The Austrian Federal Government agreed in its 2013-2018 work programme, on the implementation of a nationwide ban on speculative financial transactions for the Federation, the Austrian Federal States, Austrian Municipalities, and other public bodies. The Federal Government has just announced that the Federation and the Federal States reached the agreement that a uniform nationwide ban on speculative financial transactions would be implemented soon.

Financial scandals caused call for statutory provisions

Since about the year 2000, the number (and amount) of financial transactions such as derivative transactions (eg swaps, options) and investments in various "exotic" currencies entered into by Austrian public bodies, increased drastically. While some of these transactions were entered into for the purpose of hedging underlying financial liabilities (eg interest rate swaps hedging interest payment obligations), others contained speculative elements and aimed to generate additional profits.

A number of Austrian Municipalities and Federal States were heavily engaged in such financial transactions. Due to the global financial crisis beginning in 2008, public bodies incurred significant financial losses. Finally, from 2012 onwards, many of these financial losses became known to the wider public. This caused public and political outrage over the use of tax payers' money for speculative financial transactions.

Thus, the Austrian Government agreed to implement a nationwide ban on speculative financial transactions and agreed on binding guidelines for risk-averse financial management by public bodies, in the Austrian Stability Programme for the years 2012–2017, and in its 2013-2018 work programme. In 2013 the plan to include the principle of risk-averse financial management by public bodies into Austrian financial constitutional law failed due to the lack of the necessary two-thirds constitutional majority in the Austrian Parliament. However, almost all Federal States enacted statutory provisions addressing risk-averse financial management. While some laws set forth comprehensive guidelines and prohibitions, others only laid down the vague principle of risk-averse financial management. The Federation issued an internal directive for the conclusion of financial transactions.

Upcoming: Nationwide ban on speculative financial transactions for public bodies

In November 2016 the Federation, the Federal States and the Austrian Municipalities entered into an agreement on the allocation of financial resources (essentially, the allocation of tax revenues). Part of this agreement is the implementation of a uniform, nationwide ban on speculative financial transactions for public bodies as well as certain liability caps for the issuance of, inter alia, guarantees and sureties by public bodies. Since the draft of the proposed legislation has not yet been published, no further details are known. However, comparable statutory provisions on Federal State law level indicate that, in particular, the following issues will have to be addressed:

  • As the first attempt in 2013 failed due to the lack of the necessary two-thirds constitutional majority, the Government will probably not implement the ban on a constitutional level.
  • It will be essential to draw the line between prohibited and permitted financial transactions, in particular, to provide a clear definition of what constitute prohibited 'speculative transactions'. A general principle could be that the conclusion of financial transactions should serve specific public interests and not merely aim at generating profits.
  • It is expected that the draft bill will not only include the prohibition of certain financial transactions in general, but will rather set guidelines for risk-averse financial management by public bodies. This is because the same financial transaction could serve both hedging as well as speculative purposes. Thus, the use of derivatives should be tied to specific (existing) liabilities. Similar statutory provisions were for example enacted on State law level in the Federal state of Lower Austria in 2014 (Gesetz über die risikoaverse Finanzgebarung – NÖ GRFG). Finally, whenever financial instruments are in use, risk-mitigation should have priority.
  • Experience has shown that not all Federal States and Municipalities have the requisite expertise and technological resources to ensure professional financial management. In order to ensure compliance with the agreed ban on speculative financial transactions, it would appear appropriate to either set up dedicated treasury departments with specialised experts at each (sovereign and sub-sovereign) level or, as would seem more efficient, to establish a joint treasury management in one central institution (eg the Austrian Federal Finance Agency (Österreichische Bundesfinanzierungsagentur)).
  • Finally, we would expect that a breach of the ban on speculative financial transactions by any public authority would be sanctioned appropriately. Following the drafts in 2013, the non-compliant public authority could be obliged to pay a fixed percentage of the amount of the speculative transaction as a penalty. The Austrian Court of Audit could serve as the independent institution in charge of investigating violations.

The effective date of the proposed legislation is not yet known. However, according to media reports it is planned to complete the nationwide implementation of the ban on speculative financial transactions by the end of 2017.


On a Federal level the proposed legislation will probably not have a material impact, as since 2010, internal risk-mitigating guidelines for the Austrian Federal Finance Agency (Österreichische Bundesfinanzierungsagentur) have already been in place. However, the ban will affect, in particular, the Federal States and Austrian Municipalities which have had no comprehensive provisions up to now, eg the Federal States of Carinthia, Styria and Burgenland. Federal States which already have detailed legislation in place will probably have to make suitable adjustments to ensure uniformity of a nationwide ban on speculative financial transactions. Alternatively, the Federation could also issue one Federal law applicable to all public authorities. Some questions currently remain open and one will have to see if and how the legislator(s) will address the issues raised above.

Originally published as Schoenherr 
legal insights on 16 November 2016.