“We have learnt our lessons from the global financial crisis and largely implemented the expansion of the Austrian supervisory system,” declared FMA Executive Directors Helmut Ettl and Klaus Kumpfmüller, summarising the developments in supervision of the past few years at the presentation of the FMA’s Annual Report 2014. With regard to banking supervision, the Executive Directors referred to the Single Supervisory Mechanism (SSM), the new European supervisory system under the leadership of the European Central Bank (ECB), and the implementation of the new capital regime for banks, Basel III. The appointment of the FMA as the national resolution authority for banks and its new role as the competent authority in financial reporting enforcement were highlighted by Ettl and Kumpfmüller as further signs of important progress being made. With regard to insurance supervision, the new Solvency II regime will enter into force on 1 January 2016, and all market studies show that Austrian insurers are well prepared for it. Turning to securities supervision, the Executive Directors explained that regulatory loopholes such as those affecting alternative investment fund managers or market infrastructure had now also been closed.
National and European supervisory reforms taking effect
Executive Directors Ettl and Kumpfmüller underlined the progress made at the FMA itself by comparing key figures from 2006, i.e. before the supervisory reform of 2008, with those for the reporting year of 2014: “The number of FMA employees rose by 75% to 355, yet we have been able to increase the number of our on-site inspections by a huge 342% to 296, the number of administrative penal proceedings has tripled, reaching 279, and the number of cases reported to the public prosecutor’s office has increased nearly sixfold to 98 over the same period. Supervision before the financial crisis in no way compares with supervision after!” The Executive Directors went on to illustrate this with another figure: the number of legal pages the FMA had to peruse in the course of performing its supervisory remit increased almost sevenfold from 660 to 4 480.
Stability, prevention and consumer protection
The FMA Executive Directors shared some practical examples that demonstrated the effect of the substantial expansion in supervision. The Tier 1 capital ratio, the most important risk buffer for banks, was increased by around 7% to almost 12% between 2008 and 2014, while the solvency ratio, the most important figure on insurers’ ability to cover their obligations, rose from 325% to 380% over the same period. In addition, the outstanding volume of foreign currency loans had been almost halved (exchange rate adjusted) since the onset of the financial crisis, due to a number of FMA measures, among them a ban on new FX loans. Today, 120 000 Austrian households can rest easy, safe in the knowledge that they are no longer exposed to any foreign exchange risk. And in order to ensure that life assurance undertakings will be able to pay out the minimum returns guaranteed during good years despite the persistently low level of interest rates, the FMA has introduced a regulation obliging insurers to establish additional interest provisions. These provisions must not be allocated at the expense of policyholders but taken from corporate profits; they already hold funds of € 180 million.
Effective and efficient supervision
In 2014 the FMA, with 355 employees and a financial budget of € 48.4 million, supervised a total of 1 012 licensed companies, with total assets under management of € 1 307 billion, as well as supervising almost 34 million transactions in listed securities over the course of the year. In Austria alone these licensed companies employ 137 000 individuals and generate € 13.2 billion in value added per year. The total assets of Austrian banks and their subsidiaries account for more than 350% of Austria’s gross domestic product.
The supervised entities pay 93% of the FMA’s costs, while the Federal Government makes a lump sum contribution of € 3.5 million. Another € 6.7 million comes from fees and other income. The FMA also collects an amount of € 8 million for the services rendered by the Oesterreichische Nationalbank (OeNB). This means that banks contribute € 22.6 million (49%), while € 9.24 million (20%) is raised from insurance undertakings, € 924 000 (2%) from the Pensionskassen and € 12.9 million (28%) from the area of securities supervision.
“The integrated supervisory model, combining all areas under one roof, has a proven track record particularly with regard to crisis management. The Europeanisation of supervision breaks the chains that once held national supervisors back as they dealt with international financial markets. But above all, the FMA now has all the tools it needs to be able to act effectively,” concluded Ettl and Kumpfmüller.
You can find the english version of the annual report here.
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