The recent presentation of the draft Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG) by German lawmakers, has reignited debates surrounding the adequacy of the existing Austrian financial services and securities law framework and the adoption of measures supporting the digitalisation of its capital markets. Unlike its neighbour, Austria has thus far refrained from establishing a specific regulatory regime governing crypto-related activities or transactions.
The following will consider the current legal mechanisms governing blockchain-based financial services in Austria. While intended as a short overview concerning the jurisdiction's general approach to the regulation of cryptoassets and fintech businesses, matters such as taxation, data protection and money-laundering will also be briefly touched upon.
Developments in the area of blockchain-based services and virtual currencies have attracted considerable attention in recent years. Beyond forming the backbone of the cryptocurrency Bitcoin, blockchain technology purports to establish a decentralized, disintermediated and distributed digital ecosystem. As such, it is said to innovate and permeate through a wide array of industries ranging from healthcare to retail, government as well as banking and finance.
In light of recent trends towards the wider-use of distributed ledger technology, the need for digitisation of securities has become an inevitable and necessary endeavour. As start-ups increasingly 'base their business models on cryptocurrencies and resort to the use of blockchain technology to drive innovation',1 legislators, courts as well as regulators are tasked with establishing a legal framework that enables corporate financing through the utilization of blockchains and electronic issuance of securities.
Given that cryptoassets are comparatively novel manifestations whose 'societal use, economic worth, and technical design are still in flux,'2 the challenge lies in the adoption of appropriate measures and provisions to facilitate the fusion of cryptocurrencies and the fabric of an existing national regulatory framework.
Debates on blockchain technology and its regulation in Austria
For a considerable period of time, cryptocurrencies have been exempt from regulation3 in Austria. Prior to 2017, public authorities, such as the Austrian Financial Market Authority (Österreichische Finanzmarktaufsicht, FMA),4 assumed a particularly sceptical position concerning blockchain technology. In a similar vein to the criticism voiced by the European Securities and Market Authority (ESMA) as well as other supervisory agencies,5 its warnings centred on the volatility and consumer protection risks associated with digital asset-based business and investment models.
By 2017, the Ministry of Finance published guidance on the tax consequences (income and value added) flowing from the practice of trading with bitcoins and other cryptocurrencies, including Ethereum, Ripple and Litecoin.6 The establishment of an advisory board (Fin-Tech Beirat) in 2018, marked a vital shift in terms of the receptiveness of policymakers towards alternative financing methods.
Seeking to address concerns over the use of cryptocurrencies (particularly with regard to money laundering or the financing of terrorism), regulatory and supervisory proposals continued to be debated in 2018. Although these discussions were accelerated by a suspected bitcoin-related fraud scheme known as "Optioment",7 concrete legislative action was not taken.
Austria and its importance as a Fintech Hotspot
Considered a pioneer in the field of eGovernment in Europe, Austria has displayed an open attitude to new technologies and cryptocurrencies, allowing it to become the preferred business location to numerous startups. 8 Bitpanda is only one example of many notable fintechs that have set up their operations in Austria. Founded in 2014, the Vienna-based crypto-based company of more than 160 team members, offers its services to more than one million users. At present, there are 112 Austrian companies qualifying as fintech businesses.9 With a growth rate exceeding that of the financial industry and an annual turnover of EUR 130 million,10 its impact on social and corporate life can no longer be denied.
It is this rapid evolution of the fintech landscape that has prompted legislators to start monitoring developments in this area more closely.
- The FMA
The FMA, introduced above, is the 'independent, autonomous and integrated supervisory authority for the Austrian financial market',11 whose statutory aims include: 1) increasing confidence in the efficient functioning of Austria's financial market; 2) protecting investors, creditors and consumers in accordance with legal provisions; and 3) acting in a preventive manner with respect to compliance with supervisory standards, while also punishing breaches committed in a consistent manner.12
In adopting a technology-neutral approach, the FMA focuses on the application of existing laws and ensures both new and traditional products or services are subject to the same laws and regulations in order to safeguard rather than diminish the technological achievements of this digital era. Seeking to maintain integrity, security and investor protection, it may exercise sovereign powers by issuing 'binding standards, like regulations and administrative decisions, [or taking] coercive measures, such as withdrawing licences, to remove directors or to impose administrative penalties.'13
Given the complexity and rise in number of these businesses transacting with cryptoassets and the speed of their development, the FMA has created a Fintech Contact Portal and designated a specialist team to give companies the chance to submit queries concerning the regulatory treatment of their operations.
- Sandbox Programme
As of 01.09.2020, an amendment to the Austrian Financial Market Authority Act (Finanzmarktausichtsbehördengesetz, FMABG) has entered into force. With the addition of section 23a, the FMA has introduced a 'regulatory sandbox', enabling companies to test products/services that are still under development and assess their viability. An application is to be submitted to the FMA provided specific conditions are met, e.g. the business model is designed to further the public interest; it does not destabilize the financial market or inhibiting consumer protection; it is innovative in nature and will accelerate market maturity (a full list of requirements is set out under section 23a para 2 sentence 1). In determining whether the respective business model offers sufficient public value, i.e. is serving the wider economic interest, the Advisory Board14 must be consulted (section 23a para 3).
Taking part in the sandbox programme is limited to a period of up to two years, but can be terminated earlier upon application (section 23a para 4). Quarterly reports are to be submitted to the Minister of Finance by the FMA. As part of the assessment, the latter may be asked to provide further details as to the parties involved in the operation of the regulatory sandbox business model under consideration (section 23a para 7).15
Austria's Regulatory Framework
Austrian law neither bans nor restricts blockchain technology, but rather seeks to adequately regulate it.
In determining the regulatory status to be applied to a business model involving crypto assets, a case-by-case assessment is to be conducted. Depending on the nature, content or features of the product/service offered, different licence obligations may arise pursuant to:
- Austrian Payment Services Act (Zahlungsdiestgesetz, ZaDiG);
- Austrian Banking Act (Bankwesengesetz, BWG);
- Austrian Electronic Money Act (E-Geldgesetz, EGeldG);
- Austrian Alternative Investment Fund Manager Act (Alternative Investmentfonds Manager-Gesetz, AIFMG);
- Austrian Securities Supervision Act (Wertpapieraufsichtsgesetz, WAG);
- Austrian Act on Alternative Investment Fund Managers (Alternatives Investmentfonds Manager-Gesetz, AIFMG);
- Austrian Capital Markets Act (Kapitalmarktgesetz, KMG).
Unlike the FMA, which supervises crypto-related business activities 'that fall within the scope of banking, payment and investment services or funds and securities regulation',16 virtual assets that are commodities as stipulated under Austrian law, are overseen by the Austrian trade authorities.17 There is no designated court that holds jurisdiction over legal matters centring on cryptocurrency transactions. Lastly, there are neither border restrictions in place, nor is the operation of fintech businesses prohibited in Austria.
- Prior to 2020:
- Anti-money laundering (AML) requirements apply to cryptocurrency-based activities that require a licence under financial services regulation, e.g. payment service providers;
- AML requirements may also arise under commercial law, e.g. auctioneers making/obtaining cash payments of at least EUR 10 000 pursuant to the Austrian Trade Code (Gewerbeordnung, GewO).
- Since January 2020:
- The Financial Markets Anti-Money Laundering Act (Finanzmarkt-Geldwäschegesetz, Fm-GwG), which came into force on 10.01.2020, transposes the Fifth Anti-Money Laundering Directive (AMLD5), it:
- Adopts the same definition of virtual currencies as the AMLD5,
namely describing service providers offering one or more of the
- Services to safeguard private cryptographic keys to hold, store and transfer virtual currencies on behalf of a customer (custodian wallets);
- Exchanging virtual currencies into fiat currencies and vice versa;
- Exchanging one or more virtual currencies into each another;
- Transferring virtual currencies; and
- The provision of financial services for the issuing and selling of virtual currencies.
- Extends AML requirements to:
- Electronic wallet providers; and
- Service providers involved in the exchange of fiat/cryptocurrencies.
- Requires national virtual currency providers and foreign entities performing financial services in Austria to register with the FMA.19
- Income Tax
- Cryptocurrencies intended for purposes of generating interest income are taxed at 27.5% (private individuals) or 25% (companies);
- Cryptocurrencies not intended for interest generation purposes and concerning private sales as well as non-business assets give rise to a taxable event to be taxed at 55% (private individuals) if acquired and sold within 12 months;20 capital gains are exempt from taxation if EUR 440 per annum; if held for longer than 12 months they will not be subject to taxation.21
- The exchange of crypto into fiat currency and vice versa is VAT-exempt;22
- Since virtual assets are treated in the same manner as traditional means of payment, purchases of goods and services are subject to VAT.
- Mining is regarded as a commercial activity and treated in the same fashion as tradition payment methods; it is not regulated.
- Data Protection
- Both the European General Data Protection Regulation (GDPR) as well as the Austrian Data Protection Act provide a legal basis for the regulation of the use, transmission and collection of personal/sensitive data;
- Rights of the data subject are found under Articles 12-23 GDPR and include inter alia:
- Right to transparent information, communication and modalities relating to the data being processed;
- Right to obtain rectification of false data;
- Right to erasure;
- Right to restriction of processing;
- Right to data portability;
- Right to object.
- Remedies and penalties are listed under Articles 77-84. The data subject may e.g. lodge a complaint with a supervisory authority or be awarded compensation from the controller or processor for potential (non-)material damage suffered. Infringements of GDPR provisions can also result in administrative fines between EUR 10 to 20 million and 2% to 4%, respectively, of the annual turnover of the preceding year (whichever higher).
The incremental rise in the number of young cryptocurrency-based start-ups in recent years, has prompted Austrian policymakers to acknowledge and analyse the potential of cryptoassets and blockchains. Austria has adopted a positive attitude towards new technologies. By introducing numerous pilot projects (e.g. Culture Token Project),23 it has proven to be an attractive location for crypto-based businesses. Other contributing factors include significant equity and debt financing opportunities (i.e. low-interest ERP loans, grants, guarantees made available by the Austrian federal investment and business promotional bank) and incentive schemes (implemented by e.g. Austrian Business Agency or the Austrian Research Promotion Agency), made available to companies to fully develop their innovative potential.24
To this end, the following recent events are also worth highlighting:
18.05.2020 National Digital Currency Pilot: Raiffeisen Bank Austria working on new form of national currency tokenization using blockchain technology.25
02.07.2020 Austrian Telecom Provider A1 adding cryptocurrencies to cashless payment network, enabling Austrian crypto owners to accept cryptocurrencies (i.e. ETH, Bitcoin, Dash) via payment processor Salamantex.26
02.09.2020 Vienna Stock Exchange listing Bitcoin and Ethereum.27
Austria's neutral approach to the supervision of crypto companies has proved to be a fruitful in terms of facilitating rather than hampering the endeavours and innovations of new business models. Unlike jurisdictions like Liechtenstein, Austria has not established an independent legal mechanism for the regulation of cryptocurrencies and the respective service providers. Yet, in light of the EU Commission's mandate to examine and draft legislative proposals for further regulatory measures by 11 January 2022,28 alterations to the current Austrian approach are to be expected.
1 Dr. Völkel, O.; Dr. Stadler, A. (2020) Austria's business location advantages in the fields of cryptocurrencies and blockchain. Invest in Austria Blog. Available at: https://investinaustria.at/en/blog/2020/03/austria-locational-advantages-cryptocurrencies-blockchain.php [accessed 23.10.2020].
2 Quintais, J. P.; Bodó, B.; Giannopoulou, A.; Ferrari, V. (2019) Blockchain and the Law: A Critical Evaluation. Stanford Journal of Blockchain Law and Policy (2)1. Available at: https://stanford-jblp.pubpub.org/pub/blockchain-and-law-evaluation/release/2 [accessed 22.10.2020].
3 Dr. Völkel, O.; Dr. Stadler, A., (n i).
4 FMA (2019) European Supervisory Authorities Publish Joint Warning on Virtual Currencies. FMA Österreich. Available at: www.fma.gv.at/en/europaeische-regulierungsbehoerden-veroeffentlichen-gemeinsam-eine-warnung-zu-virtuellen-waehrungen/ [accessed 20.10.2020]; Pittl, R.; Steiner, C. (2020) Blockchain-Bssed Financial Services and Virtual Currencies in Austria. Journal of European Consumer and Market Law Volume 9 Issue 2. Available at: https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/austria [accessed 22.10.2020], p81.
5 ESMA (2017) ESMA alerts investors to the high risks of Initial Coin Offerings (ICOs). ESMA News. Available at: https://www.esma.europa.eu/sites/default/files/library/esma50-157-829_ico_statement_investors.pdf [accessed 19.10.2020]; Pittl, R.; Steiner, C., (n iii), p81.
6 For a detailed account please refer to: https://www.wolftheiss.com/fileadmin/content/6_news/Newsletter/2017_Q3/17_09_29_Wolf_Theiss_Tax_Newsletter_Ed3_2017.pdf.
7 Groendahl, B. (2018) Austrian Bitcoin 'Scam' Triggers Police Search Across Europe. Available at: https://www.bloomberg.com/news/articles/2018-02-15/austrian-bitcoin-scam-triggers-police-search-across-europe [accessed 28.10.2020].
8 Dr. Völkel, O.; Dr. Stadler, A., (n i).
9 Fletzberger, B. (2020) Austria: Fintech Laws and Regulations 2020. ICLG. Available at: https://iclg.com/practice-areas/fintech-laws-and-regulations/austria [accessed 19.10.2020].
10 Fletzberger, B., (n viii).
11 FMA. The Austrian Financial Market Authority Integrated Supervision in Austria. FMA Österreich. Available at: www.fma.gv.at/en/financial-market-supervision-in-austria/ [accessed 15.10.2020], p1.
12 FMA, (n xi), p1.
13 FMA. Financial Market Supervision in Austria. FMA Österreich. Available at: www.fma.gv.at/en/financial-market-supervision-in-austria/ [accessed 15.10.2020].
15 For further detail please refer to the following: FMA (2020) FMA Sandbox. Available at: https://www.fma.gv.at/en/kontaktstelle-fintech-sandbox/fma-sandbox/ [accessed 12.10.2020]; Schneider, E.; Pachinger, S.; Klepp, S. (2020) New regulatory sandbox for Austria. Freshfields Digital. Available at: https://digital.freshfields.com/post/102gbaq/new-regulatory-sandbox-for-austria [accessed 12.10.2020]; Library of Congress (2020) Austria: Amendment of Financial Market Authority Act Establishes Regulatory Sandbox for Innovative FinTech Companies. The Library of Congress Global Legal Monitor. Available at: https://www.loc.gov/law/foreign-news/article/austria-amendment-of-financial-market-authority-act-establishes-regulatory-sandbox-for-innovative-fintech-companies/#:~:text=Top%20Recent%20Articles-,Austria%3A%20Amendment%20of%20Financial%20Market%20Authority%20Act%20Establishes%20Regulatory%20Sandbox,entered%20into%20force%20in%20Austria [accessed 13.10.2020].
16 Kulnigg, T.; Rath, U. (2019) Cryptoassets & Blockchain in Austria. Lexology GTDT. Available at: https://www.lexology.com/library/detail.aspx?g=de76db61-81bf-4f91-9ff1-9a8e4c50d966 [accessed 23.10.2020].
17 Kulnigg, T.; Rath, U., (n xiii).
18 Art. 1 para. 1 No. 19 AMLD5; Art. 2 para 22 FM-GwG; Kulnigg, T.; Rath, U., (n xiii).
19 FMA. Registration of Providers in relation to Virtual Currencies. Available at: https://www.fma.gv.at/en/cross-sectoral-topics/prevention-of-money-laundering-terrorist-financing/registration-of-providers-in-relation-to-virtual-currencies/ [accessed 20.10.2020]; Steiner, C., (n iii), p81.
20 Kulnigg, T.; Rath, U., (n xiii), p212.
21 Menheere, A. (2017) BMF: Die steuerliche Beurteilung in Österreich von Bitcoin und anderen Kryptowährungen. Available at: https://steuernachrichten.pwc.at/blog/2017/08/01/bmf-die-steuerliche-beurteilung-in-oesterreich-von-bitcoin-und-anderen-kryptowaehrungen/ [accessed 31.10.2020].; CJEU 22 October 2015, C-264/14 Hedquvist ; Kulnigg, T.; Rath, U., (n xiii), p212.
22 Steuerliche Behandlung von Kryptowährungen (virtuelle Währungen). BMF. Available at http://perma.cc/BU4Z-3BFY (archived) [accessed 13.10.2020].
23 For more information, please visit: https://digitales.wien.gv.at/site/en/culture-token-project-outline/.
24 Fletzberger, B., (n viii).
25 Hinchliffe, R. (2020) Billon polits digitised national currency with Raiffeisen Bank. FintechFutures. Available at: https://www.fintechfutures.com/2020/05/billon-pilots-digitised-national-currency-with-raiffeisen-bank/ [accessed 20.10.2020].
26 Helms, K. (2020) A1 Telekom Austria Adds Bitcoin to Payment Service for Thousands of Retailers. Bitcoin News. Available at: https://news.bitcoin.com/a1-telekom-austria-bitcoin-payment-service-thousands-of-retailers/ [accessed 20.10.2020].
27 Wiener Börse (2020) 21Shares brings first crypto-currency products on Bitcoin and Ethereum to the official market. Vienna Stock Exchange News. Available at: https://www.wienerborse.at/en/news/vienna-stock-exchange-news/21-shares-crypto-currency-products-bitcoin-ethereum-official-market/#:~:text=(Vienna)%20The%20Vienna%20Stock%20Exchange,currencies%20is%20replicated%201%3A1 [accessed 19.10.2020].
28 Otto Waechter, O. (2019) Virtual Currency Regulation. ILO. Available at: https://www.internationallawoffice.com/Newsletters/Banking-Financial-Services/Austria/Graf-Pitkowitz-Rechtsanwalte-GmbH/Virtual-currency-regulation [accessed 18.10.2020].
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