Integrated Conduct Supervision of Banks

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The strong interconnectedness of the Austrian financial market means that banks traditionally take on a very strong role as a delivery channel for financial products to consumers – banks are integrated providers of different categories of products for their customers. In order to ensure that customers have a consistent level of protection across all categories, harmonised regulations alone are not sufficient. A harmonised supervisory approach to all product categories must go hand in hand with them, which are offered via the distribution channel of the bank.

Ultimately for consumers it shall not be allowed to make any difference which product or services they obtain through the bank. The decisive factor for the consumer is that products are appropriate for their financial requirements and that the consumer is clearly informed and fairly advised.

The FMA’s Approach to Supervision

In order to strengthen its integrated approach to supervision, the FMA reorganised its conduct supervision in 2018. Supervision about the conduct requirements in the provision of banking services, investment services as well as insurance mediation by banks have been combined in a division for “Integrated Conduct Supervision of Banks”. By bundling the supervision of conduct supervision issues in a specialist division the largest possible synergies have been realised and a one-stop-shop principle for banks has been introduced in the area of conduct supervision.

The FMA monitors within its scope of competence the observance of compliance, conduct and sales regulations by credit institutions when providing banking business, payment services, investment services and insurance mediation in accordance with the following laws or EU regulations and regulations under national law.

In the Austrian Banking Act compliance and conduct requirements relating to the provision of banking services and when selling banking products, such as requirements in relation to complaints management and remuneration policy and practices. The following far-reaching conduct obligations exist in relation to the grant of loans for real estate loans. They range from principles for the granting of credit and valuation of residential property, the knowledge and skills of advisers through to rules for credit checks, dealing with payments in arrears and foreclosure as well are rules relating to remuneration policies.

Conduct rules in the provision of payment services covers among other items, the information requirements in Chapter 3, the rights and obligations in relation to the provision and usage of payment services pursuant to Chapter 4 as well as rules for complaints management in accordance with Chapter 5.

Credit institutions that provide also investment services on the basis of their legal licence pursuant to Article 1 para. 3 BWG such as investment advice, portfolio management on an individual basis and/or the receiving and transmission of orders (Article 3 para. 2 nos. 1 to 3 WAG 2018), are required to comply with Chapter 2 – Organisational Requirements of the Securities Supervision Act 2018 (WAG 2018; Wertpapieraufsichtsgesetz 2018), the regulations based upon it, as well as the directly applicable EU Regulations, in particular Delegated Regulation (EU) 2017/565. They cover on the one hand organisational requirements, such as the establishment of a compliance function, on the other hand a broad range of conduct rules when providing investment services.

The Insurance Distribution Direction (IDD) and the delegated regulations based thereon contain conduct supervision rules for insurance mediation that are generally carried over from MiFID II and the Securities Supervision Act 2018 (WAG 2018). Pursuant to Article 21 para. 4 BWG credit institutions are required in the mediation of insurance contracts and insurance-based investment product to in particular observe the relevant rules set out in the Commercial Code of 1994 (Article 69 para. 2, Articles 1367 et seq.) as well as the national regulations issued on this basis (e.g. Professional rules for insurance mediation).

When manufacturing packaged retail investment products for retail investors and when distributing such products as well as insurance-based investment products to retail investors, credit institutions are required to observe the provisions in the PRIIPs Regulation, the PRIIPs Enforcement Act (PRIIP-VG) as well as the directly applicable EU Regulations, in particular Delegated Regulation (EU) 2017/653. They prescribe, among other issues, that manufacturers must draw up a key information document (KID) for such products. The distributor is also obliged to make the KID available promptly to the retail investor prior to the conclusion of the contract.

Within the scope of conduct supervision, the FMA checks compliance with the legal provisions using various supervisory tools. It uses a proven 3-level strategy that also involves the supervised credit institutions and parties representing their interests. This strategy covers the targeted monitoring of the market, structured dialogue with the market as well as the specific reviewing of individual legal entities.

This review is in the form of on-site inspections:

  • pursuant to Article 21 para. 5 BWG regarding insurance mediation by credit institutions,
  • pursuant to Article 90 para. 3 no. 3 WAG 2018 with regard to the provision of investment services, and
  • pursuant to Article 4 para. 1 PRIIP-VG with regard to the obligations set out in the PRIIPs Regulation.

Furthermore, spot checks and management meetings are also conducted. Such supervisory tools are used in the case of the ad hoc identification of specific circumstances, for routine checking processes as well as to increase market standards as well as in particular to ensure that ongoing supervisory contact is maintained.

Management meetings and spot checks are furthermore in particular used as a follow-up measure following an on-site inspection.

Information Sources and Important Links

The FMA as part of the development of supervision publishes a range of circulars as a contribution towards ensuring legal clarity and the development of the law. In addition publications are drawn up with the market participants for the purpose of self-reservation, although this does not prevent all market participants from issuing strictier rules.