Lack of Resources Hampers Supervision of Higher-Risk Credit Institutions

Introduction

The Austrian financial sector is facing a crisis of inadequate resources, particularly when it comes to supervising higher-risk credit institutions.

Inadequate Expertise Among Local Authorities

According to sources within the Financial Market Authority (FMA), there is a lack of expertise among local district authorities to conduct effective inspections. This has led to a situation where compliance with regulatory requirements is often based on statutory obligations rather than risk analysis or ratings.

Consequences

• Compliance is often based on statutory obligations rather than risk analysis or ratings
• Supervision may not be effective, leading to potential risks to the financial system

Limitations of the FMA

The FMA itself faces limitations in terms of resources, which can lead to unequal application of supervisory actions. Financial penalties imposed by the agency may not be dissuasive enough to deter non-compliance.

Consequences

• Unequal application of supervisory actions
• Non-dissuasive financial penalties may not deter non-compliance

Lack of Understanding Among Supervisory Bodies

The situation is further complicated by a lack of understanding among Austrian supervisory bodies regarding the activities and money laundering/terrorist financing risks associated with online operations of foreign Money Transfer Services (MTVS) providers and e-money institutions.

Consequences

• Inadequate control over money laundering/terrorist financing risks
• Potential risks to the financial system

Concerns Over Legal Persons and Arrangements

The country’s legal system also faces challenges when it comes to transparency and oversight of legal persons and arrangements. While there have been measures taken to prevent misuse, the company registry functions effectively, but there are limited safeguards in place for Treuhand arrangements.

Consequences

• Limited safeguards in place for Treuhand arrangements
• Potential risks to the financial system

No Centralized Database of Beneficial Owners

There is no centralized database of beneficial owners of Austrian legal persons and arrangements, which hinders timely access to this information by authorities. Legal provisions and professional secrecy restrictions also restrict access to this data.

Consequences

• Hinders timely access to information on beneficial owners
• Potential risks to the financial system

International Cooperation Lacking

Austria’s international cooperation efforts have been praised for being generally satisfactory, but there are concerns over the country’s ability to provide assistance to other nations and receive information from foreign counterparts.

Consequences

• Limited ability to provide assistance to other nations
• Limited access to information from foreign counterparts
• Potential risks to the financial system

Priority Actions

In light of these findings, the Financial Action Task Force (FATF) has recommended several priority actions for Austria:

Recommended Actions

1. Revising its money laundering/terrorist financing risk assessment to better reflect its actual risks.
2. Strengthening its financial intelligence unit by providing it with adequate resources and authority.
3. Improving cooperation between authorities, including the A-FIU and law enforcement agencies.
4. Enhancing transparency in legal persons and arrangements.
5. Reviewing laws and regulations related to non-profit organizations (NPOs) and money service businesses.

These recommendations aim to address the significant gaps in Austria’s anti-money laundering and counter-terrorist financing measures, ultimately strengthening its financial sector and reducing the risks associated with money laundering and terrorist financing.