Financial Market Supervision
Banks, insurance companies, pension funds and securities firms are subject to specific supervision. In view of the increasing complexity of financial markets, supervisory authorities everywhere are faced with new challenges. Integration and globalisation have led to the establishment of cross-border banking groups and financial conglomerates that require intensified cooperation and coordination between the supervisory authorities, as well as a harmonized supervisory framework.
Austria reacted to these developments and established – in accordance with international standards and recommendations – the Financial Market Authority, a modern and integrated supervisory authority, in April 2002. Then, at the beginning of 2011, a new supervisory framework – the European System of Financial Supervision – was established at the European level to cope with these challenges.
Supervision in Austria
The Financial Market Authority (FMA), which was established in 2002, is an independent and autonomous supervisory authority. It is subject to monitoring by the Parliament and to legal supervision by the Ministry of Finance. The FMA integrates previously split supervisory competencies, i.e. the supervision of banks (in cooperation with the Austrian Central Bank), insurance undertakings, pension companies and the financial securities sector, including the stock exchanges.
To promote the co-operation on financial market issues and financial market stability, the Financial Market Committee has been set up. The Committee consists of representatives from the FMA, the Austrian Central Bank and the Ministry of Finance.
The weaknesses of the existing supervisory regime in Europe became apparent during the financial crisis. In November 2010, the Council and the EU-Parliament therefore agreed on a legislative package for a new financial supervisory architecture in Europe. Its central element is the foundation of the European Systemic Risk Board and three sector specific European Supervisory Authorities.
In January 2011 the European Systemic Risk Board (ESRB) was established as the first pillar of the new system. It is responsible for the macro-prudential oversight of the financial system within the European Union, and thereby contributes to the prevention or mitigation of systemic risks that arise from developments within the financial system. The ESRB monitors macroeconomic developments and issues warnings and non-binding recommendations in order to prevent periods of widespread financial distress.
The operation of the board has, at least initially, been entrusted to the ECB, and the ECB-President is also the first chairman of the ESRB. The ECB provides analytical, statistical, administrative and logistical support to the ESRB. Technical advice is also drawn from national central banks and supervisors.
The European System of Financial Supervision is the second pillar of the new architecture, and responsible for the micro-prudential aspects of financial supervision. It consists of three sector-specific European Supervisory Authorities, the
- European Banking Authority (EBA),
- European Insurance and Occupational Pensions Authority (EIOPA),
- European Securities and Markets Authority (ESMA),
as well as the national supervisory authorities. The system is designed as a decentralized network. Its task is to improve the cooperation between the national supervisors of cross-border companies. The three new European authorities are responsible for the consistent application of the rules agreed on EU level. To this end, they can draft binding technical standards (albeit the final decision is in the hands of the European Commission) and issue interpretive guidelines. In principle, the responsibility for the supervision of the individual financial institutions remains with the national supervisory authorities. Only for specific financial institutions such as credit rating agencies, the supervisory power has been transferred to the European level. In case of conflict between the national supervisory authorities, the European authorities can act as mediators and make binding decisions. Also, for times of crises, the new European Supervisory Authorities are equipped with special powers.