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Resolution in general

The financial crisis of 2007/2008 showed that insolvency in the traditional sense was not a viable option for certain credit institutions, since a sudden exit of such credit institutions from the market by way of insolvency proceedings would endanger financial market stability as well as maintaining material functions for both the financial economy and the real economy. It was therefore often necessary to provide assistance to or bail out credit institution by means of government assistance.

In the future, as a lesson learned from the financial crisis, it should no longer be necessary to use funds from the public sector to bail out credit institutions. Instead the owners and creditors of the afflicted credit institution should bear responsibility for refinancing it. To allow this to happen, the European legislator to create a legal framework.

The Bank Recovery and Resolution Directive (BRRD , Directive 2014/59/EU as amended) and the Single Resolution Mechanism (SRM ) Regulation (Regulation (EU) No 806/2014) collectively form the “second pillar” of the European Banking Union (for further information about the European Banking Union) for the recovery and resolution of credit institutions and are connected to the regulation of the Single Supervisory Mechanism (SSM) for credit institutions, the “first pillar” of the European Banking Union.

The BRRD , which was passed by the European Parliament and Council in May 2014, harmonised rules for the European Economic Area were created for the first time about how to act in the event of the resolution or recovery of a bank. The BRRD applies for all EU Member States as well as EEA signatory states. As a Directive it is required to be transposed into the respective national law (Bundesgesetz über die Sanierung und Abwicklung von Banken (BaSAG; Sanierungs- und Abwicklungsgesetz)).

Further information about bank recovery can be found here (Recovery Planning under BaSAG).

Resolution in the European Context

The Single Resolution Mechanism Regulation (SRM-R) builds on the basis of the BRRD . As a Regulation it is directly applicable and is not required to be transposed into national law. For bank resolution it only specifically has an impact on those institutions, that are domiciled in the countries in the euro area (“participating Member States”) or the country of incorporation is in the SSM by virtue of a voluntary participation (“opt-in”).

The Single Resolution Board (SRB) is competent for drawing up of resolution plans and all decisions in relation to a resolution of specific investment firms and credit institutions that are subject to direct supervision by the European Central Bank (ECB) as significant credit institutions, or those for which the the ECB has decided to exercise all powers directly (in this regard, please see the complete list of significant credit institutions), as well as other cross-border groups. (see the complete list here). More information can be found about the SRB can be found here. (further information about European Banking Union).

The SRM consists of the “Single Resolution Board” (SRB) located in Brussels and the national resolution authorities of the participating Member States. The FMA has been Austria’s national resolution authority since 2015. In addition to the SRB, the Single Resolution Fund (SRF) was established as the second core element of the SRM. The SRF is financed by contributions by banks (further information about the SRF can be found here). The SRB cooperates closely with the respective national resolution authorities in executing resolution actions as well as in drawing up resolution plans, with material decisions however being taken by the SRB, in part in cooperation with the European Council and the European Commission. The SRB’s material decisions are in turn implemented by the national authorities, in Austria’s case by the FMA, at national level.

Resolution in the National Context

For those credit institutions or groups for which the SRB is not directly responsible, the national resolution authorities, in Austria’s case the FMA, are responsible. This applies in particular for the adoption of resolution plans and the assessment of resolvability, measures taking during early intervention, determining the amount for the minimum requirement for own funds and eligible liabilities (MREL) as well as writing down or conversion of relevant capital instruments. In many of these thematic areas, the FMA as the National Resolution Authority also cooperates closely with the Oesterreichische Nationalbank (OeNB).

In addition to credit institutions, the scope of application of the Federal Act on Recovery and Resolution of Banks (BaSAG) in German only also covers certain investment firms that perform activities similar to those of banks (trading on own account and the issuing/placement of financial instruments with fixed commitment basis) and are subject to certain requirements regarding their initial capital. In supervisory law terms, the Investment Firm Regulation (IFR; Regulation (EU) 2019/2033) and the transposition of the Investment Firm Directive (IFD; Directive (EU) 2019/2034) through the Austrian Investment Firms Act (WPFG; Wertpapierfirmengesetz) has created a new supervisory framework for investment firms, that takes into account the varying risk profiles of investment firms. This change to the supervisory regime means in the future that the FMA with also be the competent resolution authority for “Class 1 minus” and certain “Class 2” investment firms. In this regard, the FMA’s tasks correspond to those for credit institutions within the scope of application of BaSAG.

To ensure the effective application of resolution tools and powers in investment firms and EU branch establishments of institutions from third countries within the scope of application of the Federal Act on Recovery and Resolution of Banks (BaSAG), the FMA is required to establish a national resolution financing arrangement (NAF; Nationaler Abwicklungsfinanzierungsmechanismus (NAF) financed by contributions from investment firms and EU branch establishments.

Regulation (EU) 2021/23 (The CCP Recovery and Resolution Regulation (CCP-RR-R) also created a framework for the recovery and resolution of central counterparties (CCPs). The FMA has been the competent resolution authority in Austria as defined in the Austrian Central Counterparties and Trade Repositories Act (ZGVG) since 12 August 2022. Its duties in this regard include the adoption of resolution plans and the assessment of resolvability, measures during early intervention and the application of resolution tools and powers in the event of resolution.

The FMA in its capacity as the resolution authority

The Federal Act on Recovery and Resolution of Banks (BaSAG) and the Central Counterparties and Trade Repositories Act (ZGVG) confer the duties of national competent resolution authority upon the FMA for the resolution of institutions (primarily for credit institutions as well as for certain investment firms) and central counterparties (CCPs).

The FMA cooperates closely with the SRB in Brussels in the SRM with regard to the resolution of institutions. While the SRB is competent, in cooperation with and with the support of the national resolution authorities (NRAs) for resolution planning and the resolution of significant institutions and (groups of) institutions active on a cross-border basis within the euro area, the FMA, involving the SRB, is competent to a large extent on an independent basis for all less significant institutions in Austria.

The FMA’s core duties as the resolution authority comprise of::

  • resolution planning,
  • prescribing MREL requirements,
  • rectifying impediments to resolution,
  • prescribing and collecting contributions to the resolution fund,
  • conducting resolution proceedings (and also implementing SRB resolution decisions),
  • supervising resolution entities.