The International Monetary Fund (IMF) has once again presented a favourable report on Austria’s financial market, following a jointly agreed routine update of the assessment originally carried out in 2003 as part of the “Financial Sector Assessment Programme” (FSAP). After conducting in-depth investigations and complex stress tests, the IMF concludes in the draft for an “aide mémoire” that “Austria’s financial system has continued to strengthen” and is shock-resistant. Austria is also stated to have taken timely advantage of the opportunities offered by the opening of the Central, Eastern and South Eastern European markets and that these ventures are now paying off in terms of earnings and risk diversification. In addition, by virtue of their solid deposits base and an “originate-and-hold” strategy, Austrian banks are found to have only been relatively less affected by recent financial market turbulence. At the same time, it is noted that the risks resulting from Austria’s exposure to CESE countries require close monitoring. In this connection, the IMF once again points out how important it is for supervisory authorities to cooperate at the international level and goes on to emphasise the need for a further intensification of this approach.
It is observed on the whole that the regulatory and supervisory framework, already at a high level, have continued to improve. The supervision reform of 2007 is considered as important contribution toward effective and efficient supervision.
In a critical vein, the IMF observes that the recent problem cases emerging in the Austrian financial market have revealed weaknesses in the internal control system and recommends to further strengthening corporate governance principles. The IMF further criticises that the far-reaching definition of officials’ liability in Austria can result in a “moral hazard” among market participants, while putting a burden on taxpayers and tying up too many of the already scarce supervisory resources. In general, the IMF calls for all areas of supervisory activity to receive more human resources; moreover, the IMF asks for an expansion of on-site inspection activities at financial institutions and cross-border crisis simulation exercises as well as for more intensive stress tests that would also include insurance firms and Pensionskassen. The report also recommends a substantial increase in the levels of administrative penalties which the FMA may impose. Responsibilities of external auditors are additionally cited as requiring clearer definition, while the introduction of external rotation of auditors should be considered.
Lastly, in the wake of the reform of the supervisory architecture and the implementation of new, highly complex regulatory provisions (i.e. Basel II, Securities Supervision Act (WAG) 2007/MiFID and Solvency II), the IMF points out the need for a longer consolidation period.
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516