(Sept. 18, 2020) On September 1, 2020, an amendment to the Austrian Financial Market Authority Act (Finanzmarktaufsichtsbehördengesetz, FMABG) entered into force in Austria. The amendment adds a new section 23a to the FMABG that directs the Austrian Financial Market Authority (FMA) to establish a regulatory sandbox for innovative businesses in the information and communication technology sector. This includes in particular FinTech companies, but also artificial intelligence and distributed ledger technology companies.
A regulatory sandbox is defined as a “scheme to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial services or business models.” The Austrian regulatory sandbox is not a “license light,” but a way to test how the existing financial regulatory framework can be applied to innovative business models.
Content of the Amendment
Requirements for Participation
FinTech companies that wish to participate in the regulatory sandbox must submit an application to the FMA. (FMABG, § 23a, para. 2, sentence 1.) The application will be approved if the business model fulfills the following requirements:
- It is based on information and communication technology (ICT);
- It is potentially subject to licensing/registration with the FMA according to the Banking Act, the Savings Bank Act, the Building Society Act, the Regulation Implementing the Mortgage Bank Act and the Mortgage Bond Act, or Council Regulation (EU) No. 1024/2013 on the SSM, or such a license has been granted;
- the execution is subject to supervision by the FMA;
- the execution is not subject to exclusive supervision by the European Central Bank, the EU Single Resolution Board, or a European Supervisory Authority listed in section 21a, paragraph 1, nos. 1 to 4 of the FMABG;
- it is in the public interest due to its highly innovative value;
- it will not threaten financial market stability or consumer protection;
- the business model is ready for testing, meaning there are no technical or legal impediments;
- the admission to the sandbox will accelerate marketability; and
- remaining supervisory questions can be resolved within the framework of the sandbox. (§ 23a, para. 2, sentence 2, nos. 1-5.)
Regulatory Sandbox Advisory Board
A newly constituted Regulatory Sandbox Advisory Board will issue an opinion on whether the business model is in the public interest and ready for testing and the market. The Advisory Board is housed at the Federal Ministry of Finance and consists of a member from the Ministry of Finance as chairman, a member of the Federal Chancellery, a member of the FMA, a member of the Austrian National Bank, and up to six additional members who can provide expert scrutiny due to their job experience or other relevant expertise. The FMA must take the opinion of the Advisory Board into account when making its decision about participation in the regulatory sandbox. (§ 23a, para. 3.)
Duties of the FMA
After the application has been approved, the FMA must, after consultation and with participation of the FinTech company, determine the conditions for the test phase, including suitable test parameters and measurable objectives to evaluate the implementation of the sandbox business model. Certain restrictions or conditions might be imposed. The FMA must publish a list of participants in the regulatory sandbox including a short description of the business model on its homepage. (§ 23a, paras. 4-6.)
Duty to Cooperate
Once admitted to the regulatory sandbox, participants are required to take an active part in the process, in particular by providing information, documents, and access to the underlying ICT to the FMA upon request. This duty to cooperate exists insofar as it is necessary for the prudential assessment of the participant and is independent of general duties arising from certain federal financial laws. The fact that the FinTech company participates in the regulatory sandbox may not be used for advertising purposes as a “seal of approval.” (§ 23a, para. 4.)
Time Frame
A company’s participation in the regulatory sandbox is limited to a maximum of two years. It may also end upon application of the company or ex officio if the requirements for participation cease to exist, or it is expected that the purpose of the participation in the regulatory sandbox cannot be achieved. (§ 23a, para. 4.)
Progress Report
The FMA is required to submit quarterly reports on the regulatory sandbox to the minister of finance. The minister of finance must give the Regulatory Sandbox Advisory Council access to these reports. In addition, upon request of the minister of finance, the FMA must provide information on the participants in the regulatory sandbox to allow an assessment of the macroeconomic or strategic impact of regulatory sandbox business models for Austria. (§ 23a, para. 7.)
Funding
The amendment states that the federal government will provide the FMA with €500,000 (about US$593,120) per fiscal year for the operation of the regulatory sandbox. (§ 23a, para. 8.) According to the explanatory memorandum to the amendment, this amount will allow up to five FinTech companies to participate simultaneously in the regulatory sandbox.