Financial Crime World

Austria Introduces Strict KYC Regulations for Financial Institutions

Introduction

The Financial Market Authority (FMA) in Austria has implemented strict Know Your Customer (KYC) guidelines for financial institutions to prevent money laundering and terrorist financing.

Background

The Financial Market Anti-Money Laundering Act, which came into effect on January 1, 2017, requires financial institutions to verify the identity, suitability, and risks involved with maintaining a business relationship. These regulations have been heavily influenced by European legislation, including Directive 2015/849/EU (4th Money Laundering Directive) and Directive 2018/843/EU (5th Money Laundering Directive).

Key Requirements

  • Financial institutions must identify customers or clients before establishing a business relationship.
  • Obtain specific personal details, including:
    • Name
    • Date of birth
    • Nationality
    • Residential address
  • Legal entities and partnerships must provide company information, such as:
    • Registration number
    • Principal place of business
  • The identification procedure typically requires a face-to-face meeting, but video-identification is also acceptable.

Outsourcing Customer Due Diligence

Financial institutions can outsource customer due diligence to third parties that are themselves obliged by law to comply with AML regulations. However, the responsible party remains liable for fulfilling the general due diligence obligations.

Additionally, financial institutions can outsource to third parties that are not obliged by law to meet AML regulations, provided they are reliable and meet the necessary standards. In such cases, the contractual third party must ensure compliance with AML regulations.

Reliable Third Parties

Entities that can be relied upon as a third party to comply with AML regulations include:

  • Credit institutions
  • Financial institutions
  • Auditors
  • External accountants
  • Tax advisors
  • Notaries
  • Independent legal professionals
  • Trust or company service providers
  • Estate agents
  • Providers of gambling services

Consequences of Non-Compliance

The FMA has emphasized the importance of complying with these regulations to prevent money laundering and terrorist financing. Financial institutions that fail to comply may face severe penalties, including fines and even criminal prosecution.

As a result, financial institutions in Austria must be aware of their obligations under the KYC regulations and take necessary steps to ensure compliance. Failure to do so could have serious consequences for both the institution and its clients.