Banking Giant to Expand Activities, Face Regulatory Challenges

A leading financial institution has announced plans to expand its services into new areas, including leasing business, capital structure advice, industrial strategy consulting, mergers and acquisitions support, credit reporting, safe deposit services, payment services, and e-money issuance. While this move is expected to boost the company’s revenue, it also presents regulatory challenges.

Regulatory Challenges

The banking industry faces significant regulatory hurdles, including:

• Contributions to resolution financing arrangements
• Rapid changes in banking regulations

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have issued guidelines for assessing the suitability of management board members and key function holders, which may hinder effective governance in smaller banks.

In addition, the institution must comply with consumer protection rules, including:

• Provisions on credit agreements
• Credit transactions
• Investment services

The Consumer Protection Act, Consumer Credit Act, and Remote Financial Services Act impose strict requirements on banking activities towards consumers.

Future Changes

In the coming years, we expect significant changes to the legal and regulatory landscape. These changes include:

• The European Commission’s Capital Markets Union Action Plan, which aims to establish a single market for capital across member states, influencing the Austrian banking industry.
• The implementation of EU Directives, such as the revised MiFID II and Payment Services Directive (PSD2), requiring considerable resources from banks.

The Single Resolution Mechanism (SRM) has established a single resolution fund to ensure the orderly resolution of failing banks without taxpayer support. We also expect increased cooperation between European institutions on banking supervision.

Supervision

Banks in Austria are supervised by four institutions:

• The European Central Bank (ECB)
• The Austrian National Bank (OeNB)
• The Financial Market Authority (FMA)
• The Federal Ministry for Finance

The ECB supervises banks under the Single Supervisory Mechanism, while the OeNB monitors market stability at a macro level. The FMA checks individual financial institutions and participants in markets at a micro level.

The institution’s plans to expand its services will require close cooperation with regulatory authorities to ensure compliance with existing regulations and adapt to future changes.