Estonia: Banking & Finance

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Estonia including national authorities, regulation, licenses, organisational requirements, supervision and assets.

This Q&A is part of the global guide to Banking & Finance.

For a full list of jurisdictional Q&As visit

  1. What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?

    In Estonia the Financial Supervision Authority (hereinafter the “FSA”) is the national authority for banking regulation, supervision and resolution. FSA is a financial supervision institution with autonomous competence and a separate budget and conducts supervision in the name of the state and is independent in its activities and decisions.

  2. Which type of activities trigger the requirement of a banking licence?

    A credit institution is a company the principal and permanent economic activity of which is to receive cash deposits and other repayable funds from the public and to grant loans for its own account and in its own name and provide other financing. Receipt of deposits from public grant the right to companies to use the name of 'a bank'. Of the companies established in Estonia, only the companies that have received an activity license of a credit institution from the FSA may raise deposits from public. For establishment of credit institutions, an application for activity licence should be submitted to the FSA.

  3. Does the regulatory regime know different licenses for different banking services?

    According to the Estonian financial regulation, we have different activity licenses for different banking services. Different activity licenses are for the credit institution, paying agency and e-money institution, the creditor and credit intermediary.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    A banking license (a credit institutions licence) also permits certain other activities such as issuing e-money, providing payment services or conducting business as creditors or credit intermediaries. A credit institution may conclude transactions and perform acts other than listed as a financial services in Estonian Credit Institutions Act (hereinafter the “CIA”) if these are directly ancillary or supplementary to its principal activity. In order to conclude such transactions or perform such acts, a credit institution may found a company or gain control over another company.

  5. What is the general application process for bank licenses and what is the average timing?

    In order to apply for activity licence, the members of the management board of the company being founded or operating have to submit to the FSA a written application and the documents and information specified in the CIA. The processing fee has to be paid before the application is submitted. The FSA may demand the submission of additional information and documents if it is not convinced on the basis of the information and documents submitted as to whether the applicant for the activity licence has adequate facilities for the provision of financial services or whether it meets the requirements prescribed by the legislation or if other circumstances relating to the applicant need to be verified.

    The FSA shall make a decision to grant or refuse to grant the activity licence within six months after receipt of all the necessary documents and information that meet the requirements, but not later than within twelve months after receipt of the application for the activity licence.

  6. Is mere cross-border activity permissible? If yes, what are the requirements?

    A credit institution founded in Estonia and holding an activity licence issued by the FSA may provide financial services in a foreign state by establishing branches or providing cross-border services. According to the CIA, a credit institution wishing to provide cross-border services shall notify the FSA and submit the following information and documents:

    1. Name of the country where the cross-border service is to be provided;
    2. A description of the proposed cross-border services, which must include a list of the transactions and activities specified in the CIA, which are intended to be offered in a foreign country.

    A person who pursuant to the legislation of the home state has the right to receive money from the public for the purposes of depositing or to receive repayable funds in any other manner may, on the basis of the activity licence issued in the home state, conclude the same transactions and perform the same acts in Estonia by establishing branches or providing cross-border services in Estonia. Upon providing financial services in Estonia, a person of a foreign state shall adhere to the requirements established for credit institutions by this Act and on the basis thereof as well as to other requirements arising from Estonian legislation established for operating in Estonia.

  7. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    A credit institution may operate as a public limited company or commercial association and the provisions of law regarding public limited companies or savings and loan associations apply thereto. A credit institution founded as a public limited company is required to use the word “bank” in the business name thereof and a credit institution founded as an association is required to use the word “association bank” in the business name thereof. In Estonia banks usually operate as a public limited companys.

  8. What are the organisational requirements for banks, including with respect to corporate governance?

    CIA regulates the management and organisational structure of credit institutions and includes requirements for members of directing bodies and members of staff of credit institutions. Only the persons who have the necessary expertise, skills, experience, education, professional qualifications and an impeccable business reputation may be elected or appointed managers of a credit institution, parent financial holding company of a credit institution and mixed financial holding company. A person whose earlier activities have caused the bankruptcy or compulsory liquidation or revocation of the activity licence of a company cannot be elected or appointed manager of a credit institution.

    The supervisory board of a credit institution is a directing body of the credit institution which plans the activities of the credit institution, gives instructions to the management board for organisation of the management of the credit institution, and supervises the activities of the credit institution and the activities of the management board in managing the credit institution. Meetings of the board shall be held when necessary but not less frequently than once every three months.

    The management board of a credit institution is a directing body of the credit institution, which directs the day-to-day activities thereof pursuant to the strategies and general principles of activities approved by the supervisory board, and monitors the day-to-day activities of the members of staff of the credit institution.

    The organisational structure and organisation of management of a credit institution have to ensure sound and prudent management of the credit institution, including separation of functions in the organisation and prevention of the conflict of interests.

    A credit institution is required to provide for a risk management function if it is proportional to the nature, extent and level of complexity of the activities of the credit institution. In the absence of the risk management function the credit institution is required to prove that the risk management policy of the credit institution and the procedure of the implementation thereof are in compliance with the requirements provided for in the CIA and they are being implemented continuously and efficiently.

    A credit institution or a company belonging to the consolidation group of a credit institution must have a constantly functioning internal control system which is proportionate to the nature, extent and level of complexity of their activity. It has to ensure the performance of the functions of risk management, adherence to the good practices of management of the association and internal audit.

  9. Do any restrictions on remuneration policies apply?

    The bases and principles of determining the remuneration and other office related benefits of management board members and members of staff of the credit institution, including severance payments, pension benefits and other benefits need to be clear, transparent and in compliance with prudent and efficient risk management principles. Remunation principles have to take into consideration the business strategy and values of the credit institution in view of the economic performance of the credit institutions and the legitimate interests of the depositors and other clients.

    Remuneration principles have to include measures to avoid a conflict of interests, thereby the remuneration of a member of the management board or employee responsible for the assessment of the solvency of a consumer in a credit institution may not depend only on the number of the approved credit applications, proportion or the number of the credit agreements entered into.

    If a credit institution provides consulting services upon the granting or intermediating of a loan, the remuneration principles may not restrict the possibilities of an employee related to consulting service to act in the interests of the consumer and the remuneration of the employee may not be mainly based on the number of credit agreements entered into or the volume of the action plan for provision of service.

  10. Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    Estonia has not yet implemented the Basel III framework. Discussions on the subject of implementing Basel III into European Union banking regulations are still taking place, therefore Estonia has also not been able to implement the framework into national laws.

  11. Are there any requirements with respect to the leverage ratio?

    In Estonia credit institutions are required to establish the procedure and measures for assessment, management and control of excessive leverage. The non-compliance of exposure and assets and liabilities calculated pursuant to Regulation (EU) No.575/2013 of the European Parliament and of the Council shall be taken account of upon assessment of risk of excessive leverage. Credit institutions are also required to cope with stress events which are related to risk of excessive leverage, and take account of the potential decrease of own funds of the credit institution due to losses.

  12. What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    Estonia has set liquidity requirements with amendments in CIA and other related acts in 2014. The new liquidity requirements provide a liquidity coverage ratio (LCR). The liquidity tracking period began in 2014 and minimum standards applied from 2015.

  13. Do banks have to publish their financial statements?

    A credit institution is required to publish the annual report, the proposal and decision for profit distribution or covering the losses and the sworn auditor’s report within two weeks after the general meeting of the shareholders has taken place but no later than within four months after the end of the financial year on its website and make them accessible for the public at the address of the credit institution, and in all its places of business. Eesti Pank (Eesti Pank is the central bank of the Republic of Estonia) may establish additional requirements for disclosure of reports and information.

  14. Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?

    In Estonia the consolidated supervision exists. If the FSA exercises supervision on a consolidated basis, it shall submit the decision together with the corresponding reasons to the credit institution which is the parent undertaking of the consolidation group, and to all the relevant financial supervision authorities.

    The FSA must forward to the financial supervision authority of the other contracting state the amount of own funds of the credit institution and on the basis of the capital adequacy ratio of the parent company or the banks on a consolidated basis. If a branch established in the contractual state of Estonia has liquidity difficulties or may arise, the FSA shall immediately inform the supervisory authority of the other contracting state.

  15. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    A person who intends to acquire a qualifying holding in a bank directly or indirectly or to increase a holding so that the proportion of the share capital or votes in the bank held by the person exceeds 20, 30 or 50 per cent or so that the bank would become a company controlled by the person as a result of the transaction is required to inform the FSA of such intention beforehand.

    If a person intends to transfer shares in an amount which would result in the person losing a qualifying holding in a bank or if the person reduces the holding thereof such that it falls below 20, 30 or 50 per cent or foregoes control over the bank, the person is required to promptly inform the FSA of such intention and indicate the number of shares which the person owns and transfers and holds after the transaction.

  16. Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    A qualifying holding in a bank may be acquired, held and increased and control over a bank may be achieved, held and increased by any person conforming to the following requirements:

    1. who has an impeccable business reputation and is acting in the course of the acquisition according to the principles of sound and prudent management of a bank;
    2. after the holding has been acquired or increased, is electing, naming or assigning the director of the bank to be only such a person who conforms to the requirements specified in CIA;
    3. whose financial situation is adequately strong and sustainable to ensure the reliable and regular operation of the bank, and in the case of a legal person its annual reports, if such exist, are required to allow appropriate assessment of its financial situation;
    4. who is able to ensure that the bank is capable of following the prudential requirements specified in CIA, in case of a legal person primarily the requirement that the consolidation group a part of which the bank becomes has a structure that allows the exercise of adequate supervision, exchange of information and cooperation between financial supervision authorities;
    5. with respect to whom there is no justified suspicion that the acquisition, possession or increase of the holding or the control over the bank is connected to money laundering or terrorist financing or any attempts thereof or increases such risks.
  17. Are there specific restrictions on foreign shareholdings in banks?

    A third country credit institution, insurance undertaking, investment firm, management company, investment fund, e-money institution or another person subject to financial supervision which wishes to acquire a qualifying holding shall, in addition to the usual information and documents specified in CIA, submit a certificate issued by the supervisory authority of the third country which proves that the person of the third country holds valid authorisation and complies with the requirements in force, to the FSA.

  18. Is there a special regime for domestic and/or globally systemically important banks?

    Eesti Pank assesses the systemic importance of credit institutions each year and updates the list of credit institutions that are important to the domestic financial system. Eesti Pank uses the guidelines issued by the European Banking Authority (EBA) for its assessment, and also considers the specific features of the Estonian financial system.

    Eesti Pank may determine the requirement for global systemically important credit institutions buffer as follows:

    1. the requirement for the lowest category of the global systemically important credit institutions buffer is one per cent of the total risk exposure amount calculated pursuant to Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;
    2. for each following category, except for the highest category, the rate specified in clause 1) of this section shall be added 0.5 per cent of the total risk exposure amount calculated pursuant to Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;
    3. the requirement for the highest category of the global systemically important credit institutions buffer is 3.5 per cent of the total risk exposure amount calculated pursuant to Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

    A global systemically important credit institution is required to maintain the global systemically important credit institutions buffer on a consolidated basis.

  19. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    In the event of a failure to comply with or inappropriate compliance with the CIA or precept issued pursuant to CIA or another administrative act, the FSA has the right to impose a penalty payment. In the event of a failure to comply with or inappropriate compliance with an administrative act, the upper limit for a penalty payment is, in the case of a natural person, up to 5,000 euros for the first occasion and in the subsequent cases up to 50,000 euros to enforce the performance of one and the same obligation but no more than 5,000,000 euros altogether, and in the case of a legal person, up to 32,000 euros for the first occasion and up to 100,000 euros in each subsequent occasion to enforce the performance of one and the same obligation but no more than for 10% of the net annual turnover of the whole legal person, including gross income.

    When it comes to violation of the prudential ratio, failure to submit information, violation of procedure for settlements, violation of obligation to maintain confidentiality of information subject to banking secrecy, violation of procedure for acquisition of qualifying holding in bank, the punishment can be a fine of up to 32,000 euros.

  20. What is the resolution regime for banks?

    The FSA prepares a resolution plan for each credit institution. The resolution plan shall provide for the options to apply the resolution tools or powers where the credit institution meets the conditions for the commencement of the resolution proceedings. Credit institutions need to prepare and submit to the FSA a recovery plan providing for measures to be taken by the credit institution to restore its financial position following a significant deterioration thereof.

  21. How are client’s assets and cash deposits protected?

    According to the directive 2014/49/EU all member states must ensure that all depositors, whether individuals or companies, have their deposits protected up to an amount of EUR 100 000 per bank by the guarantee scheme of which their bank is a member. All banks must become members of such a scheme. The member banks pay contributions based on their risk profile and other factors. The guarantee scheme accumulates the contributions in a fund. Where a bank fails and deposits become unavailable, the guarantee schemes must be in a position to reimburse depositors holding any type of deposit protected under the directive.

    According to the CIA a credit institution shall invest its assets such that the satisfaction of justified claims of creditors, i.e. the liquidity, is guaranteed at all times. For that purpose, a credit institution shall maintain the necessary ratio of liquid assets and current liabilities. A credit institution is required to have a strategy, policy, procedures and systems for identification, measurement, management and monitoring of the liquidity risk at different predictable periods, including intraday periods in order to ensure the existence of an adequate liquidity buffer.

  22. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    In Estonia, the bail-in tool allows the FSA to assess the claims of creditors without collateral in a bank or other financial institution, or to convert debt claims into equity. The FSA may apply the bail-in tool for any of the following purposes:

    1. to recapitalise a credit institution or investment firm under resolution proceedings or an entity that is part of the same consolidation group as the credit institution or investment firm in accordance with the conditions for authorisation provided for in the Credit Institutions Act or Securities Market Act, and to sustain public confidence in the credit institution or investment firm or the entity, or
    2. to convert liabilities to equity or reduce the principal amount of claims or liabilities where they are transferred to a bridge institution with a view to increase its capital or with a view to apply the sale of shares or assets tool or the asset separation tool.
  23. Is there a requirement for banks to hold gone concern capital (TLAC)?

    A credit institution has to meet at all times a requirement for a minimum level of own funds and eligible liabilities. The minimum requirement expresses the required percentage of the amount of own funds and eligible liabilities of the credit institution of the amount of the total liabilities and own funds of the credit institution. Total liabilities shall also include derivative liabilities that are fully covered by counterparty netting rights.

  24. In your view, what are the recent trends in bank regulation?

    In Estonia, the recent trends in bank regulation are related to preventing money laundering and terrorist financing and implementing General Data Protection Regulations.

  25. What do you believe to be the biggest threat to the success of the financial sector ?

    One of the biggest challenges that may involve also threats to the success of the financial sector is keeping pace with rapidly evolving new financial services and technologies. Innovative services are being launched which bring about new challenges to the sector. Despite the new services and technologies financial sector cannot make any concessions in protecting the interests of the client or tackling money laundering and terrorist financing.