A new Financial Markets Control Act (Finanzmarktaufsichtsgesetz) establishes a financial regulator with comprehensive competence, supervising all types of banks, insurance companies, and other financial services companies. The idea of having the concentration within one authority is primarily motivated by the international trend towards all-finance groups. It also looks to the potential synergies to be realized by consolidating separate supervisory authorities for the various branches of financial services in Austria. The new authority will have the status of an independent agency.
The substantive finance supervisory regulations are concurrently being amended to enable the new authority to take action faster and more effectively than under the present regulations.
Under the new Act, an auditor who has audited the annual accounts of a particular company for the preceding six business years will be precluded from further auditing the annual accounts of such company. In the case of an auditing company, auditors will be precluded if they have signed the auditor's certificate for the preceding six business years. This rotation principle will be applicable to all business years commencing December 31 2003.
The new Act introduces a more stringent liability of the auditor (including the bank auditor) in cases of negligence. The Act increases the limits of liability, differentiating between "ordinary" and gross negligence on the one hand and between listed and non-listed companies on the other hand. Whereas the auditor's liability in the case of ordinary negligence is limited to euro 2 million ($1.8 million) for non-listed and euro 4 million for listed companies, the liability limits in cases of gross negligence are increased to five times the respective amounts. It should be noted that the new Act does not address the issue raised recently by divergent Austrian court rulings as to whether the auditor is only liable vis-á-vis the audited company or also towards shareholders or even creditors of the company.
Under the new Act, not only incorrect or misleading information provided to the public or to the shareholders of a company by members of the managing board or supervisory board is penalized under criminal law, but also any incorrect or misleading information given by members of the managing board to the supervisory board. If the respective board member prepares or distributes any incorrect or misleading information through a third party (auditor, employee), such third party will also be subject to the penalty.
The new regulations are expected to enhance the overall quality and reliability of audits and information provided about Austrian companies, and to strengthen the confidence of the public in the financial markets. The core provisions of the new Act will become effective as of April 1 2002.
Peter Huber and Guenther Hanslik