The multitude of regulations makes it difficult for consumers to establish how well they are protected and about the intensity of the FMA’s supervision of specific providers. Depending on the entity and how its offering is designed, the FMA’s supervision in conducted in various ways. This applies both with regard to how entities are supervised as well as in the event of their insolvency. Consequently, your investment is sometimes better protected, and sometimes less well protected.
To help obtain some kind of an overview, it is important to know where the FMA is the competent authority, the boundaries of its supervision, where entities are allowed to act without any kind of supervision, where unauthorised business starts, and where fraudsters attempt to fuel nefarious deeds with apparently attractive investments.
In particular, a distinction is made between:
These largely consist of banks, investment firms, payment institutions, e-money institutions, insurance companies, pension companies, and certain alternative investment fund managers (AIFMs). Prior to commencing their business activities, such entities are required to undergo a comprehensive approval procedure in order to receive a licence from the FMA. To do so, strict requirements must be met. Therefore such entities may only have the legal forms of a stock company (AG; Aktiengesellschaft), limited liability company (GmbH: Gesellschaft mit beschränkter Haftung) or a European company (SE; Societas Europaea), and a certain amount of equity capital must exist, and directors are required to possess prior experience and to be suitable for conducting the entity’s business. Once they have received a licence, such entities are subject to ongoing supervision by the FMA, which ensures that all the specific requirements continue to be met by means of regular inspections, reporting obligations and other monitoring tools. Holding an FMA licence therefore constitutes a certain quality seal, and investors enjoy the strongest level of consumer protection from licensed entities.
These include virtual asset service providers (VASPs) and certain alternative investment fund managers (AIFMs). They are also required to register prior to commencing activities, but the requirements as significantly lower than for licensed entities. The subsequent ongoing supervision is also much less intensive.
Information about the registration of Virtual Asset Service Providers can be found here: Registration of virtual asset service providers
Information about registration of AIFMs can be found here: AIFs and AIF Managers
Many people want to invest directly in start-ups, real estate and innovative projects. In recent years, both the Austrian legislator as well as the EU legislator have enabled alternative financing models through the AltFG at national level and the ESCPR at European level.
The ESCPR is the European legal framework for crowdfunding platforms, that are allowed to provide different types of services depending on their authorisation. These services include, e.g. receiving and transmitting of orders in relation to transferable securities (e.g. shares, bonds), the placement of such securities without a firm commitment basis, facilitation of the granting of loans and individual portfolio management of loans.
The FMA is responsible for authorisation and ongoing supervision. Attention! Only the mediation platforms are supervised, and not the products that your money is actually invested in.
Information about the legal framework for crowdfunding services providers can be found here:
Crowdfunding Service Providers
Austrian Crowdfunding Platforms under AltFG European Crowdfunding Service Providers under the ECSPR
The Alternative Financing Act (AltFG; Alternativfinanzierungsgesetz) allows small and medium-sized enterprises to raise capital easily from a range of investors, in particular via online platforms. Minimum standards for the protection of investors have been defined by means of legal information requirements and limits on the amounts of individual investments. Access to the capital market is intended to be simplified, while simultaneously reducing the risks for investors. Local administrative authorities are responsible for enforcing the Alternative Financing Act (AltFG). Qualified subordinated loans are a popular instrument for crowdfunding, especially in investments in real estate. There are particular kinds of risks involved for investors! In this case the party that invests is only repaid where such a repayment would not trigger insolvency. Investors should in any case be aware of this risk – if an entity falls into financial difficulties, then the invested sum will most probably be lost!
Further information can be found here:
Stock companies (AG; Aktiengesellschaften) are entities that are officially traded on a stock exchange. The FMA does not itself authorise these companies, but also examines trading and the pricing of shares. Issuers are subject to strict regulatory requirements, especially regarding the transparency and disclosure of financial information. Such companies are required to publish regular reports, such as annual and quarterly reports, and to disclose important decisions regarding the company. The objective of this is to see that no-one is able to exploit an information advantage and that the prices of securities come about in a fair and transparent manner.
A capital market prospectus is necessary in the case that securities are offered publicly or securities are admitted to trading on a stock exchange. Exceptions exist e.g. for small offerings (of less than EUR 8 million), offerings to qualified investors, private placements (up to 150 persons), or offerings to existing shareholders. The FMA only checks securities prospectuses for completeness, coherence and comprehensibility. The FMA is unable to review the correctness of the information. The issuer is liable for the correctness of the details published in a securities prospectus, in particular guaranteed features (for example absolute safety, opportunities for high yield, the highest possible security, low volatility).
In the case of investment advice, the client is given individual and personal advice by a licensed entity, for example by an investment firm. To do so, the adviser must analyse the client’s financial situation, investment objectives and risk appetite together with the client, to make recommendations for suitable investment products based on this analysis. The main priority is that the product is the best fit for the client. The adviser is required to document advisory meetings, and is liable for wrong or unsuitable recommendations.
In the case of direct sales, a company directly sells its own financial products to the clients. In this case no individual advisory process is conducted, but the undertaking actively offers its products for sale. The priority is on selling products without a comprehensive analysis of the needs of individual clients. The company must ensure that the products offered are presented in comprehensible manner and that the legal information obligations are duly met. Sales take place in the company’s own interests, without requiring the company to observe special regulations for protecting the clients’ interests.
Only investment advice is subject to FMA supervision. The FMA ensures that financial services providers observe legal requirements, especially the obligation to ensure objective and transparent advice in the client’s interests. This contains an obligation to document advisory processes, explaining about the risks involved as well as the appropriateness of the recommended products. Investment advisers must prove that they possess specific qualifications, regularly completing training measures, and observing legal conduct rules.
Different levels of protection for investors or consumers not only exist in relation to the licensing/registration and ongoing supervision, but also in the event of an entity’s insolvency, depending on which supervisory regime the affected entity is subject to. Information about insolvency can be found here:
It is not only serious providers that make use of innovative business models, fraudsters also exploit them. You should be particularly careful when they mention new trends like investing in cryptocurrencies that are talked up as “insider tips”, and promising high returns for a low level of risk or repayments only after an advance payment has been made (advance payment fraud) etc. Recently there have been multiple instances of apparent insider tips featuring celebrities, that claim to be a quick and easy pathway to prosperity. The common link between Armin Wolf, Armin Assinger, DJ Ötzi, Alexander van der Bellen, Mirjam Weichselbraun, Christoph Grissemann, and Barbara Karlich is that all of them apparently know or use a trading platform, trading software or financial services provider that guarantees prosperity. In actual fact, neither does such a cooperation exist, nor have the celebrities in question ever increased their money with the help of these financial services providers. Public personalities’ images are merely used as bait without their approval. Such articles are predominantly found on the Facebook, Instagram and TikTok platforms, and report about the celebrities’ apparent appearances or interviews on television and newspapers.
You can find helpful information about how you can recognise financial fraudsters here:
Information about whether a company is either licensed or registered by the Austrian Financial Market Authority, can be found here: