopher & Lee Ong 186

Netherlands Bart Bierman & Astrid Schouten, Finnius 198

Serbia PetarStojanović,Joksović, Stojanović & Partners 209

Singapore Regina Liew & Larry Lim, Rajah & Tann Singapore LLP 222

South Africa Desiree Reddy, Norton Rose Fulbright South Africa Inc 233

Spain Fernando Mínguez Hernández, Íñigo de Luisa Maíz & Rafael Mínguez Prieto, Cuatrecasas 239

Switzerland Peter Hsu, Bär & Karrer Ltd. 257

Ukraine Oleksandr Zavadetskyi, Zavadetskyi Advocates Bureau 270

United Kingdom Peter Snowdon, Simon Lovegrove & Jack Prettejohn, Norton Rose Fulbright LLP 279

USA Reena Agrawal Sahni & Timothy J. Byrne, Shearman & Sterling LLP 295

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© Published and reproduced with kind permission by Global Legal Group Ltd, London

AustriaAnnika Wolf & Wolfram Huber

PHH Prochaska Havranek Rechtsanwälte GmbH & Co KG

Introduction

As of the second half of 2016, a total of 723 credit institutions having their seat in Austria were licensed to conduct banking business in Austria, although the banking landscape is still dominated by only four players: ERSTE Bank Group; Raiffeisen Bank Group; BAWAG P.S.K.; and UniCredit Bank Austria. While a constant decline in the total number of credit institutions can be noticed over recent years, with approximately 2,000 customers per bank branch, experts still consider Austria an overbanked market, and it is expected that there will still be additional consolidation among Austrian banks, especially among smaller banks. This makes Austria an attractive market for bank mergers and takeovers. In recent years, Austrian banks have made significant progress in getting rid of non-performing loans and reducing their CEE exposure, resulting in a stable rating outlook in 2017, according to a recent Fitch outlook report.

Regulatory architecture: overview of banking regulators and key regulation

Supervisory bodies in AustriaAustrian banking supervision has been substantially transformed by the implementation of the single supervisory mechanism (“SSM”), which came into force in 2014 (Regulation EU No.1024/2013 – “SSM Regulation”). The SSM provides for prudential supervision of all institutions within the EU which fall within the definition of credit institutions under the Capital Requirements Regulation (Regulation EU No. 575/2013 – “CRR”). The supervisory authorities in the SSM are the European Central Bank (“ECB”) and the national competent authorities of the Member States (“NCA”). In Austria, the NCA is the Austrian Financial Market Authority (“FMA”). The supervisory tasks are divided between those two supervisory authorities, based on the significance of the credit institution: the ECB directly supervises credit institutions which are categorised as significant; and the FMA directly supervises less significant credit institutions. The ECB decides on the classification of credit institutions annually, based on criteria listed in the SSM Regulation (size, economic importance, cross-border activities, direct public financial assistance). In particular, an Austrian credit institution is considered significant if: (i) its total value of assets exceeds EUR 30 billion; (ii) the ratio of its total assets over GDP of Austria exceeds 20% and its total assets are at least EUR 5 billion; or (iii) the FMA considers it of significant relevance with regard to the Austrian economy and the ECB confirms such categorisation. Furthermore, the ECB may consider a credit institution significant if: (i) this credit institution has subsidiaries in more than one Member State; and (ii) its cross-



PHH Prochaska Havranek Rechtsanwälte GmbH & Co KG Austria

border assets or liabilities represent a significant part of its total assets or liabilities. In any case, a credit institution which has requested and/or received financial assistance from the European Financial Stability Facility (“EFSF”) or the European Stability Mechanism (“ESM”) shall be considered significant by the ECB. Notwithstanding the criteria listed by the SSM Regulation and, as a general rule, the three most significant credit institutions in Austria are considered significant. Furthermore, the ECB may at any time take on direct supervision of a credit institution (even if it is considered less significant) in order to ensure consistent application of high supervisory standards. Among others, the following banks are considered significant in Austria and are therefore supervised by the ECB: ERSTE Group Bank; Raiffeisen Group; BAWAG P.S.K. Group; Volksbank Group; VTB Bank (Austria); and Sberbank Europe. The national Austrian supervisory tasks are performed by two institutions: the Austrian National Bank (“OeNB”), which is the central bank of the Republic of Austria and an integral part of the European System of Central Banks (“ESCB”); and the FMA. The OeNB is the “fact-finding” authority, while the FMA is the “decision-making” authority. The FMA’s remit includes granting and withdrawing banking licences, monitoring systemic risk and the adequacy of the liquid and capital availability, comparing and analysing the approaches and methods applied by credit institutions and commencing and conducting supervisory procedures. Furthermore, the FMA supervises cross-border services provided by domestic credit institutions as well as branches and representative offices of foreign credit institutions in Austria.The OeNB as additional supervisory authority carries out on-site inspections (either upon instruction of the FMA or on its own initiative) and conducts banking supervision analysis. All information available to the FMA and/or the OeNB must be stored in a database maintained by the OeNB. The OeNB analyses and evaluates the information stored in the database on an ongoing basis. All findings are shared with the FMA and the OeNB immediately informs the FMA if the risk situation of a credit institution has changed materially or a violation of supervisory provisions is suspected. In addition to the institutions described above, the Austrian Control Bank (OeKB) provides financial and informational services to exporting businesses and to the capital markets.Key legislation in AustriaAs Austria is a member of the European Union, key national laws and regulations applicable to Austrian banks are predominantly based on European legislation. Whereas EU regulations (e.g. the CRR) are directly applicable in each Member State, EU directives (e.g. the Capital Requirements Directive (2013/36/EU – “CRD IV”)) must be transposed into national law. The main Austrian laws applicable to banks are as follows: • Austrian Banking Act (Bankwesengesetz – “BWG”): The BWG applies to credit

institutions and financial institutions in Austria. It also transposed the CRD IV into national law. The BWG sets out the requirements and the procedure for applying for a banking licence. As a general rule, banking activities (which are listed in the BWG and cover most of the activities set out in the CRD IV) conducted on a commercial basis require a licence granted by the FMA. The BWG also regulates the requirements for conducting banking activities by foreign credit institutions in Austria or by Austrian credit institutions in another EU Member State – either under the freedom of establishment or the freedom to provide services. Furthermore, the BWG contains the credit institutions’ main obligations (e.g. corporate obligations, due diligence obligations), procedures on change in ownership as well as provisions relating to consumer protection, banking secrecy, capital requirements, accounting and macroprudential supervision.




• Financial Market Money Laundering Act (Finanzmarkt-Geldwäschegesetz – “FM-GwG”): Transposing the fourth Anti-Money Laundering Directive, the FM-GwG includes anti money-laundering procedures which credit institutions must adhere to (see below).

• Payment Services Act (Zahlungsdienstegesetz – “ZaDiG”): The ZaDiG regulates rights and duties of payment service providers in Austria as well as the corresponding banking supervisory framework. The Payment Service Directive (2007/64/EU), which is intended to harmonise the EU-wide requirements for service providers, was implemented by the ZaDiG. The Payment Services Directive II (2015/2366/EU) must be transposed into Austrian law by the end of 2017. A first proposal for the revised ZaDiG is expected by mid-2017.

• The Bank Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz – “BaSAG”) contains provisions for the restructuring and resolution of banks (see below).

• Securities Supervision Act 2007 (Wertpapieraufsichtsgesetz 2007 – “WAG”): The WAG as well as implementing regulations are based on the Markets in Financial Instruments Directive (2004/39/EC – “MiFID”) and are applicable to investment service providers. Investment service providers must fulfil the licence requirements set out in the WAG. Furthermore, the WAG sets out the provisions relating to notification and compliance obligations, consumer protection and investor protection. The Markets in Financial Instruments Directive II (2014/65/EU – “MiFID II”) which is expected to be transposed into Austrian law by January 2018 will widely revise the WAG (see below).

• Capital Market Act (Kapitalmarktgesetz – “KMG”): According to the KMG, public offering for securities or an investment above the threshold of EUR 250,000 requires a prospectus drawn up and audited in connection with the provisions set forth in the KMG. The KMG provides for several exemptions, e.g. offers with a total value of less than EUR 1.5 million which fall within the scope of the Alternative Financing Act.

• Alternative Financing Act (Alternativfinanzierungsgesetz – “AltFG”): The AltFG came into force in 2015 and introduced the framework for companies to receive financing by way of crowdinvesting or citizen participation models without the burden of issuing a full prospectus. Under the AltFG, only a “prospectus light” is required and for some investment projects the requirements are even less stringent and only limited issuer information verified by an expert must be provided. Furthermore, the AltFG provides a legal framework for crowdinvesting platforms and their operator.

• Investment Fund Act (Investmentfondsgesetz – “InvFG”) and Real Estate Investment Fund Act (Immobilieninvestmentfondsgesetz – “ImmoInvFG”): The InvFG governs the establishment, management and marketing of UCITS (undertakings for collective investment in transferable securities), portfolios of assets, pension investment funds and special funds. The Directive 2009/65/EU serves as the European basis of the InvFG. Real estate funds and investment fund management companies for real estate are governed separately by the ImmoInvFG.

• Stock Exchange Act (Börsegesetz – “BörseG”): The BörseG comprises provisions comprehensively regulating the Austrian commodity and securities exchange. The implementation of MiFID II (see below) into Austrian law will lead to a fundamental revision of the BörseG.

Additionally, there are several special banking-related laws for special credit institutions or special financing, such as the Mortgage Bank Act (Hypothekenbankgesetz), the Mortgage Bond Act (Pfandbriefgesetz), the Covered Bond Act (Gesetz betreffend fundierte Bankschuldverschreibungen), the Equity Fund Act (Beteiligungsfondsgesetz), the E-Money



Act (E-Geldgesetz), the Consumer Finance Act (Verbraucherkreditgesetz), the Sanctions Act (Sanktionengesetz), the Financial Conglomerates Act (Finanzkonglomerategesetz) and the Act Implementing EU Legislation on Rating Agencies (Ratingagenturenvollzugsgesetz).

Recent regulatory themes and key regulatory developments in Austria

Recovery and resolution of banks in AustriaThe Austrian Government implemented the Bank Recovery and Resolution Directive (2014/59/EU – “BRRD”) by adopting the Bank Recovery and Resolution Act (Bankensanie-rung und Abwicklung Gesetz – “BaSAG”) into Austrian national law. The BaSAG came into force on 1 January 2015 and it provides for three main parts: • Prevention: According to the BaSAG, every credit institution must have a recovery

plan in place providing for measures to be taken in case of a significant deterioration of the financial situation. The obligation to prepare a recovery plans shall ensure that the credit institutions will take timely, appropriate and effective measures regarding organisation and business policy in case of a crisis. Additionally, a resolution plan must be drawn up by the FMA for every credit institution which is not a member of a group subject to consolidated supervision. Such a resolution plan must provide for actions which will be taken in order to resolve or restructure a credit institution in an orderly way.

• Early intervention: The BaSAG provides for a legal framework for intervention by the FMA at an early stage in case of regulatory violations or likely regulatory violations.

• Resolution: Instead of applying general insolvency proceedings to a credit institution which is failing or likely to fail, the FMA can decide to use one of the various resolution tools provided for by the BaSAG, provided that no private sector solution is available and the resolution is in the public interest. The resolution tools are as follows: (i) sale of business; (ii) bridge institution; (iii) asset separation; and (iv) bail-in.

The Heta caseThe BaSAG was first applied to the Heta case which was resolved recently: on 1 March 2015, the FMA initiated the liquidation of Heta Asset Resolution AG (“Heta”) by applying the BaSAG. Heta is a wind-down company with the only purpose of disposing of non-performing assets of Hypo Alpe-Adria-Bank International AG which had been nationalised in 2009. In order to provide a resolution plan, the FMA imposed a temporary moratorium on Heta’s liability until the end of May 2016. In April 2016, the FMA decided on various measures and procedures for the resolution of Heta, including a massive haircut. Finally, in late 2016, the Austrian Government was able to reach a settlement with Heta’s creditors.Recent changes to the regulatory regime for Austrian banks • Common Reporting Standard Act (Gemeinsamer Meldestandard-Gesetz – “GMSG”):

The Common Reporting Standard (“CRS”), which was developed by the OECD in order to erase tax evasion and enhance voluntary tax compliance, was implemented into Austrian law through the GMSG. With the GMSG, the automatic exchange of information became effective in Austria. Austrian credit institutions and Austrian branches are obliged to: (i) review their financial accounts; (ii) perform due diligence procedures to identify the reportable accounts; and (iii) report the relevant information on an annual basis to the Austrian Federal Ministry of Finance (Bundesministerium für Finanzen – “BMF”). The BMF then forwards those tax-relevant account data to the competent foreign authority. The due diligence obligations include pre-existing accounts (accounts which were in existence on 1 October 2016) and new accounts (accounts which




have been opened later than 1 October 2016). In particular, general data (name, address, etc.), tax identification numbers, account numbers, account balances and investment income regarding individuals and entities domiciled in a CRS country must be reported. The first-time account reporting will take place in September 2017.

• FM-GwG: Due to the implementation of the fourth Anti-Money Laundering Directive (2005/60/EC), the BWG was amended and the FM-GwG (together with additional national regulations) was enacted. The FM-GwG came into force on 1 January 2017. The due diligence obligations applicable to credit institutions which were part of the BWG are now regulated by the FM-GwG. The FM-GwG prioritises the application of the risk-based approach and stipulates extended due diligence obligations with respect to politically exposed persons (PEP). One of the main amendments is the introduction of a new identification procedure by way of an online video identification without the requirement of the physical presence of the customer. Details regarding the online identification procedure are stipulated in the Online Identification Regulation issued by the FMA. The administrative penalties which can be imposed by the FMA under the FM-GwG were increased to up to EUR 5 million or up to 10% of the total annual turnover.

Planned changesThe existing regulatory system will be enhanced by the MiFID II and the Regulation on Markets in Financial Instruments (EU No. 600/2014 – “MiFIR”). While MiFID II must be transposed into Austrian national law, MiFIR will directly apply from 3 January 2018 onwards. The MiFID II will substantially renew the current framework for securities service provider. It expands the scope of the former MiFID by introducing an organised trading facility (OTF) for non-equity instruments (bonds, derivatives, structured products and emission allowances). Furthermore, investor protection is strengthened and harmonised provisions for investment services and products offered by non-EU investment firms in the EU are introduced by MiFID II. On 31 March 2017, the Austrian Government issued a first draft of a national law which will implement the MiFID II. The draft provides for a new Securities Supervision Act 2018 (Wertpapieraufsichtsgesetz 2018) which should replace the WAG and a new Securities Exchange and General Commodity Act 2018 (Gesetz über die Wertpapier- und Allgemeine Warenbörse 2018) which is intended to replace the BörseG. Additionally, the proposed draft includes amendments of various other laws. In Austria, it is planned that the amendments due to the implementation of MiFID II will come into effect on 3 January 2018.

Bank governance and internal controls

Key requirements for managementThe suitability of directors, supervisory board members and key function holders (e.g. the Chief Risk Officer, even if he or she is not a member of the managing board) must be assessed in terms of fitness and propriety. This means that, on the one hand, banks must maintain an internal process to ensure that relevant staff is at all times “fit and proper” and on the other hand, the FMA as competent national regulator will itself assess the suitability of newly appointed directors, supervisory board members or other key function holders on the basis of the FMA Guidelines on the assessment of directors, supervisory board members and key function holders (the “FMA Fit & Proper Guidelines”).In terms of propriety, directors must, in summary, (i) not be subject to an exclusion criterion as described in the Trade Act (essentially, not be convicted of an act of white




collar crime) or subject to bankruptcy or similar events, and (ii) be in an orderly economic situation. In terms of fitness, directors must, on the basis of their prior education, possess the professional qualifications and experience necessary for operating the credit institution; this is to be assumed if the directors have carried out management activities in a company of comparable size and business type for at least three years.In addition, at least one director must have command of the German language and all directors must have sufficient availability for carrying out their responsibilities within the bank. Additional restrictions exist for managers of large credit institutions.Key requirements of supervisory board membersSimilar propriety requirements exist for supervisory board members. In addition, the chairperson of the supervisory board must possess the professional qualifications and experience necessary for performing his/her function; such professional qualifications require expertise in the fields of bank finance and accounting as appropriate to the credit institution in question. Directors of a bank may not take up activities as the chairperson of the supervisory board within the same bank in which they previously served as directors until a period of at least two years has passed since the termination of their function as directors.Upcoming revision of guidelinesCurrently, the European Banking Authority (“EBA”) is working on a revised version of the EBA guidelines on the assessment of the suitability of members of the management body and key function holders, which is expected to be published by mid-2017. Once published, the FMA Fit & Proper Guidelines will need to be amended accordingly. The FMA expects the revised FMA Fit & Proper Guidelines to enter into force by 2018.If implemented, the draft EBA guidelines would, among other things, result in more extensive assessment of persons before being appointed as members of the management, supervisory board or as key function holders. In addition, they would introduce additional requirements to ensure independence of supervisory board members if they previously served as a director, advisor or in a similar role with the bank.Supervisory board committeesSupervisory boards of banks with total assets of more than EUR 1 billion or which have issued securities that are listed on a regulated market must appoint: (i) a nomination committee (section 29 BWG), in charge of considering applicants for the

filling of managerial vacancies and proposing candidates to the supervisory board;(ii) a remuneration committee (section 39c BWG), in charge of preparing resolutions on

subjects relating to remuneration and monitoring the remuneration policy;(iii) a risk committee (section 39d BWG), in charge of advising on and monitoring the

management of the bank’s current and future risk strategy; and (iv) an audit committee (section 63a (4) BWG), in charge of monitoring the accounting

process and the effectiveness of the internal control system, the internal revision system and the company’s risk management system.

Risk managementThe central provision relating to the bank’s risk management is section 39 BWG, according to which banks must have in place administrative, accounting and control mechanisms for the capture, assessment, management and monitoring of risks arising from banking transactions and banking operations, as well as their remuneration policy and practices. The organisational structure must prevent conflicts of interest and of competences by establishing delineations in structural and process organisation which are appropriate to




the credit institution’s business operations. The adequacy of these procedures and their enforcement must be reviewed by the internal audit unit at least once per year. The bank’s risk management system must in particular cover (i) credit risk and counterparty risk, (ii) concentration risk, (iii) market risk, (iv) risk of excessive leverage, (v) operational risk, (vi) securitisation risk, (vii) liquidity risk, (viii) interest rate risk arising from any transactions not already covered by item (iii), (ix) the residual risk from credit risk mitigation techniques, (x) risks arising from the macroeconomic environment, (xi) the risk of money laundering and terrorist financing, (xii) the risk arising from the institution’s business model when taking into account the effects of diversification strategies, (xiii) the results of stress tests in the case of institutions that apply internal approaches, and (xiv) the bank’s systemic risk. Further details on particular risk categories are set out in a regulation issued by the FMA (Kreditinstitute-Risikomanagement-Verordnung).

Bank capital requirements

In the European Union, the international global framework Basel III, a set of reform measures, was, with respect to capital requirements for banks, implemented through the CRR and the CRD IV, together the “CR Framework”. The CRR is directly applicable in all Member States (including Austria), whereas the CRD IV had to be transposed into national law. In Austria, the CRD IV was implemented by the BWG.The purpose of Basel III is to strengthen the resilience of the banking sector and to improve the system stability. This should be mainly achieved by means of higher capital requirements, limitation of debt and extensive regulation of the liquidity risk. Under the CR Framework, eligible capital consists of Tier 1 capital (divided into Core Equity Tier 1 (“CET 1 capital”) and Additional Tier 1 capital) and Tier 2 capital. Each type of capital is subject to strict requirements which ensures the quality of the capital structure. The CR Framework requires the fulfilment of the following capital ratio at any time: 4.5% CET 1 capital; 6% Tier 1 capital; and 8% total capital ratio. Additionally, to the Tier 1 and Tier 2 capital, various capital buffers are required: capital conservation buffer; institution-specific countercyclical capital buffer; and systemic capital buffers. Generally, the capital requirements are higher for risk exposures incurred from derivatives and repos.Furthermore, the CR Framework determined minimum quantitative liquidity standards by introducing the liquidity cover ratio (“LCR”) and the net stable funding ration (“NSFR”). The LCR enables credit institutions to cover their net cash outflows during a 30-day stress period. The NSFR requires that the available stable funding exceeds the required stable funding. Furthermore, a non-risk based leverage ratio of at least 3% must be fulfilled. The final implementation date for the covenants is January 2018.

Rules governing banks’ relationships with their customers and other third parties

Civil law frameworkIn Austria, there exists no law which specifically regulates the bank-customer relationship. Instead, as in any other civil law relationship, it is governed by the provisions of the Austrian General Civil Code (Allgemeines Bürgerliches Gesetzbuch – “ABGB”). However, the ABGB is supplemented by additional regulation (based on corresponding EU directives) in the area of consumer protection, in particular distance marketing of financial services or consumer loans.An important provision in this context is section 100 BWG, which constitutes a civil law sanction for conducting a banking transaction without the required licence: although the




overall banking transaction remains valid, there is no entitlement to any remuneration associated with the transaction. For instance, a person granting a loan without the required banking licence may not be entitled to the interest stipulated in the loan agreement. In addition, suretyships and guarantees associated with the transaction are legally invalid. As this section is part of the regulatory framework, it applies irrespective of the chosen governing law for the transaction.Banking ombudsmanWith the entry into force of the Alternative Dispute Resolution Act in 2016, implementing the Directive on Alternative Dispute Resolution for Consumer Disputes (Directive 2013/11/EU), the Austrian Federal Economic Chamber, Division Bank and Insurance, has established the Joint Conciliation Board of the Austrian Banking Industry. It consists of an independent ombudsman and the secretariat of the conciliation board and is in charge of settling disputes between a bank and a consumer relating to a banking transaction. The affected consumer must reside within the EEA and the credit institution must be based in Austria or authorised to carry out business in Austria. In certain cases (disputes under transactions regulated by the ZaDiG, the EU SEPA Regulation, the E-Money Directive or the Investment Fund Act), non-consumers may also file a complaint. Once a complaint is filed, it is forwarded to the relevant bank. The bank may then declare whether it wishes to participate in the resolution process. The participation is voluntary.Deposit guarantee and investor compensation schemesIn Austria, the deposit guarantee and investor compensation schemes are regulated by the Federal Act on Deposit Guarantee Schemes and Investor Compensation (Einlagensicherungs- und Anlegerentschädigungsgesetz – “ESAEG”). Credit institutions that are incorporated in Austria and that accept deposits subject to deposit guarantee must participate in the scheme of their trade association. If a credit institution incorporated in Austria does not belong to a deposit guarantee scheme, then its licence for taking deposits lapses. Currently, each trade association (banks and bankers, mortgage banks, Raiffeisen banks, savings banks, Volksbank credit cooperatives) has its own deposit guarantee scheme. Starting in 2019, each credit institution must belong to either: (i) a uniform deposit guarantee scheme established by the Austrian Economic Chambers; or (ii) an institutional deposit guarantee and investor compensation scheme, provided it is approved by the FMA pursuant to section 3 ESAEG.In the case of a pay-out event (e.g. opening of insolvency proceedings of a bank or if the FMA has determined that a credit institution is currently not in the position to pay out deposits that are due for reasons relating to its financial situation, and that there is no prospect that the credit institution will be in a position to do so in the future), the depositor is protected up to EUR 100,000, in case of certain temporarily covered deposits (e.g. in connection with the sale of a private residential properties) up to EUR 500,000. Claims of an investor arising from investment services subject to guarantee obligations are protected to a maximum amount of EUR 20,000, with a 90% cap for creditors that are not natural persons.If a credit institution incorporated in another Member State operates a branch in Austria, then the deposit guarantee scheme with which the corresponding cooperation agreement has been concluded shall repay deposits in accordance with the instructions of the deposit guarantee scheme of the credit institution’s home Member State on its behalf, provided that




the deposit guarantee scheme of the home Member State has the necessary financial means available and has repaid any incurred costs (section 36 ESAEG).Inbound cross-border banking servicesCredit institutions from other EU Member States may carry out banking transactions in Austria either through establishing a branch or on a cross-border basis under the freedom to provide services, provided that the credit institution’s licence covers such activities. Generally, credit institutions from non-EU countries (or entities without a banking licence) may not engage in commercial banking transactions in Austria. The BWG provides for severe penalties if a person engages in banking transactions without the required authorisation. Under which circumstances a cross-border banking transaction is pursued in (or outside of) Austria, is not entirely clear and subject to intense academic debate. Unlike in Germany, for instance, there exists no formal guidance from the regulator on the permissibility of cross-border banking transactions. In particular, transactions concluded by “reverse solicitation” are not automatically excluded from the requirement to possess a licence when conducting cross-border banking transactions. In one decision involving a cross-border loan, the Austrian Supreme Court considered the following elements of the transaction to be relevant for determining whether the loan constituted a banking transaction that was carried out in Austria (thereby causing the application of the BWG): (i) place of contract negotiations; (ii) place of development of the financing concept; (iii) place of receipt of the offer; (iv) place of conclusion of contract by the borrower; (v) place of disbursement of loan; and (vi) location of collateral, while noting that each transaction must be considered on a case-by-case basis. Hence, from that decision it can be concluded that the more elements of a banking transaction which take place in Austria, the higher the risk that an Austrian banking licence will be required.




Annika WolfTel: +43 1 714 24 40 / Email: [email protected] Wolf specialises in financial market regulation law and has vast knowledge of Austrian and European regulations relating to banking, cross-border financial services and financial supervision. She has extensive experience counselling credit institutions on complex regulatory matters, both on the national and European level. Annika Wolf graduated from the University of Vienna and the Queen Mary University of London and gained substantial experience as a banking lawyer in Liechtenstein and Austria. She regularly advises international banks and is currently a visiting lecturer at the Vienna University of Economics and Business.

Wolfram HuberTel: +43 1 714 24 40 / Email: [email protected] Huber has over 15 years of experience in banking and finance law. He has broad experience in dealing with complex matters concerning financial regulatory matters. He regularly advises credit institutions on cross-border general lending and financial regulatory law. He also assists clients in the terms of regulatory investigations. Wolfram Huber has authored of various publications. Wolfram Huber is also qualified as a solicitor in England and Wales.

PHH Prochaska Havranek Rechtsanwälte GmbH & Co KGJulius-Raab-Platz 4, A-1010 Vienna, Austria

Tel: +43 1 714 24 40 / Fax +43 1 714 24 40 6 / URL: www.phh.at


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Banking Regulation 2017 - phh.at · While a constant decline in the total number of credit institutions can be noticed over recent years, with approximately 2,000 customers per bank