The Securities Supervision Act 2018[1] (WAG 2018; Wertpapieraufsichtsgesetz 2018), which transposes the European MiFID II Directive into Austrian law, and which enters into force on 3 January 2018, significantly improves investor protection, increases transparency in relation to investment advice, products and costs, and extends the powers and sanctioning options available to the supervisory authorities. “The new Securities Supervision Act will make investment invest considerably more transparent, and will therefore decisively improve its quality,” remarked the Austrian Financial Market Authority’s Executive Board members, Helmut Ettl and Klaus Kumpfmüller: “The new law already anchors investor protection during the product development process, and also provides the supervisory authority with the opportunity for the first time to restrict, or even to prohibit, the distribution of particularly risky products to retail investors.”
More transparency for investment advice
The new WAG 2018 focuses even more strongly on the interest of clients, and in addition to commission-based “dependent” investment advice, which currently dominates the market, also legally defines the model for fee-based “independent” investment advice for the first time. The firm providing the advice shall not be allowed in this instance to accept either commission or other incentives from third parties (e.g. the manufacturer of the product); in the event that such items are nevertheless received, they are to be passed on to the client. The provider shall be required to inform the client in advance about which type of investment advice it provides.
The client must in addition also be in the future be informed about all fees and ancillary costs. In addition, such fees are to be summarised in such a way, that the client is also able to understand the total costs as well as the effects of the costs on returns.
Greater transparency in the selection of products
All manufacturers and providers of financial instruments are obliged, to already define the target market when developing the product. This means that they are required to define which target group (retail investors, professional investors…) the financial instrument has been tailored for, as well as about the range of knowledge and experience that they are required to have, as well as how high their ability to absorb losses must at least be. The risk/performance profile of the product as well as its recommended holding period must also be defined. It must also be determined whether the product is tailored in such a way to fulfil special client requirements; such as for clients wishing to invest in sustainable investments.
More Powers for the Supervisory Authority
A new supervisory power has been introduced in the form of product intervention, which grants the FMA with the power to restrict or prohibit the marketing and distribution of financial instruments as well as financial activities or practices. Such intervention rights may also be exercised by the European Securities and Markets Authority (ESMA), in the case for example that dubious financial instruments are being offered online to retail investors on a predominantly cross-border basis. Such restrictions and prohibitions may only be issued, where considerable doubts exist in relation to investor protection or where there is a danger for the orderly functioning and integrity of financial markets or commodity markets, or where danger arises for the stability of the financial system or if a derivative has negative effects on the pricing mechanism in the underlying markets.
[1] The Securities Supervision Act 2018 (WAG 2018; Wertpapieraufsichtsgesetz 2018) transposes the new EU Directive MiFID II (“Markets in Financial Instruments Directive II”) into Austrian law, and together with the new European “Markets in Financial Instruments Regulation” (MiFIR) forms a new regulatory framework for markets in financial products. The MiFID II provisions about trading venues have been transposed in the Stock Exchange Act 2018 (BörseG 2018; Börsegesetz 2018).
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