“We have succeeded in tangibly improving the stability of Austria’s financial market since the turmoil of the global financial crisis, in improving the preventive impact of supervision and in expanding consumer protection,” declared the FMA’s Executive Directors Helmut Ettl and Klaus Kumpfmüller, summing up the 2013 Annual Report of the Austrian Financial Market Authority. During the year under review, the FMA, with its 346-strong staff and a budget of € 56.4 million, was responsible for supervising 1,058 companies with total assets of approximately € 1,330 billion. It also monitored more than 31 million securities transactions involving securities listed on the Vienna Stock Exchange, ensuring that trading was being conducted properly and that the rules governing transparency and information were being observed by the 365 issuers.
Stability
Three facts are used by the FMA’s Executive Directors to illustrate the extent to which the stability of the financial market has been reinforced. Austrian banks have recorded striking increases in their Core Tier 1 and equity ratios during the period from 2008 to 2013, up from 7.7% to 11.9% and from 11.0% to 15.4% respectively. Meanwhile, over the same period, Austrian insurance undertakings have raised their solvency ratio – also a measure of how secure these institutions are – from 325.3% to 368.0%.
Prevention
“Measures to further step up supervision and our consistent zero tolerance approach over recent years are already having a preventive effect,” explained FMA Executive Director Helmut Ettl. “What we have seen in the corporate sector is a shift in culture, with a clear improvement in market discipline,” he added. According to Ettl, this is also reflected in the number of administrative penal proceedings being launched by the FMA. Whilst 569 proceedings were introduced in 2011, the equivalent figure in 2013 was a mere 331. The number of breaches of the rules on advertising, information and reporting in particular has fallen dramatically. “The pro-active dialogue on the part of the supervisory authority with market participants and the authority’s major presence at companies on the ground are having a preventive effect,” explained FMA Executive Director Kumpfmüller, before adding: “Today, the market knows exactly how the supervisory authority thinks and what it demands.”
Consumer protection
The FMA’s successes in tackling consumer protection are highlighted by the Executive Board using the example of the successful strategy to limit the risk resulting from foreign currency loans. Comprehensive measures in this area – ranging from info folders documenting the risk associated with foreign currency loans, to a ban on new FX loans and an agreement with the banks to offer individual measures to limit risk – are all having an effect. The volume of outstanding foreign currency loans has been slashed by 40% (allowing for exchange rate fluctuations) since autumn 2008. The number of households with such a loan has fallen from in excess of 260,000 to below 160,000. “This means that 100,000 households can now sleep more easily, free of any worries about exchange rate risk,” explained Ettl, while Kumpfmüller provided an example from the insurance sector to underline the successes recorded in consumer protection: “The additional interest provision that insurance undertakings are now required to put in place ensures that insurers will still be able to pay the minimum guaranteed return even if the current climate of low interest rates continues.” The allocation of funds to this provision may not be carried out to the detriment of the insured parties.
Looking to the challenges that lie ahead, the FMA Executive Directors stressed that they were expecting the Europeanisation of banking supervision to generate further impetus for a strengthening of financial market stability. “The fundamental balance sheet checks currently being carried out at the major banking groups jointly with the European Central Bank, coupled with the subsequent stress tests, will bolster confidence in European banks over the long term,” they declared. “The joint and uniform system of supervision headed by the ECB as of November of this year, together with the new European rules on the recovery and resolution of banks, will ensure that it is no longer governments and thus taxpayers who are forced to pick up the bill for banking risks.”
The FMA Executive Directors also believe that it is important to see the principle proclaimed by the G20 heads of state and government to the effect that “no financial market, no financial product, no financial market player should escape supervision any further” being consistently enforced. “We must make sure that nobody can evade regulation or supervision,” added Ettl and Kumpfmüller. “This is the only way we can ensure that unavoidable risks are managed professionally.” The integrated authority model, bringing supervision of all areas of the financial market under a single roof, provides the optimum basis for this and has proved its worth in the FMA’s case, never more so than during the financial crisis.
You can find the english version of the annual report here.
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