Following the Fourth Anti-money Laundering (AML) Directive coming into force, Austria transposed the directive into law through two major legislative acts. This update provides an overview of the effects and obligations arising from the implementation of the Fourth AML Directive – in particular, the due diligence that banks will have to undertake on prospective clients.
Following a period of legal uncertainty and controversy, the Supreme Court has provided answers to the question of whether, against the backdrop of negative reference interest rates, a bank can unilaterally floor an overall floating interest rate at 0.00001%. Although the Supreme Court's decision is disappointing, it held that a decision rendered on an individual basis may come to other conclusions. Thus, this decision is unlikely to be the final word on this issue.
New almost EU-wide rules recently entered into force to support businesses in the recovery of debt from debtors in other EU countries. The regulation established a new procedure for creditors by providing common rules regarding jurisdiction and the procedure and conditions for freezing funds held by debtors in bank accounts located in the European Union. Austria has amended its Enforcement Code in order to provide the necessary framework for the procedures set out in the EU regulation.
Over the decades Austria has remained faithful to its banking secrecy by being a late adopter, if at all, of international standards for exchanging information regarding bank accounts. However, the recent amendments to the legal framework have put an end to this and led to a material softening of banking secrecy in Austria. Among other things, the legislature introduced new laws carefully tailored to remove legal obstacles based on banking secrecy that prevented – or at least impeded – tax collection.
The Supreme Court recently dismissed a victim's claim to refund an unauthorised payment transaction against his bank and held that, among other things, a bank may offset its obligation to refund an unauthorised transaction with its claim for damages against the account holder. However, the court failed to provide long-awaited guidance on the criteria to be applied when assessing the various degrees of fault that potentially limit the liability of payment service users.
The Supreme Court recently held that one-off loan processing fees charged by banks are lawful. Based on a detailed assessment, and while outlining the material differences between Austrian and German law, the Supreme Court held that one-off loan processing fees qualify as contractually agreed principal performance obligations that are not subject to the control of unfair terms under Section 879(3) of the Civil Code.
The Supreme Court recently dismissed a bank's claim for enforcement of a third-party mortgage initially given to secure loans granted to two corporate entities. The Supreme Court, irrespective of fierce (and mostly negative) discussions in legal literature, failed to question the nullity of the underlying loan further and thereby indirectly confirmed its previous decision on the 'overall planning' criterion.
Negative interest is normally approached from the depositor's perspective. However, as some reference rates for floating interest rates fall below zero, this topic is also of interest in relation to loan agreements. A recent regional court decision brought attention to some earlier legal jurisprudence on this topic. However, the main question remains undecided: which party must bear the risk of a negative reference interest rate?
Since the bail-in of Hypo Alpe-Adria-Bank International AG, the government has enacted legislation which fully implements the EU Bank Recovery and Resolution Directive, including the bail-in tool. In addition, the Financial Markets Authority – in its capacity as the resolution authority – recently issued an administrative ruling based on the act, imposing a moratorium on all liabilities owed by the wind-down entity HETA until May 2016.
A recent Supreme Court case considered whether a recipient's bank was liable for damages arising from its execution of a payment order using an incorrect account number and bank sort code as unique identifiers, which caused the payment to be sent to an unknown third party. The court held that the payer bears the risk of a wrongful payment transaction due to an incorrect unique identifier.
The Supreme Court recently dealt with a case in which a claim secured by a bank guarantee became due after the guarantee period expired. It is crucial to have in-depth knowledge of the advantages and strategic use of abstract claims arising from bank guarantees, as well as an understanding of the pitfalls triggered by poorly drafted bank guarantees and underlying commercial agreements.
In 2007 Carinthia sold Hypo Alpe-Adria-Bank International AG (HAA) to BayernLB. In 2009 the bank was nationalised as a result of the financial crisis. Both the sale and the nationalisation are subject to court proceedings. Since 2009, Austria has taken material measures to determine the best way to proceed with HAA, including the Federal Law on Remedial Measures for HAA and a proposed bail-in.
The Supreme Court recently settled the question of whether a hand-signed faxed declaration of suretyship is valid. Although the prevailing doctrine would suggest its validity, the issue was still in dispute. In general, suretyships under Austrian law must be given in written form. However, questions have arisen as to whether a signed declaration of suretyship will fulfil the formal requirements if the declaration is transmitted by fax.
The Constitutional Court was recently asked to review the legality of the conflict of interest provisions stated in the Securities Supervision Act, as well as in a regulation issued thereto by the Financial Markets Authority (FMA). The managing directors of a bank had been fined by the FMA for not having properly implemented effective measures to prevent conflicts of interest.
The Administrative Court recently further clarified the circumstances under which lending activities are deemed to be carried out on a commercial basis. In general, this applies if the lender grants loans repeatedly (or has the intention to do so) and the loans are granted with the aim of realising income. However, the court stressed that the legislature did not intend to place all types of lending under the ambit of the Banking Act.
The EU Markets in Financial Instruments Directive, which was recently transposed into Austrian law, requires all banks to establish, implement and maintain an effective conflicts of interest policy. The policy must be appropriate to the size and organisation of the bank and the nature, scale and complexity of its business. In response to concerns over the legality of the new laws, the Constitutional Court has reviewed their provisions.
In a recent judgment the Supreme Court dealt with interest rate adjustment clauses and interest rate calculation methods under business loan agreements. The court acknowledged that banks have a legitimate interest in providing for the adjustment of interest rates in accordance with changes in refinancing conditions and the relevant markets. This judgment provides important guidance for banks and their advisers.
In the case of a bank guarantee drawn without legal cause, the Supreme Court granted the party on whose account the guarantee had been issued parallel recourse claims against both the beneficiary of the guarantee and the debtor whose payment obligation was meant to be discharged by the payment under the guarantee. This authoritative opinion decides a long-lasting dispute that followed from contradictory case law.
Under Austrian law, the term 'letter of comfort' is a collective description for instruments predominantly issued by parent companies to banks that secure the payment obligations of a third party, usually a subsidiary company, under its financing arrangements with the beneficiary bank. They come in a variety of forms within two 'pure' types - the unrestricted comfort letter and the restricted comfort letter.
The EU Consumer Credit Agreement Directive was implemented in Austria through the enactment of a new federal Consumer Credit Act. Under the directive, banks must provide extensive information on credit offers in order to enable consumers to compare offers. While banks appreciate the importance of early repayments, they risk being at a disadvantage if a fixed interest rate is in place.