The Austrian regulator, the Financial Markets Authority (Finanzmarktaufsichtsbehörde - the FMA), has recently published interpretational guidelines on the construction of Section 48f of the Austrian Stock Exchange Act (Börsegesetz - BörseG), implementing Commission Directive 2003/125/EC. Section 48f of BörseG deals with the fair presentation of investment recommendations and provides for detailed rules on business practices, including standards of presentation and dissemination of financial analysis, and obligations regarding the disclosure of conflicts of interest.

The guidelines will be of considerable importance to persons producing or disseminating financial analysis not only because they offer definitions for key terms but also because the FMA has indicated that it will consult the guidelines when assessing market participants' conformity with Section 48f.

Addressees

Section 48f of BörseG applies to persons producing or disseminating financial analysis in the exercise of their profession or conduct of business. The guidelines clarify that the scope of Section 48f is large and covers not only credit institutions, the issuers of financial instruments or freelance analysts but also employees of the issuer and journalists if they are not subject to equivalent appropriate regulation, including self-regulation.

Definition of financial analysis

The core section of the guidelines addresses the definition of financial analysis and offers authoritative guidance as to what qualifies as financial analysis for purposes of Section 48f.

Pursuant to the guidelines, financial analysis connotes information on a financial instrument or its issuer that was produced or disseminated by a person in the exercise of its profession or conduct of business, which explicitly or implicitly recommends or suggests a certain investment strategy and which is intended for the public.

An explicit investment recommendation clearly recommends investment in a certain financial instrument (for example, using language such as buy or sell). An implicit investment recommendation does not contain such direct advice but rather constitutes a basis on which a prudent investor might form a certain investment recommendation (for example, describing a company as an outperformer). Pursuant to the guidelines, implicit investment recommendations likewise qualify as financial analysis for purposes of Section 48f.

Pursuant to the guidelines, financial analysis is intended for the public if it is available to a large number of persons or the public in general. In this context, the guidelines point out that the number of recipients is of no relevance. Rather, financial analysis is intended for the public if the information is likely to be publicly available, such as by e-mail, by publication on the internet or through similar distribution channels directed to the public at large.

Marketing material that does not contain an investment recommendation, ad hoc announcements and prospectuses under the BörseG and the Capital Markets Act (Kapitalmarktgesetz), charts, information such as a general description of the relevant instrument or the relevant market, and risk warnings do not, according to the guidelines, qualify as financial analysis for purposes of Section 48f.

Provision of investment advice

Under Austrian law, advice on the investment of clients' funds is subject to a licence requirement under the Austrian Banking Act (Bankwesengesetz), or the Austrian Securities Supervision Act (Wertpapieraufsichtsgesetz). The guidelines clarify that the production or dissemination of financial analysis does not qualify as investment advice if it is general in nature and does not contain a personal recommendation on the suitability of a certain investment for a particular client. Consequently, if financial analysis is produced or supplied without further comment on whether a given investment might be appropriate for a particular client, it will not amount to the provision of investment advice in Austria and will not require a licence.

Conflicts of interest

While Section 48f, as a principle, provides that persons producing or disseminating financial analysis in the exercise of their profession or conduct of business are obliged to disclose all relationships and circumstances that could reasonably be expected to impair the objectivity of the recommendation, the guidelines specify this principle further. Pursuant to the guidelines, disclosure is required to be complete, accurate, concise, and timely and must also be highlighted in the text. Further, the guidelines accentuate that persons producing or disseminating financial analysis must be financially independent. For instance, remuneration of these persons cannot be tied to the sales volume of the recommended instruments, to avoid the likelihood that they have a vested financial interest when preparing a recommendation. Also, entities offering investment banking services, such as investment firms and credit institutions, must ensure that effective organizational and administrative arrangements are set up internally to prevent and avoid conflicts of interest with respect to recommendations. Pursuant to the guidelines, this includes structural separation between the analyst department and other departments such as trading, sales and capital markets.

Ursula Rath