Only the Estonian version is official

CREDIT INSTITUTIONS ACT [1]

[Passed 9 February 1999 (RT[2] I 1999, 23, 349), entered into force pursuant to § 412.
Amended and suppliented by the following Acts (date of passing, date of publishing in RT, date of entering into force):
19.04.2000 (RT I 2000, 35, 222) entered into force 1.07.2000
11.05.2000 (RT I 2000, 40, 250) entered into force 1.07.2000
9.05.2001 (RT I 2001, 48, 268) entered into force 1.01.2002
14.11.2001 (RT I 2001, 93, 565) entered into force 1.02.2002
13.12.2001 (RT I 2001, 102, 672) entered into force 1.01.2002, partially pursuant to § 59
Entire text on paper medium of RT (RT I 2002, 17, 96)
29.01.2002 (RT I 2002, 21, 117) entered into force 4.03.2002
20.02.2002 (RT I 2002, 23, 131) entered into force 1.01.2007
5.06.2002 (RT I 2002, 53, 336) entered into force 1.07.2002
19.06.2002 (RT I 2002, 63, 387) entered into force 1.09.2002
20.11.2002 (RT I 2002, 102, 600) entered into force 26.12.2002
4.12.2002 (RT I 2002, 105, 612) entered into force 2.01.2003
22.01.2003 (RT I 2003, 17, 95) entered into force 1.01.2004
11.02.2003 (RT I 2003, 23, 133) entered into force 8.03.2003
3.12.2003 (RT I 2003, 81, 544) entered into force 1.01.2004
14.04.2004 (RT I 2004, 30, 208) entered into force 1.05.2004
14.04.2004 (RT I 2004, 36, 251) entered into force 1.05.2004
22.04.2004 (RT I 2004, 37, 255) entered into force 1.05.2004
25.11.2004 (RT I 2004, 86, 582) entered into force 1.01.2005
Entire text on paper medium of RT (RT I 2005, 8, 32)
9.02.2005 (RT I 2005, 13, 64) entered into force 18.03.2005, amendments are applied retroactively starting from January 1, 2005
15.06.2005 (RT I 2005, 39, 308) entered into force 1.01.2006
19.10.2005 (RT I 2005, 59, 463) entered into force 15.11.2005,regarding e-money institutions: upon the E-money Institutions Act entering into force
19.10.2005 (RT I 2005, 61, 473) entered into force 1.01.2006
31.05.2006 (RT I 2006, 28, 208) entered into force 1.07.2006, partially 1.01.2007
14.12.2006 (RT I 2006, 63, 467) entered into force 1.01.2007
15.02.2007 (RT I 2007, 24, 127) entered into force 1.01.2008
24.10.2007 (RT I 2007, 58, 380) entered into force 19.11.2007
21.11.2007 (RT I 2007, 65, 405) entered into force 15.12.2007
19.12.2007 (RT I 2008, 3, 21) entered into force 28.01.2008
15.10.2008 (RT I 2008, 47, 261) entered into force 1.01.2009
10.12.2008 (RT I 2008, 59, 330) entered into force 1.01.2009
10.06.2009 (RT I 2009, 37, 250) entered into force 10.07.2009
26.11.2009 (RT I 2009, 61, 401) entered into force 26.12.2009
17.12.2009 (RT I 2010, 2, 3) entered into force 22.01.2010
28.01.2010 (RT I 2010, 7, 30) entered into force 26.02.2010
27.01.2010 (RT I 2010, 9, 41) entered into force 8.03.2010, partially 1.01.2013.]
22.04.2010 (RT I 2010, 20, 103) 1.07.2010
22.04.2010 (RT I 2010, 22, 108) 1.01.2011 shall enter into force on the date provided for in the Decision of the Council of the European Communities on the abrogation of the derogation of the Republic of Estonia on grounds prescribed in Article 140 (2) of the Treaty on the Functioning of the European Union, Council Decision of 13.07.2010 No. 10889/10 ECOFIN 360 UEM 209/10 (OJ L 197, 28.07.2010, pp 24-26)
12.05.2010 (RT I 2010, 26, 129) 5.10.2010
9.06.2010 (RT I 2010, 34, 182) 1.07.2010

Chapter 1
General Provisions

§ 1. Scope of application of Act

(1)  This Act regulates the foundation, activities, dissolution, liabilities and supervision of credit institutions.

(2)  The provisions of the Administrative Procedure Act apply to administrative proceedings prescribed in this Act, taking account of the specifications provided for in this Act and the Financial Supervision Authority Act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 2. Implementation of Act

(1)  This Act applies to all credit institutions founded or operating in Estonia and to parent companies, subsidiaries, branches and representative offices thereof which are located in Estonia.

(2)  This Act also applies to subsidiaries, branches and representative offices of Estonian credit institutions in foreign states, unless otherwise prescribed by the legislation of the state where they are registered, and to subsidiaries, branches and representative offices of foreign credit institutions in Estonia, unless otherwise provided by international agreements entered into by Estonia.

(3)  The Bank of Estonia is not deemed to be a credit institution.

(4)  Subsection 69 (6), §§ 81¹-82¹, 82³-82⁶, 82⁸ and 83-83², Chapters 10, 13¹ and 18¹ and Division VI of the Securities Market Act and the legal acts regulating their implementation shall apply to credit institutions providing investment services and ancillary investment services. Subsection 88³ (1) of the Securities Market Act shall not apply to a credit institution if it deposits the client's money itself. Clause 88¹ 5) of the Securities Market Act shall also not apply to credit institutions.
[RT I 2007, 58, 380 - entered into force 19.11.2007]

§ 3. Definition of credit institution

(1)  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 provide other financing.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(2)  Credit institutions may operate as public limited companies or associations and the provisions of law regarding public limited companies or savings and loan associations apply thereto unless otherwise provided by this Act.

(3)  Credit institutions are providers of a vital service specified in clauses 34 (8) 1) and 2) of the Emergency Situation Act.
[RT I 2009, 39, 262 - entered into force 24.07.2009]

§ 4. Receipt of deposits from public

(1)  Credit institutions have the exclusive right to receive money from the public for the purposes of depositing or to receive repayable funds in any other manner.

(1¹)  The receipt of funds necessary for provision of the services specified in subsections 3 (1) and 6 (1) of the Paying Institutions and E-money Institutions Act is not deemed to be deposit or receipt from the public of other repayable funds within the meaning of this section if e-money is immediately issued against such funds.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

(2)  For the purposes of this Act, deposits or other repayable funds are deemed to be received from the public if the proposal to deposit money or receive repayable funds in any other manner is made to the public.

(3)  For the purposes of this Act, the public are deemed to be a previously unspecified set of persons.

(4)  The provisions of subsection (1) of this section do not apply to the receipt of money from the public for depositing or to the receipt of other repayable funds in any other manner by:
1)  states which are contracting parties to the EEA agreement (hereinafter contracting state);
2)  local or regional governments of EEA states;
3)  international organisations or other international institutions governed by public law of which a contracting state is a member;
4)  legal persons to the extent to which they have the right, pursuant to the legislation of a contracting state or the European Union, to receive funds from the public provided that such activities are subject to supervision for the protection of depositors and investors.

§ 5. Financial institution

For the purposes of this Act, a financial institution is a company other than a credit institution, the principal and permanent activity of which is to acquire holdings or conclude one or more of the transactions specified in clauses 6 (1) 2)-12) of this Act.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 6. Financial services

(1)  For the purpose of this Act, financial services are services to third parties rendered by a person in the course of professional or economic activities which consist of the conclusion of the following transactions and acts:
[RT I 2004, 86, 582 - entered into force 1.01.2005]
1)  deposit transactions for the receipt of deposits and other repayable funds from the public;
2)  borrowing and lending operations, including consumer credit, mortgage credit, factoring and other transactions for financing business transactions;
3)  leasing transactions;
4)  payment services for the purpose of Paying Institutions and E-money Institutions Act;
[RT I 2010, 2, 3 - entered into force 22.01.2010]
5)  issue and administration of non-cash means of payment (e-g. electronic payment instruments, traveller's cheques, bills of exchange);
[RT I 2010, 2, 3 - entered into force 22.01.2010]
6)  guarantees and commitments and other transactions creating binding obligations to persons;
7)  transactions for their own account or for the account of clients in traded securities provided in § 2 of the Securities Market Act and in foreign exchange and other money market instruments, including transactions in cheques, exchange instruments, certificates of deposit and other such instruments;
8)  transactions and acts related to the issue and sale of securities;
9)  provision of advice to clients on issues concerning economic activities, and transactions and acts related to the merger or division of companies or acquiring holding therein;
10)  money broking;
11)  portfolio management and consultation on investment issues;
12)  safekeeping and administration of securities;
13)  collection, processing and transmission of credit information;
14)  safe custody services;
15)  other transactions and acts which are essentially similar to the financial transactions specified in clauses 1)-14) of this section.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(2)  A credit institution may conclude transactions and perform acts other than those specified in subsection (1) of this section 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 (hereinafter ancillary undertaking).
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  For the purposes of this Act, an ancillary undertaking of a credit institution is a company the principal and permanent activity of which is the administration of immovable property, the provision of information technology services, or other activities which are ancillary or supplementary to the principal activities of one or several credit institutions.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 7. Parent company and subsidiary

(1)  For the purposes of this Act, a parent company is:
1)  a company which holds a majority of the share capital or votes determined by shares in another company (a subsidiary);
2)  a company which is a partner or shareholder in another company (a subsidiary) and which has the right to appoint or remove a majority of the members of the management board or supervisory board of the subsidiary;
3)  a company which pursuant to the articles of association of or a contract entered into with another company (a subsidiary) can exercise a dominant influence over the management of such company;
4)  a company which is a partner or shareholder in another company (a subsidiary), the majority of the members of the management or supervisory board of which have been appointed solely as a result of the exercise of the voting rights of the parent company and on the condition that such members have held office during the preceding and current financial years and that no other company has the rights of a parent company listed in clauses 1)-3) of this subsection with regard to the subsidiary;
5)  a company which is a partner or shareholder in another company (a subsidiary) and, pursuant to a contract entered into with other shareholders in the parent company, controls a majority of the votes determined by shares in the company.

(2)  The Financial Supervision Authority also has the right to deem a company to be a parent company if the company actually exercises a dominant influence over another company (a subsidiary) in any other manner.

(3)  Subsidiaries of subsidiaries of parent companies specified in subsection (1) of this section are deemed to be subsidiaries of the same parent company.

(4)  For the purposes of this Act, close links are a connection between two or more persons:
1)  as a parent company and subsidiary pursuant to subsections (1)-(3) of this section;
2)  if a person holds at least 20 per cent of the share capital or votes determined by shares in a company;
3)  if such persons are controlled by one and the same person.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 8. Mixed-activity financial holding company, financial holding company and mixed-activity holding company

(1)  A mixed-activity financial holding company is a parent company, other than a credit institution, insurer or investment firm, the subsidiaries of which include at least one credit institution, insurer or investment firm of a contracting state and which together with its subsidiaries and other undertakings forms a financial conglomerate.

(2)  A financial holding company is a parent company being a financial institution, other than a mixed-activity financial holding company, the subsidiaries of which include at least one credit institution and the remaining subsidiaries of which are either exclusively or mainly credit institutions, financial institutions or ancillary undertakings.

(3)  A mixed-activity holding company is a parent company, other than a financial holding company, credit institution or mixed-activity financial holding company, the subsidiaries of which include at least one credit institution.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 9. Consolidation group of credit institution

(1)  The consolidation group of a credit institution comprises the parent company, subsidiaries thereof which are credit institutions, financial institutions or ancillary undertakings, and credit institutions or financial institutions in which the credit institution included in the consolidation group holds at least 20 per cent of the share capital or votes.

(2)  The parent company of the consolidation group of a credit institution may be a credit institution, a mixed-activity financial holding company, a financial holding company or a mixed-activity holding company.

(3)  In order to form the consolidation group of a credit institution the parent company of which is not a credit institution, at least one subsidiary must be a credit institution.

(4)  With the consent of the Financial Supervision Authority, an undertaking shall not be included in the consolidation group of a credit institution if the balance sheet total of the undertaking is less than 10 million euro or less than 1 per cent of the balance sheet total of the parent company. If several undertakings which meet these requirements together exercise sufficient control over the financial situation of the consolidation group, they shall be included in the consolidation group of the credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(5)  With the consent of the Financial Supervision Authority, the consolidation group of a credit institution shall not include an undertaking:
1)  whose inclusion in the consolidation group would, in the opinion of the Financial Supervision Authority, distort the actual financial and economic situation of the consolidation group of the credit institution;
2)  which is located in a country which is not a contracting state (hereinafter third country) and from which the possibility of obtaining the necessary reports is restricted due to the legislation of the third country.

§ 10. Holding of voting rights

Calculation of voting rights and determination of controlled companies shall be based on the provisions of § 10 of the Securities Market Act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 11. Branches and representative offices of credit institutions

(1)  For the purposes of this Act, a branch of a credit institution is a structural unit which has no legal personality, the address of which is different from the address of the credit institution in the commercial register and which concludes one or more of the transactions or performs one or more of the acts for which the credit institution has been authorised.

(2)  [Repealed - RT I 2001, 102, 672 - entered into force 1.01.2002]

(3)  For the purposes of this Act, a representative office of a credit institution is a structural unit which is located separately from the seat of the credit institution and the purpose of the activities of which is to represent the credit institution and protect the interests thereof in a particular territory.

(4)  Representative offices of credit institutions are prohibited from engaging in commercial activities.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 12. Business names of credit institutions and use of word "pank" [bank] therein

(1)  A credit institution founded as a public limited company is required to use the word "pank" [bank] in the business name thereof and a credit institution founded as an association is required to use the word "ühistupank" [association bank] in the business name thereof.

(2)  Only credit institutions may use the words "pank" or "ühistupank" or derivatives or foreign language equivalents thereof in their business names.

(3)  A branch of a credit institution may add the place name of the administrative unit in which the branch is located or other place names to the business name of the credit institution.

(4)  A foreign credit institution may operate in Estonia under a business name which is registered in a state where the institution is founded (hereinafter home state) if the name is clearly distinguishable from other business names entered in the commercial register in Estonia. If there is any danger that a business name is not clearly distinguishable from the business names of other credit institutions operating in Estonia, the Financial Supervision Authority has the right to demand that such business name be accompanied by an attribute.

(5)  The business name of a credit institution shall not be such as to be confused for another credit institution or a state central bank.

(6)  Subsections (1) and (2) of this section do not apply to cases in which it is evident that the institution in question is not a credit institution.
[RT I 2004, 36, 251 - entered into force 1.05.2004]

Chapter 2
Authorisation of Credit Institution

§ 13. Authorisation

(1)  A company who wishes to receive cash deposits or receive other repayable funds from the public in any other manner must hold a corresponding authorisation (hereinafter authorisation). An authorisation grants the right to provide investment services specified in subsection 43 (1) of the Securities Market Act and ancillary investment services specified in § 44 of the Securities Market Act to the extent specified in the authorisation.
[RT I 2007, 58, 380 - entered into force 19.11.2007]

(2)  The Financial Supervision Authority shall grant authorisation to companies founded in Estonia.

(3)  An authorisation is granted for an unspecified term.

(4)  An authorisation is not transferable, and the use thereof by other persons is prohibited.

§ 13¹. Application for authorisation

(1)  In order to apply for authorisation, the members of the management board entered in the memorandum of association or registry card of the company being founded or operating (hereinafter applicant) shall submit a written application and the following documents and information (hereinafter in § 13¹ - 18 of this Act application):
1)  a copy of the articles of association and in case of an operating company, a decision on amendment of the articles of association together with the amended text of the articles of association;
2)  upon foundation of a company, a notarised copy of the foundation agreement and a document certifying the resources for payment of the share capital;
3)  the business plan which complies with the requirements provided for in § 13² of this Act;
4)  for an operating company, documents certifying the size of net own funds together with a sworn auditor's report;
[RT I 2010, 9, 41 - entered into force 8.03.2010]
5)  the applicant's starting balance sheet and an overview of revenue and expenditure or, for an operating company, the balance sheet and income statement as of the end of the month preceding the month of submission of application and the last three annual report if they exist;
6)  information on the information and other technological means and systems, security systems, control mechanisms and systems needed for provision of the planned financial services;
7)  internal rules and rules of procedure to regulate the activities or drafts thereof which meet the requirements provided in § 63 of this Act and, if the business plan specified in § 13² of this Act includes providing investment services, meet the requirements regarding internal rules provided in the Securities Market Act;
[RT I 2007, 58, 380 - entered into force 19.11.2007]
8)  accounting policies and procedures of draft thereof;
9)  statutes of the internal audit unit or draft thereof;
10)  information on the members of the applicant's board of management and supervisory board, head of the internal audit unit or internal audit committee (hereinafter managers), including, for each person, the name and surname, personal identification code or, in the absence thereof, date of birth, place of residence, educational background, a complete list of places of employment and positions and, for the members of the board of management, a description of their areas of responsibility and documents certifying the managers' trustworthiness and conformity to the requirements of this Act which the applicant deems necessary to submit;
11)  information on the auditor of the applicant, including the name, residence or seat, personal identification code or, in the absence of the identification code, the date of birth or the registry code of the auditor;
12)  a list of the shareholders or members of the applicant which sets out the name and the personal identification code or registry code of each shareholder or member, or the date of birth in the absence of a personal identification code or registry code, and information on the number of shares and votes to be acquired or owned by each shareholder or member;
13)  if a shareholder or member who is a natural person of the applicant holds more than 2 per cent of the share capital or votes in the applicant, documents certifying the financial status of the person during the last three years;
14)  if a shareholder or member of the applicant who is a legal person holds more than 5 per cent of the share capital or votes in the credit institution, the articles of association of the legal person and the last three annual reports thereof together with the sworn auditor's reports, and the list of shareholders together with data relating to the percentage of capital held by them in share capital of the company in question;
[RT I 2010, 9, 41 - entered into force 8.03.2010]
15)  information specified in § 30 of this Act on persons who own qualifying holdings in the applicant;
16)  information on companies in which the holding of the applicant or a manager thereof exceeds 20 per cent, which also sets out the amount of share capital, a list of the areas of activity and the size of the holding of the applicant or each manager;
17)  a document by which applicant assumes the obligation to pay the single contribution to the Deposit Guarantee Sectoral Fund prescribed in the Guarantee Fund Act and, if the business plan specified in § 13² of this Act includes providing investment services, the obligation to pay the single contribution to the Investor Protection Sectoral Fund prescribed in the Guarantee Fund Act.
[RT I 2007, 58, 380 - entered into force 19.11.2007]

(2)  If, during the processing of an application for an activity licence, there are changes in the information or documents specified in subsection (1) of this section, the applicant shall submit the corresponding updated information or documents to the Financial Supervision Authority immediately after making or becoming aware of the amendments.

(3)  The accuracy of information and documents submitted concerning natural persons specified in clauses (1) 10) and 11) of this section shall be confirmed by the signature of the persons.

(4)  In order to obtain authorisation for an association bank, the data and documents specified in clause 1 (10) of this section shall also be submitted concerning the members of the internal audit committee in addition to the information required by subsection (1) of this section.

§ 13². Business plan

(1)  A business plan shall include a description of the character of the planned business activities, organisational structure, internal audit system and management structure of the applicant, and a also a description, forecast and analysis of the following factors:
1)  the size of the assets, share capital and shareholders' equity of the applicant;
2)  the level of the technical administration of the activities of the applicant;
3)  strategy and market share in which the applicant proposes to engage in activities;
4)  proposed activity, provided services and offered products, presumed clients and competition conditions on the market;
5)  annual balance sheet and financial indicators including revenue, expenditure, profit and cash flows, and the presumptions which constitute the basis thereof;
6)  credit and investment policies;
7)  general principles and strategy of risk management.

(2)  A business plan shall be submitted for at least three years.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 13³. Review of applications for authorisation

(1)  If an applicant has failed to submit all the information and documents specified in § 13¹ of this Act, or if such information or documents are incomplete or have not been prepared in accordance with the requirements, the Financial Supervision Authority has the right to demand elimination of the deficiencies by the applicant.

(2)  The Financial Supervision Authority may demand the submission of additional information and documents if it is not convinced on the basis of the information and documents specified in § 13¹ of this Act as to whether the applicant for authorisation has adequate facilities for the provision of financial services or whether it meets the requirements for credit institutions prescribed by this Act or legislation issued on the basis thereof or if other circumstances relating to the applicant need to be verified.

(3)  In order to verify the information submitted by an applicant, the Financial Supervision Authority may perform on-site inspections, order an assessment or special audit, consult state databases, obtain oral explanations from the applicant's managers and auditors, their representatives and where necessary, third parties concerning the content of documents and facts which are relevant in making a decision on the grant of authorisation.

(4)  The information and documents specified in subsections (1)-(3) of this section shall be submitted within a reasonable term determined by the Financial Supervision Authority.

(5)  The Financial Supervision Authority may refuse to review an application if the applicant has failed to eliminate the deficiencies specified in subsection (1) of this section within the prescribed term or has not submitted the information or documents requested by the Financial Supervision Authority by the end of the term. Upon refusal to review an application, the Financial Supervision Authority shall return the submitted documents.

(6)  Upon processing of an application for authorisation, the Financial Supervision Authority shall cooperate with the financial supervision authority of the corresponding contracting state if:
1)  the applicant is a parent undertaking or subsidiary of a credit institution, management company, investment fund, investment firm, insurer, e-money institution or other person subject to financial supervision established in a contracting state;
2)  the subsidiary of a parent undertaking is a credit institution, management company, investment fund, investment firm, insurer, payment institution, e-money institution or other person subject to financial supervision established in a contracting state;
3)  the applicant and a credit institution, management company, investment fund, investment firm, insurer, payment institution, e-money institution or other person subject to financial supervision established in a contracting state are companies controlled by one and the same person.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

§ 14. Decision on grant of authorisation

(1)  The Financial Supervision Authority shall make a decision to grant or refuse to grant authorisation within six months after receipt of all the necessary documents and information which meet the requirements, but not later than within twelve months after receipt of the application for authorisation.

(2)  Upon granting authorisation, the Financial Supervision Authority may set secondary conditions to the applicant based on the circumstances provided in subsection 15 (1) of this Act.

(3)  The Financial Supervision Authority shall have the decision to grant or refuse to grant authorisation delivered to the applicant without undue delay.

(4)  The provisions of subsection 250 (4) and subsection 271 (2) of the Commercial Code and subsection 7 (3) of the Commercial Associations Act do not apply to entry of applicants in the commercial register. The management board of the applicant is required to submit a petition for entry in the commercial register within six months as of delivery of the decision to grant authorisation.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 15. Bases for refusal to grant authorisation

(1)  The Financial Supervision Authority shall refuse to grant authorisation to the applicant if:
1)  the applicant does not meet the requirements for credit institutions provided for in this Act or legislation issued on the basis thereof;
2)  the resources for full payment of the share capital of a company being founded are not proved;
3)  the applicant does not have the necessary funds or experience to operate as a credit institution with continuity;
4)  the managers, auditor or shareholders of the applicant do not meet the requirements provided for in this Act or legislation established on the basis thereof;
5)  close links between the applicant and another person prevent sufficient supervision over the applicant, or the requirements arising from legislation or the implementation of legislation of the state where the persons with whom the applicant has close links is established prevent sufficient supervision over the applicant;
6)  the information submitted by the applicant indicates that the applicant mainly plans to operate in another contracting state;
7)  the internal rules of a credit institution specified in § 63 of this Act are not sufficiently accurate or unambiguous for regulation of the activities of the credit institution;
8)  the applicant or its managers have been punished for an economic offence, official misconduct, offence against property or offence against public trust and information concerning the punishment has not been expunged from the punishment register pursuant to the Punishment Register Act.

(2)  Among other matters, the following shall be considered upon assessment of that provided for in clause (1) 3) of this section:
1)  the level of the organisational and technical administration of the activities of the applicant;
2)  the educational background, work experience, business connections, trustworthiness and reputation of the persons connected with the management of the applicant;
3)  the adequacy and sufficiency of the business plan provided for in § 13² of this Act;
4)  the activities, financial situation, reputation and experience of the applicant, its parent company and persons belonging to the same consolidation group as the applicant.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 15¹. Amendment of decision on grant of authorisation

(1)  Upon change to the business name or address of a credit institution the Financial Supervision Authority shall make a decision on amendment of the decision on grant of authorisation specified in subsection 14 (1) of this Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  The Financial Supervision Authority shall decide on amendment of the decision on grant of authorisation within one month after receipt of the changes to the data specified in subsection (1) of this section.

(3)  The Financial Supervision Authority shall have the decision specified in subsection (1) of this section delivered to the credit institution without undue delay.

§ 16. Termination of authorisation

Authorisation terminates:
1)  in the event of the merger of the credit institution on the basis of subsection 65 (2) of this Act, upon the entry of the new credit institution in the commercial register;
2)  in the event of the merger of the credit institution on the basis of subsection 65 (3) of this Act, upon the entry of the merger in the commercial register;
3)  in the event of the voluntary dissolution of the credit institution, upon the receipt of authorisation for voluntary dissolution from the Financial Supervision Authority;
4)  in the event of revocation of authorisation, upon the revocation of the authorisation;
5)  in the event of the bankruptcy of the credit institution, upon declaration of bankruptcy by a court.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 17. Revocation of authorisation

The Financial Supervision Authority may revoke authorisation if:
1)  the credit institution fails to commence activities or if an act or omission by the founders of the credit institution shows that the credit institution will be unable to commence activities within twelve months as of the issue of authorisation, or if the activities of the credit institution are suspended for more than six consecutive months;
2)  it has become evident that the credit institution has submitted misleading information or documents, or incorrect information or falsified documents to the Financial Supervision Authority, or such documents have been submitted upon application for authorisation;
3)  the credit institution does not meet the requirements in force with regard to grant of authorisation;
4)  the circumstances provided for in clauses 15 (1) 4) or 5) become evident;
5)  the credit institution has repeatedly or materially violated provisions of legislation regulating the activities thereof, the credit institution or manager thereof has been punished for an economic offence, official misconduct, offence against property or offence against public trust if information concerning the punishment has not been expunged from the punishment register pursuant to the Punishment Register Act or the activities or omissions of the credit institution are not in compliance with good practice;
6)  the credit institution fails to comply with the secondary conditions specified in subsection 14 (2) of this Act;
7)  the credit institution belongs to a consolidation group the structure of which prevents the receipt of information necessary for supervision on a consolidated basis, or if a company which belongs to the same consolidation group as the credit institution operates on the basis of legislation of a foreign state, which prevents the exercise of sufficient supervision;
8)  the credit institution has published materially incorrect or misleading information or advertising concerning its activities or members of its directing bodies;
9)  the credit institution is unable to perform the obligations it has assumed or if, for any other reason, its activities significantly damage the interests of depositors or other clients, currency circulation or adversely affect the regular functioning of the money or capital markets;
10)  the amount of own funds of the credit institution does not comply with the requirements provided by this Act or legislation issued on the basis thereof;
11)  it becomes evident that the credit institution has chosen Estonia as the place for application for authorisation and registration in order to evade compliance with stricter requirements established for credit institutions in another contracting state where the credit institution mainly operates;
12)  the credit institution engages in money laundering, or violates the procedure established by legislation for the prevention of money laundering or terrorist financing;
13)  the credit institution fails to pay contributions to the Deposit Guarantee Sectoral Fund and Investor Protection Sectoral Fund prescribed in the Guarantee Fund Act for the specified term or in full, and has failed to implement a corresponding precept of the Financial Inspectorate within the term or to the extent prescribed;
14)  the credit institution has failed to implement a precept of the Financial Supervision Authority within the term or to the extent prescribed;
15)  according to information submitted to the Financial Supervision Authority by the financial supervision authority of a contracting state, the credit institution has violated conditions provided by the legislation of the contracting state or conditions set by the financial supervision authority of the contracting state in conformity to the requirements of subsection 20¹ (6) or 20⁴ (6) of this Act.

(2)  Prior to deciding on the revocation of authorisation pursuant to subsection (1) of this section, the Financial Supervision Authority may issue a precept to the credit institution and set a term for elimination of the deficiencies which are the basis for the revocation.

(3)  The decision on revocation of authorisation shall be delivered to the credit institution without undue delay.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 18. Publication

(1)  The Financial Supervision Authority shall publish a decision on grant, amendment or revocation of authorisation on its website not later than on the working day following the date of making such decision.

(2)  In addition to the provisions of subsection (1) of this section, the Financial Supervision Authority shall publish a notice concerning revocation of authority in at least one daily national newspaper.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 19. Consequences of termination of authorisation

(1)  After the termination of its authorisation, a credit institution shall not conclude the transactions and perform the acts specified in § 6 of this Act and shall terminate all payments to depositors, clients or creditors, unless otherwise provided for in this Act.

(1¹)  The Financial Supervision Authority may permit a credit institution to continue the performance, in full or in part, of the transactions and acts specified in § 6 of this Act even after the authorisation has expired if this is deemed to be necessary considering the circumstances of the dissolution of the credit institution. Giving of permission is decided based on a substantiated application submitted to such effect by the liquidators or trustees in bankruptcy.

(1²)  If in the opinion of the Financial Supervision Authority, granting the permission specified in subsection (1¹) of this section is likely to damage the interests of the depositors, clients or other obligees of the credit institution undergoing liquidation, the Financial Supervision Authority has the right to refuse to grant the permission in full or in the part of a transaction or act specified in the application prescribed in subsection (1¹) of this section, or to establish restrictions on the performance of transactions or acts. The Financial Supervision Authority has the right to request additional documents and information necessary for verification of the substance of the application.

(1³)  The Financial Supervision Authority shall make the decision to grant or to refuse to grant the permission specified in subsection (1¹) of this section within ten days after receipt of all the necessary documents and information but not later than twenty days after receipt of the application for obtaining permission. The decision shall set out the term of expiry of the permission which shall not be longer for any of the transactions or acts specified in the permission than three months after the date of publication of the notice concerning the liquidation of bankruptcy of the credit institution. All such transactions and acts shall be discontinued upon expiry of the permission.

(2)  Except in the cases specified in clauses 16 1) or 2) of this Act, termination of authorisation results in the dissolution of the credit institution pursuant to the procedure provided for in Chapter 11 of this Act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 19¹. Bases of activities of credit institution in foreign state

(1)  A credit institution founded in Estonia and holding an activity licence issued by the Financial Supervision Authority may provide services specified subsection 6 (1) of this Act in a foreign state by establishing branches or providing cross-border services.

(2)  Upon provision of services in a foreign state, a credit institution shall comply with the requirements provided for in this Act, legislation issued on the basis thereof and legislation of the foreign state.

(3)  Cross-border services are services of a credit institution which the institution provides in a state where the credit institution or a branch thereof is not registered.

(4)  The provisions of subsections 20 (7) and (8), §§ 20¹-20⁵ and § 97¹ of this Act apply to the provision of services by credit institutions of Estonia in another contracting state. The provisions specified in this subsection apply also to the provision of investment services by credit institutions of Estonia in another contracting state.
[RT I 2007, 58, 380 - entered into force 19.11.2007]

(5)  The provisions of § 20, subsection 20⁴ (1) and (7)-(9), and § 97¹ of this Act apply to the provision of services in foreign states not specified in subsection (4) of this section.

§ 20. Foundation of subsidiary credit institutions, branches and representative offices of credit institutions in foreign states

(1)  If a credit institution wishes to found a subsidiary credit institution or branch in a foreign state or acquire a holding in a foreign credit institution such that the latter would become a subsidiary thereof, the credit institution shall submit an application for the corresponding authorisation to the Financial Supervision Authority setting out the following data:
1)  the name of the foreign state;
2)  the business name and address of the subsidiary credit institution or the address of the branch;
3)  the last three annual reports of the foreign credit institution in which the credit institution wishes to acquire a qualifying holding;
4)  the action plan of the subsidiary credit institution or the branch together with a detailed description of the intended activities, a description of the organisational structure, and the relationship with the credit institution being founded;
5)  data relating to the managers of the subsidiary credit institution or the director of the branch. Such data shall be submitted pursuant to the requirements of subsection 48 (7) of this Act. The director of a branch must meet the requirements established by this Act for chairman of a management board;
6)  pursuant to the requirements established in § 30 of this Act, data relating to shareholders who have qualifying holdings in the subsidiary credit institution.

(2)  The Financial Supervision Authority may demand additional documents or information in order to specify or verify the data specified in subsection (1) of this section.

(3)  The Financial Supervision Authority shall inform the foreign financial supervision authority of a submitted application within three months as of the receipt of the application or additional information and documents specified in subsection (2) of this section.

(4)  The Financial Supervision Authority may refuse to grant authorisation if:
1)  the financial situation of the credit institution being founded or acquired or the financial situation of the acquiring credit institution is not sufficiently sound, or
2)  the organisational structure of the subsidiary credit institution or branch being founded or acquired is not suitable for the intended activities, or
3)  the managers of the subsidiary credit institution or the director of the branch being founded or acquired do not meet the requirements of §§ 48, 53, 56 and 57 of this Act, or
4)  the legislation of the foreign state prevents the exercise of sufficient supervision, including supervision on a consolidated basis, or the receipt of information necessary therefor.

(5)  A written reasoned decision on the grant of or refusal to grant authorisation shall be sent to the credit institution by the Financial Supervision Authority within three months as of the receipt of the application specified in subsection (1) of this section or the submission of additional data specified in subsection (2) of this section. If the grant of authorisation is refused, the provisions of subsection (3) of this section do not apply.

(5¹)  The Financial Supervision Authority shall inform the foreign financial supervision authority of grant of an authorisation and shall co-ordinate the principles of supervision and liability.

(6)  A credit institution which has a subsidiary credit institution or a branch in a foreign state is required to notify the Financial Supervision Authority and the financial supervision authority of the host country of all intended alterations in the data specified in clauses (1) 2), 4) or 5) of this section at least one month before such alterations are made.

(6¹)  The Financial Supervision Authority may revoke authorisation granted to a credit institution to open a branch in a foreign state if:
1)  the credit institution or its branch in the foreign state does not meet the requirements provided by legislation with which compliance was necessary to obtain the authorisation;
2)  the credit institution fails to submit reports on its branch as required;
3)  the credit institution has submitted misleading information or documents, or incorrect information or falsified documents concerning its branch to the Financial Supervision Authority upon application for authorisation or at another occasion;
4)  the credit institution has materially or repeatedly violated requirements provided for in legislation of the foreign state which may damage the interests of its clients;
5)  the credit institution has failed to implement a precept of the Financial Supervision Authority within the term or to the extent prescribed;
6)  the risks arising from the activities of the branch are significantly greater than risks arising from the activities of the credit institution;
7)  facts provided in subsection (4) of this section become evident;
8)  the credit institution, a manager of the credit institution or the director of a branch of the credit institution has been punished for an economic offence, official misconduct, offence against property or offence against public trust and information concerning the punishment has not been expunged from the punishment register pursuant to the Punishment Register Act.

(6²)  The Financial Supervision Authority shall immediately notify the financial supervision authority of the host country of the branch of the revocation of authorisation specified in subsection (6¹) of this section.

(6³)  After becoming aware of revocation of an authorisation for the foundation of a branch, the credit institution shall terminate provision of its services through the branch founded in the foreign state not later than by the due date specified by the Financial Supervision Authority.

(7)  A credit institution shall notify the Financial Supervision Authority of the opening, closing or change of address of a representative office of the credit institution in a foreign state at least ten days before such opening, closing or change of address. This information must be submitted in writing and it shall contain the following data:
1)  the country of location of representative office;
2)  the business name of the representative office in Estonian and the official language or languages of the country of its location;
3)  the address of the representative office;
4)  the telecommunications numbers of the representative office;
5)  the date of the opening, closing or change of address of the representative office;
6)  in the case of change of address, the new address of the representative office.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(8)  The Financial Supervision Authority shall maintain a list of the subsidiary credit institutions, branches and representative offices of Estonian credit institutions in foreign states.

§ 20¹. Specifications for foundation of branch of credit institution in contracting state

(1)  A credit institution which wishes to found a branch in another contracting state shall inform the Financial Supervision Authority of its intention and submit the following information and documents to the Financial Supervision Authority:
1)  the name of the contracting state where the credit institution wishes to open a branch;
2)  the action plan of the branch which shall contain data on all the financial services which the branch proposes to offer in the contracting state, and a description of the organisational structure of the branch;
3)  the address of the branch in the contracting state;
[RT I 2006, 63, 467 - entered into force 1.01.2007]
4)  data on the managers of the branch; Such data shall be submitted pursuant to the provisions of subsection 48 (7) of this Act.

(2)  The documents specified in (1) of this section shall be submitted in Estonian together with an official translation into one or several official languages of the contracting state in which the credit institution wishes to establish a branch.

(3)  Based on § 20³ of this Act, the Financial Supervision Authority shall make a decision to forward or refuse to forward the information and documents specified in subsection (1) of this section to the financial supervision authority of the corresponding contracting state within three months after receipt of all the required information and documents. The Financial Supervision Authority shall promptly inform a credit institution of a decision to forward or refuse to forward the information and documents.

(4)  The Financial Supervision Authority may refuse to review the information and documents specified in subsection (1) of this section if:
1)  the information or documents submitted for forwarding do not comply with the requirements provided for in this Act or legislation established on the basis thereof;
2)  the information or documents submitted for forwarding are incomplete;
3)  the documents or information which the Financial Supervision Authority requires for forwarding have not been submitted within the prescribed term.

(5)  Upon forwarding the information and documents specified in subsection (1) of this section, the Financial Supervision Authority shall also inform the financial supervision authority of the contracting state of the size of the own funds and capital adequacy of the credit institution.

(6)  After receiving the conditions set by the financial supervision authority of the location of the proposed branch for establishing the branch in such contracting state, the credit institution may open a branch in the contracting state. If within two months after the receipt of the documents and information specified in subsection (1) of this section, the financial supervision authority of the location of the branch has not established any conditions, the credit institution may open a branch in the contracting state.

(7)  A credit institution shall inform the Financial Supervision Authority and the financial supervision authority of a contracting state of changes in the information or amendment of the documents specified in clauses (1) 2)-4) of this section at least one month before such changes or amendments enter into force.

(8)  The Financial Supervision Authority may forbid, by its precept, a credit institution to provide services through a branch opened in another contracting state if:
1)  the basis for refusal to forward information and documents provided in § 20³ of this Act exists;
2)  the financial supervision authority of a contracting state has informed the Financial Supervision Authority that a credit institution has committed a violation of the conditions provided for in the legislation of the contracting state or established by the financial supervision authority of the contracting state.

(9)  The Financial Supervision Authority shall promptly deliver a decision specified in subsection (8) of this section to the credit institution. The credit institution is required to discontinue, not later than by the deadline given by the Financial Supervision Authority, the provision of its services through the branch opened in the relevant contracting state.

§ 20². [Repealed - RT I 2004, 36, 251 - entered into force 1. 05. 2004]

§ 20³. Bases for refusal to forward documents and information

The Financial Supervision Authority may make a decision to refuse to forward the information and documents specified in subsection 20¹ (1) of this Act if:
1)  the information or documents submitted upon application do not meet the requirements provided for in this Act or legislation established on the basis thereof or are inaccurate, misleading or incomplete;
2)  the financial situation, organisational structure or other resources of the credit institution are insufficient for the provision of services specified in the action plan in a contracting state;
3)  opening of the branch or implementation of the action plan submitted by the credit institution may damage the interests of its clients, the financial situation or reliable activities of the credit institution;
4)  a financial supervision authority of a contracting state has no legal basis or possibilities for cooperation with the Financial Supervision Authority due to which the Financial Supervision Authority cannot exercise sufficient supervision over the branch located in the contracting state.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 20⁴. Provision of cross-border services

(1)  A credit institution which intends to provide cross-border services in a foreign state shall inform the Financial Supervision Authority thereof and shall submit the following information and documents to the Financial Supervision Authority:
1)  the name of the state in which the credit institution proposes to offer cross-border services;
2)  a description of the proposed cross-border services including the list specified in subsection 6 (1) of this Act which shall set out the transactions and activities which the credit institution wishes to perform in the foreign state.

(2)  If a credit institution intends to provide cross-border services in a contracting state, the documents specified in (1) of this section shall be submitted in Estonian together with an official translation into one or several official languages of the contracting state.

(3)  If a credit institution intends to provide cross-border services in a contracting state, the Financial Supervision Authority shall make a decision to forward or refuse to forward the information and documents specified in subsection (1) of this section to the financial supervision authority of the corresponding contracting state within one month after receipt of the information specified in subsection (1) of this section. The Financial Supervision Authority shall promptly inform a credit institution of a decision to forward or refuse to forward the information and documents.

(4)  The Financial Supervision Authority may refuse to review the information and documents specified in subsection (1) of this section if they:
1)  do not meet the requirements provided by this Act or are incomplete;
2)  have any of the deficiencies specified in clause 1) of this subsection and the additional information or documents required by the Financial Supervision Authority have not been submitted within the prescribed term.

(5)  The Financial Supervision Authority may make a decision to refuse to forward the information and documents specified in subsection (1) of this section if:
1)  the submitted information or documents do not meet the requirements provided by this Act or the information or documents are incorrect, misleading or incomplete;
2)  the financial situation, organisational structure or other resources of the credit institution are insufficient for the provision of cross-border services;
3)  the provision of cross-border services is likely to damage the interests of the clients, the financial situation or financial soundness of the credit institution;
4)  a financial supervision authority of a contracting state has no legal basis or possibilities for cooperation with the Financial Supervision Authority due to which the Financial Supervision Authority cannot exercise sufficient supervision over the provision of cross-border services in the contracting state.

(6)  After the information and documents specified in subsection (1) of this section have been forwarded to the financial supervision authority of the relevant contracting state, the credit institution may commence provision of cross-border services in the contracting state having regard to the conditions provided for in the legislation of the contracting state and established by the financial supervision authority of the contracting state.

(7)  A credit institution is required to inform the Financial Supervision Authority and, in case of provision of cross-border services in a contracting state, also the financial supervision authority of the contracting state of amending the document specified in clause (1) 2) of this section not later than after one month before such amendments enter in force.

(8)  The Financial Supervision Authority may prohibit, by a precept, a credit information to provide cross-border services if:
1)  the basis for refusal to forward information and documents provided in subsection (5) of this section exists;
2)  the financial supervision authority of a contracting state has informed the Financial Supervision Authority that a credit institution has committed a violation of the conditions provided for in the legislation of the contracting state or established by the financial supervision authority of the contracting state.

(9)  The Financial Supervision Authority shall promptly deliver a decision specified in subsection (8) of this section to the credit institution. The credit institution is required to discontinue, not later than by the deadline given by the Financial Supervision Authority, the provision of the cross-border services in that foreign state.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 20⁵. Branch of financial institution belonging to consolidation group of credit institution and provision of cross-border services in contracting state

(1)  The provisions of §§ 20¹-20⁴ and § 97¹ of this Act apply regarding a financial institution of Estonia which is a subsidiary of a credit institution or jointly controlled by two or more credit institutions and the articles of association of which permit the conclusion of transactions and performance of acts specified in clauses 6 (1) 2)-12) of this Act, and which wishes to found a branch and provide cross-border services in a contracting state, unless otherwise provided for in this section.

(2)  A parent credit institution of a financial institution shall apply for a written confirmation from the Financial Supervision Authority regarding a financial institution specified in subsection (1) of this section which wishes to found a branch in a contracting state or offer cross-border services and the written confirmation shall indicate that the financial institution meets the following requirements:
1)  the parent undertaking or undertakings hold an activity licence issued by the Financial Supervision Authority for acting as a credit institution;
2)  the financial institution concludes the transactions and performs the acts specified in clauses 6 (1) 2)-12) of this Act in a contracting state;
3)  the parent undertaking or undertakings hold at least 90 per cent of the votes represented by shares or units of the financial institution;
4)  the parent undertaking or undertakings ensure the prudent management of the financial institution;
5)  the parent undertaking or undertakings have stated that they solidarily guarantee performance of the obligations assumed by the financial institution;
6)  together with the parent undertaking or all its parent undertakings, the financial institution is subject to supervision on a consolidated basis, in particular regarding the transactions and acts specified in clauses 6 (1) 2)-12) of this Act and concerning limitations on investments, capital adequacy and limitations on concentration of exposures.

(3)  In addition to the provisions of subsections 20¹ (1) and (2), the Financial Supervision Authority shall forward, after provision of a confirmation specified in subsection (2) of this section, the confirmation and information concerning the amount of own funds of the financial institution and the capital adequacy indicator of the credit institution or credit institutions which are parent undertakings on a consolidated basis to the financial supervision authority of another contracting state.

(4)  If a financial institution of Estonia no longer meets the requirements provided for in subsection (2) of this section, the Financial Supervision Authority shall inform the financial supervision authority of the other contracting state thereof.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 20⁶. Bases for activities of foreign credit institution

(1)  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 operation in Estonia.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(2)  The provisions of §§ 21⁴-21⁶, 22 and 97² of this Act apply to a person specified in subsection (1) of this section who is founded in another contracting state and complies with the requirements established regarding credit institutions in the Directive 2006/48/EC of the European Parliament and of the Council relating to the taking up and pursuit of the business of credit institutions (OJ L 177, 30.06.2006, p. 1-200).
[RT I 2010, 7, 30 - entered into force 26.02.2010]

(3)  The provisions of §§ 21-21³, 22 and subsections 97² (1)-(3) of this Act apply to a person specified in subsection (1) of this section who does not comply with the requirements provided for in subsection (2) of this section. Such persons may provide services in Estonia only through a branch.

(4)  For the purposes of this section, cross-border services are services provided in Estonia by a person who is not or whose branch is not registered in Estonia. The provisions concerning cross-border services apply also if cross-border services are provided through a third party.

§ 21. Foundation of subsidiary credit institutions or branches of foreign credit institutions in Estonia

(1)  A foreign credit institution which wishes to found a subsidiary credit institution in Estonia shall apply for an authorisation specified in § 13 of this Act from the Financial Supervision Authority.

(2)  A foreign credit institution which wishes to found a branch in Estonia is required to apply for an authorisation from the Financial Supervision Authority and submit an application to which the following information and documents are appended:
1)  the action plan of the branch being founded together with a detailed description of the intended activities, a description of the organisational structure, and the relationship with the credit institution being founded;
2)  the address of the branch;
3)  data relating to the director of the branch, pursuant to subsection 48 (7) of this Act;
4)  the data and documents required by subsection 30 (3) of this Act relating to shareholders who have qualifying holdings in the credit institution founding the branch;
5)  the documents prescribed in clauses 386 (2) 1), 3), 4) and 5) of the Commercial Code.

(3)  The consent of the financial supervision authority of the home state of the credit institution to the foundation of a subsidiary credit institution or foundation of a branch in Estonia, confirmation that the credit institution holds a valid activity licence, data relating to the amount of own funds and the capital adequacy of the credit institution, and data relating to the deposit guarantee system of the home state shall be submitted to the Financial Supervision Authority.

(4)  A foreign credit institution shall submit the information and documents specified in this section which are in a foreign language together with translations into Estonian.

(5)  In addition to the provisions of subsection 15 (1) of this Act, the Financial Supervision Authority may refuse to grant an authorisation if:
1)  according to the opinion of the Financial Supervision Authority, the financial situation of the foreign credit institution is not sufficiently sound;
2)  the organisational structure of the subsidiary credit institution or branch of the foreign credit institution in Estonia is not suitable for the intended activities;
3)  the legislation of the home state of the credit institution does not require or the financial supervision authority of the home state does not exercise sufficient supervision, including supervision on a consolidated basis;
4)  the financial supervision authority of the foreign state has no legal basis, possibilities or willing for sufficient and effective cooperation with the Financial Supervision Authority.
[RT I 2010, 7, 30 - entered into force 26.02.2010]

(6)  A reasoned decision on the grant of or refusal to grant an authorisation shall be made by the Financial Supervision Authority within two months as of the receipt of an application and all the data and documents specified in subsection (2) of this section.

(7)  The applicant shall be promptly notified of the decision.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 21¹. [Repealed - RT I 2004, 36, 251 - entered into force 1.05.2004]

§ 21². Processing of application for authorisation for foundation of branch and revocation of authorisation

(1)  Sections 13-15, 17 and 18 of this Act apply to the processing of applications for an authorisation for the foundation of a branch, verification of information and to the grant and revocation of authorisations, unless otherwise provided for in this section.

(2)  [Repealed - RT I 2005, 13, 64 - entered into force 18.03.2005]

(3)  The Financial Supervision Authority may revoke an authorisation for the foundation of a branch if circumstances provided for in § 17 of this Act or in subsection 21 (5) of this Act become evident.

(4)  The Financial Supervision Authority may refuse to revoke an authorisation for the foundation of a branch if the clients of the branch have claims against the branch or the foreign credit institution.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 21³. Amendment of authorisation for foundation of branch

(1)  A foreign credit institution which wishes to provide services in Estonia which are not specified in the action plan submitted upon application for an authorisation for the foundation of a branch shall submit an application for amendment of the authorisation for the foundation of the branch to the Financial Supervision Authority.

(2)  In order to amend an authorisation for the foundation of a branch, a foreign credit institution shall submit to the Financial Supervision Authority an application to which the information and documents specified in clauses 21 (2) 1)-3 of this Act are appended.

(3)  The provisions of §§ 14-15 of this Act apply to the processing of applications for the amendment of authorisations for the foundation of a branch, verification of information and deciding on amendment of the authorisations.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 21⁴. Specifications for foundation of branch of credit institution of contracting state in Estonia

(1)  A credit institution of a contracting state which wishes to found a branch in Estonia shall inform the Financial Supervision Authority thereof through the financial supervision authority of the contracting state. The Financial Supervision Authority shall be submitted the following information and documents:
1)  the action plan of the branch which shall contain data on all the financial services which the branch proposes to offer in Estonia, and a description of the organisational structure of the branch;
2)  the address of the branch;
[RT I 2006, 63, 467 - entered into force 1.01.2007]
3)  data relating to the managers of the branch, pursuant to the provisions of subsection 48 (7) of this Act;

(2)  The Financial Supervision Authority shall promptly inform the financial supervision authority of the contracting state of receipt of the information and documents specified in subsection (1) of this section. The Financial Supervision Authority may make, within two months after receipt of the aforementioned information, a decision which determines the requirements which the credit institution must comply with in Estonia. The Financial Supervision Authority shall promptly inform the financial supervision authority of the contracting state of its decision.

(3)  A credit institution of a contracting state may found a branch and commence activities after receiving, through the financial supervision authority of its home country, the decision specified in subsection (2) of this section, or two months after the date on which the Financial Supervision Authority receives the documents and information specified in subsection (1) of this section.

(4)  The Financial Supervision Authority shall be informed of changes in the information and documents specified in subsection (1) of this section at least one month in advance. Within one month as of becoming aware of the changes, the Financial Supervision Authority may amend the decision specified in subsection (2) of this section or make the aforementioned decision unless it has been made earlier.

(5)  Confirmation from the Financial Supervision Authority concerning receipt of the information and documents specified in subsection (1) of this section and the decision of the Financial Supervision Authority specified in subsection (2) of this section, if it exists, shall be submitted upon entry of a branch in the commercial register. If the Financial Supervision Authority makes a decision specified in subsection (4) of this section, the Authority shall send a copy of the decision to the commercial register.

§ 21⁵. Provision of cross-border services in Estonia by credit institution of contracting state

(1)  A credit institution of a contracting state which wishes to provide cross-border services in Estonia shall inform the Financial Supervision Authority thereof through the financial supervision authority of the contracting state and indicate which transactions and acts listed in subsection 6 (1) of this Act the credit institution intends to conclude and perform.

(2)  A credit institution of a contracting state may commence the provision of cross-border services in Estonia after the notice specified in subsection (1) of this section has been forwarded to the Financial Supervision Authority.

(3)  After receipt of the notice specified in subsection (2) of this section, the Financial Supervision Authority may make a decision in which it determines the conditions according to which the credit institution of the contracting state must provide its services. The Financial Supervision Authority shall promptly inform the credit institution of the contracting state of the decision.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 21⁶. Foundation of branch of financial institution belonging to consolidation group of credit institution of contracting state and provision of cross-border services in Estonia

(1)  The provisions of §§ 21⁴, 21⁵, 22 and 97² of this Act apply regarding a financial institution of a contracting state which is a subsidiary of a credit institution or jointly controlled by two or more credit institutions and the articles of association of which permit the conclusion of transactions and performance of acts specified in clauses 6 (1) 2)-12) of this Act, and which wishes to found a branch and provide cross-border services in Estonia, unless otherwise provided for in this section.

(2)  The parent credit institution of a financial institution of a contracting state specified in subsection (1) of this section which wishes to found a branch in Estonia or provide cross-border services shall inform the Financial Supervision Authority thereof through the financial supervision authority of the contracting state and shall submit the information and documents specified in subsection 21⁴ (1) of this Act concerning the financial institution, information concerning the amount of own funds of the financial institution and the capital adequacy indicator of the credit institution or credit institutions which are parent undertakings on a consolidated basis and a confirmation issued by the financial supervision authority of the contracting state which indicates that the financial institution meets the following requirements:
1)  the parent undertaking or undertakings are authorised as credit institutions in the contracting state by the law of which the activities of the financial institution is governed;
2)  the financial institution concludes the transactions and performs and acts specified in clauses 6 (1) 2)-12) of this Act in Estonia;
3)  the parent undertaking or undertakings hold more than 90 per cent of the votes represented by shares or units of the financial institution;
4)  the parent undertaking or undertakings ensure the prudent management of the financial institution;
5)  the parent undertaking or undertakings have stated that they solidarily guarantee performance of the obligations assumed by the financial institution;
6)  together with the parent undertaking or all its parent undertakings, the financial institution is subject to supervision on a consolidated basis, in particular regarding the transactions and acts specified in clauses 6 (1) 2)-12) of this Act and concerning limitations on investments, capital adequacy and limitations on concentration of exposures.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 22. Representative offices of foreign credit institutions

(1)  A foreign credit institution which wishes to open a representative office in Estonia shall submit the corresponding information and the following data and documents to the Financial Supervision Authority:
1)  confirmation from the financial supervision authority of the home country that the credit institution holds valid authorisation;
2)  the action plan of the representative office;
3)  an authorisation document certifying the authorisation of the representative;
4)  a document concerning the registration of the credit institution in the home country (an extract from the commercial register or a transcript of the registration certificate);
5)  the articles of association of the credit institution;
6)  the seat, address and telecommunications numbers of the representative office.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  The documents specified in subsection (1) of this section shall be submitted to the Financial Supervision Authority together with a notarised translation into Estonian.

(3)  The Financial Supervision Authority shall maintain a list of foreign credit institutions which shall include the following data:
1)  the name of the representative office in Estonian;
2)  the address of the representative office;
3)  the telecommunications numbers of the representative office;
4)  the name of the representative.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Chapter 3
Banks as Credit Institutions

Division 1
Foundation of Banks and Requirements for Articles of Association

§ 23. Restrictions on foundation of banks

A bank shall not be founded by public share subscription.

§ 24. Payment for shares of banks

(1)  Upon the foundation of a bank, shares shall be paid for in money. This restriction does not apply to the case specified in subsection 65 (2) of this Act.

(2)  Monetary contributions shall be paid to the bank being founded into an account opened in the Bank of Estonia or an account opened in an Estonian credit institution.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 25. Transactions concluded before entry in commercial register

Before the entry of a bank in the commercial register, the founders of the bank may, in the name of the bank being founded, only conclude transactions which are directed at the creation of the organisational structure of the bank being founded and the acquisition or acquisition for use of necessary technical equipment or security systems or assets necessary to conclude transactions for which the bank has been authorised.

§ 26. Requirements for articles of association of banks

The articles of association of a bank shall, in addition to data provided for in the Commercial Code, set out the procedure for formation of the structural units specified in this Act and for provision of the competence thereof, and the reporting principles of the structural units.

§ 27. Amendment of articles of association

(1)  Before the entry of amendments to the articles of association in the commercial register, a credit institution is required to submit all such amendments to the Financial Supervision Authority in order to obtain the consent thereof.

(2)  In order to obtain consent for amendments to the articles of association, a credit institution is required to submit an application and the following documents to the Financial Supervision Authority within ten days as of the adoption of the resolution by the general meeting of shareholders:
1)  the resolution of the general meeting on amendment of the articles of association;
2)  the minutes of the general meeting;
3)  the new text of the articles of association.

(3)  The Financial Supervision Authority shall refuse to grant consent to amendments to articles of association if such amendments do not comply with current legislation.

(4)  The Financial Supervision Authority shall make a reasoned decision on the grant of or refusal to grant consent not later than within two weeks as of the submission of the application.

(5)  The consent of the Financial Supervision Authority to amendments to the articles of association of a credit institution shall be annexed to the application submitted to the commercial register.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

Division 2
Shares of Banks

§ 28. Shares of banks and registrar of share register

(1)  A bank may have only registered shares.

(2)  Pursuant to the procedure provided by law and with the consent of the Financial Supervision Authority, a bank may issue non-voting shares which grant the pre-emptive right to receive dividends and to participate in the distribution of the remaining assets of the bank upon dissolution (preferred shares).

(3)  The sum of the nominal values or book values of preferred shares shall not be greater than one-tenth of the share capital.
[RT I 2010, 20, 103 - entered into force 1.07.2010]

(4)  A bank may issue registered convertible bonds, the sum of the nominal values of which shall not be greater than one-tenth of the share capital.

(5)  The shares of a bank shall be freely transferable. The pre-emptive right of a shareholder provided for in subsection 229 (2) of the Commercial Code does not apply to the transfer of shares of a bank.

(6)  [Repealed - RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 29. Qualifying holding

(1)  For the purposes of this Act, a direct or indirect holding in the share capital of a company which represents 10 per cent or more of the share capital or all the rights or votes represented by shares of the company or which grants dominant influence over the management of the company in another manner is deemed to be a qualifying holding.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(2)  A holding is deemed to be direct if the holding belongs to a person personally, or a person personally exercises the rights related to it.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  A holding is deemed to be indirect if:
1)  it is held or exercised by a person together with one or several controlled companies;
2)  it is held or exercised by one or several companies controlled by a person;
3)  it is held or exercised by a person or a company controlled thereby based on an agreement with a third person;
4)  the voting right arising therefrom is deemed to belong to the person.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(4)  [Repealed - RT I 2009, 37, 250 - entered into force 10.07.2009]

(5)  Determination of a controlled company, determination of holding of votes and calculation of votes shall be based on §§ 10 and 72¹ of the Securities Market Act.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

§ 29¹. Requirements for persons acquiring and having qualifying holdings

A qualifying holding in a bank may be acquired, had and increased and control over a bank may be achieved, had and increased by any person conforming to the following requirements (hereinafter in this section person):
1)  having an impeccable business reputation and 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, electing, naming or assigning the director of the bank to be only such a person who conforms to the requirements specified in § 48 of this Act;
3)  having a sufficiently good financial situation to ensure the reliable and regular operation of the bank, and in case of a legal person its annual reports if such exist allowing adequate assessment of its financial situation;
4)  being able to ensure that the bank is capable of following the reliability requirements specified in this Act, 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 sufficient supervision, exchange of information and co-operation with financial supervision authorities;
5)  there is no justified suspicion that the acquiring, having or increasing of the holding or the control over the bank would be related to money laundering or terrorist financing or to any attempts thereto or that it would increase such risks.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

§ 30. Notification of acquisition of holding and information to be submitted

(1)  A person who intends to acquire a qualifying holding in a bank 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 (hereinafter acquirer) is required to inform the Financial Supervision Authority of such intention beforehand and to submit the information and documents specified in subsection (3) of this section.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(2)  The provisions of this Division also apply in cases where a person acquires, due to any other event or as a result of another transaction, a qualifying holding in a bank or increases 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 becomes a company controlled by the person as a result of such event or transaction. In such case, the person is required to notify the Financial Supervision Authority promptly after the bank becomes a company controlled by the person or after becoming aware of the acquisition of qualifying holding or increase of holding in the bank.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(2¹)  The Financial Supervision Authority shall inform the acquirer in writing within two working days about receiving the notice specified in subsection (1) or (2) of this section or about receiving additional information and documents specified in subsection (4) of this Act and about the possible end date of the time-limits of proceedings specified in § 30¹ of this Act.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(3)  The Financial Supervision Authority shall be informed of the name of the company where the qualified holding is acquired or increased or which is turned into a company controlled by the acquirer and about the size of the acquired holding and the following information and documents shall be submitted to the Financial Supervision Authority:
1)  description of the acquired company, including an extract of the share register, data relating to the type of the shares acquired and had by the acquirer and the number of votes granted by these shares, and other information if necessary;
2)  if the acquirer is a natural person, the acquirer's curriculum vitae, including also the acquirer's name, residence, history of education, employment and services, personal ID code or, in the absence thereof, date of birth;
3)  if the acquirer or the manager of the pool of assets is a legal person, the acquirer's name, seat, registry code, an authenticated copy of the registry card and the articles of association if they exist;
4)  if the acquirer is a legal person, the list of its owners or members which shall set out, for each owner or member, the number of shares for the amount of the share belonging to him or her and the number of votes granted by such shares or share;
5)  if the acquirer is a legal person, the list of its members of the management board and supervisory board which shall set out, for each member, his or her given name and surname, personal identification code or, in the absence thereof, date of birth, history of education, employment and services, and documents which certify the trustworthiness, experience, competence and impeccable business reputation of such persons which the acquirer deems necessary to submit;
6)  confirmation that the person becoming the director of the bank as a result of the acquisition of holding has not been punished for an economic offence, official misconduct, offence against property or offence against public trust and information concerning the punishment has been expunged from the punishment register pursuant to the Punishment Register Act. In case of a citizen of a foreign state, a certificate of the punishment register of his or her home state or an equivalent document issued by a competent judicial or administrative institution of his or her home state shall be considered sufficient, on the prerequisite that not more than three months have passed from its issuing;
7)  description of the acquirer's engagement in enterprise and description of economic and non-economic interests of the persons connected to the acquirer;
8)  confirmation that there are no circumstances related to the person specified in clause 6) of this subsection that would exclude his or her right to be a bank director pursuant to legislation;
9)  the last three annual reports of the acquirer if they exist. If more than nine months have passed since the end of the previous financial year, an audited interim report for the first six months of the financial year shall be submitted. The sworn auditor's report shall be added to the reports if preparation of the report is prescribed by legislation;
[RT I 2010, 9, 41 - entered into force 8.03.2010]
10)  if possible, the ratings and public reports necessary for assessing the financial situation of the acquirer and the financial situation of companies related to him or her if the acquirer is a natural person, or credit ratings issued to the acquirer and its consolidation group if the acquirer is a legal person;
11)  if the acquirer is a company belonging to a consolidation group, a description of the structure of the group, data relating to the sizes of the holdings of the companies belonging to the group, and the last three annual reports of the consolidation group together with the sworn auditor's report;
[RT I 2010, 9, 41 - entered into force 8.03.2010]
12)  if the acquirer is a natural person, documents certifying the financial status of the person during the last three years;
13) information and documents concerning the sources of the monetary and non-monetary funds for which the acquirer intends to acquire or increase the qualifying holding or to gain control;
14)  the circumstances related to the acquisition of the holding pursuant to § 29 of this Act and §§ 10 and 72¹ of the Securities Market Act;
15)  the size of the qualifying holding after acquiring the holding, and the circumstances pertaining to acquisition thereof pursuant to § 29 of this Act and § 10 and 72¹ of the Securities Market Act;
16)  in the case of the bank becoming a controlled company, a business plan and other circumstances related to gaining and executing of control pursuant to § 29 of this Act and § 10 of the Securities Market Act;
17)  in the case of the bank not becoming a controlled company, an overview of the strategy to be implemented in the bank.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(3¹)  The Minister of Finances may establish a regulation specifying the information and documents provided for in subsection (3) of this section as compulsory for submitting to the Financial Supervision Authority.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(3²)  Information and documents shall be submitted to the Financial Supervision Authority in Estonian. With consent of the Financial Supervision Authority, the information and documents may also be submitted in some other language.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(4)  The Financial Supervision Authority may request in written form additional information or documents in order to specify or verify the information or documents specified in subsection (3) of this section. Such requests shall specify what additional information is to be submitted to the Financial Supervision Authority.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(5)  The Financial Supervision Authority has the right to waive, in full or in part, the request for the information or documents specified in subsection (3) of this section.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(6)  A third country credit institution, insurer, 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 documents specified in subsection (3) of this section, 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 Financial Supervision Authority.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 30¹. Proceedings and time-limits for proceedings

(1)  The Financial Supervision Authority shall assess the conformance of the acquirer to the requirements specified in § 29¹ of this Act and shall decide to refuse or allow the acquisition of holding not later than within 60 working days (hereinafter the period of proceedings) after the Financial Supervision Authority has issued the notice confirming the reception of the information and documents necessary for assessment as provided in subsection 30 (2¹) of this Act.

(2)  The Financial Supervision Authority has the right to request the additional information and documents specified in subsection 30 (4) of this Act not later than within 50 working days after the beginning of the period of proceedings.

(3)  The period of proceedings shall be suspended for the duration of the time from the first request of the Financial Supervision Authority for the additional information and documents specified in subsection (2) of this section to the moment of receiving the requested additional information and documents from the acquirer. Such suspension shall not exceed 20 working days.

(4)  The period of proceedings shall not be suspended for any subsequent requests of additional information and documents.

(5)  If no financial supervision is exercised over the acquirer or if financial supervision over acquirer is exercised by a financial supervision authority of a third country, the Financial Supervision Authority may extend the suspension of the period of proceedings specified in subsection (3) of this section up to 30 working days.

(6)  Upon assessing an acquisition or increase of a qualifying holding or turning a bank into a company controlled by an acquirer, the Financial Supervision Authority shall co-operate with a financial supervision authority of a contract state if the acquirer is one of the following persons:
1)  an insurer, credit institution, management company, investment fund, investment firm or other person under financial supervision, having authorisation issued by the contract state;
2)  a parent company of an insurer, credit institution, management company, investment fund, investment firm or other person under financial supervision, having authorisation issued by the contract state; or
3)  a person controlling a company which is an insurer, credit institution, management company, investment fund, investment firm or other person under financial supervision, having authorisation issued by the contract state.

(7)  Regarding the co-operation specified in subsection (5) of this section, the Financial Supervision Authority shall consult with other financial supervision authorities. The Financial Supervision Authority shall immediately forward to other financial supervision authorities all data relevant to the assessment of the acquisition or increase of a qualifying holding or turning a bank into a company controlled by the acquirer.

(8)  If multiple persons simultaneously intend to acquire a qualifying holding, then the Financial Supervision Authority shall treat them equally in equal circumstances.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

§ 31. Requirements for acquisition of holdings, bases for prohibition of acquisition of holdings and decision regarding acquisition
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(1)  The Financial Supervision Authority has the right to establish a term for the acquirer during which the acquirer has the right to acquire or increase a qualifying holding, or to turn the bank into a company controlled thereby. The Financial Supervision Authority has the right to extend that term, but it shall not exceed twelve months. During such term, the acquirer is required to promptly inform the Financial Supervision Authority of a decision to perform or not to perform the transaction to acquire or increase a qualifying holding, or to turn the bank into a company controlled thereby.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(2)  The qualifying holding may be acquired or increased or the bank may be turned into a controlled company, if the Financial Supervision Authority does not issue a precept to prohibit the acquisition or increase of the qualifying holding or turning the bank into a controlled company, considering the provisions of § 301 of this Act and subsection (3) of this section.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(3)  The Financial Supervision Authority may prohibit, by a precept, the acquisition or increase of a qualifying holding or turning a bank into a controlled company if:
1)  the acquirer does not meet the requirements provided for in § 29¹ of this Act;
2)  the acquirer has failed to submit on time the information or documents prescribed on the basis of this Act or required by the Financial Supervision Authority to the Financial Supervision Authority;
3)  information or documents submitted to the Financial Supervision Authority do not meet the requirements provided by legislation or the information or documents are incorrect, misleading or incomplete or the information or documents do not eliminate the justified suspicion of the Financial Supervision Authority that the acquisition is improper or that the acquisition does not conform to the requirements provided for in this Act;
4)  the bank would be turned into a controlled company of person residing or located in a third country and there is no adequate supervision of such person in the home country thereof or the financial supervision authority of the third country has no legal basis or possibilities for cooperation with the Financial Supervision Authority.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(4)  The Financial Supervision Authority shall issue its decision allowing or precept prohibiting the acquisition of a qualifying holding to the acquirer not later than within two working days after making the relevant decision and before the end of the period of proceedings. If financial supervision over the acquirer is exercised by a financial supervision authority of a contract state, then the decision must also specify its assessment regarding the acquisition or increase of the qualifying holding or turning the bank into a controlled company.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(5)  If circumstances specified in subsection (3) of this section become evident after the acquisition or increase of the qualifying holding or turning the bank into a controlled company, then the Financial Supervision Authority may issue a precept deeming the acquisition of the qualifying holding or turning the bank into a controlled company to be in violation of this Act.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(6)  Upon existence of the circumstances provided in subsection (3) or (5) of this section, the Financial Supervision Authority has the right to specifically prohibit or restrict, by a precept, the acquirer or a person who has a qualifying holding in a bank or who is the person controlling a bank to exercise voting rights or other rights guaranteeing control in the bank. The Financial Supervision Authority may issue such precept regardless of having issued the precept provided in subsection (3) or (5) of this section. The Financial Supervision Authority may publish the precept on its website and the acquirer may request the publishing of the precept.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(7)  Upon issue of the precept specified in subsection (5) or (6) of this section, the Financial Supervision Authority shall inform the financial supervision authority of the relevant contracting state if the credit institution, management company, investment fund, investment firm, insurer, e-money institution, other person subject to financial supervision registered in the contracting state or a person belonging to the same consolidation group with an aforementioned person is the acquirer or a person who has a qualifying holding in a bank or who is the person controlling a bank.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(8)  A bank, the registrar of its share register and other persons organising the exercise of voting rights are also required to comply with the precepts issued by the Financial Supervision Authority specified in subsections (3), (5) and (6) of this section.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 32. Consequences of illegal acquisition of holdings

(1)  As a result of a transaction by which a qualifying holding is acquired or increased, the person shall not acquire the voting rights determined by the shares and the votes represented by the shares shall not be included in the quorum of the general meeting if:
1)  the transaction is contrary to a precept issued by the Financial Supervision Authority;
2)  the Financial Supervision Authority has issued a precept specified in subsection 31 (5) or (6) of this Act;
3)  the Financial Supervision Authority has not been informed of the transaction pursuant to the procedure provided for in § 30 of this Act;
4) the transaction is performed after the expiry of the date specified in subsection 31 (1) or before the acquisition of qualifying holding was allowed with this Act.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(2)  No right shall arise for a person to turn a bank into a company controlled by the person as a result of a transaction in relation to which any of the circumstances specified in subsection (1) of this section exists.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  If voting rights representing a holding acquired or increased by a transaction, in the case of which any of the circumstances specified in subsection (1) of this section exists, are included in the quorum of the general meeting and influence the adoption of a resolution of the general meeting, the resolution of the general meeting shall be considered invalid. A court may declare the resolution of the general meeting invalid on the basis of a petition of the Financial Supervision Authority, a shareholder or a member of the management board or supervisory board of the company, if the petition is submitted within three months as of the adoption of the resolution of the general meeting.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(4)  In the case of exercise of the rights guaranteeing control which arise from a transaction whereby the bank was to be turned into a company controlled by the person and in respect of which any of the circumstances specified in subsection (1) of this section exists, a court may declare the exercise of such rights invalid on the basis of a petition of the Financial Supervision Inspectorate, a shareholder or member of the management board or supervisory board of the company, if the petition is submitted within three months as of the time of exercise of the rights.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

§ 33. Giving notification of changes in holding

(1)  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 one of the limits specified in subsection 30 (1) of this Act or foregoes control over the bank, the person is required to promptly inform the Financial Supervision Authority of such intention and indicate the number of shares which the person owns and transfers and holds after the transaction.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

(2)  The provisions of subsection (1) of this section also apply if a person loses control over a bank or qualifying holding in a bank as a result of any other event or transaction or if the holding of the person is reduced such that it falls below one of the limits specified in subsection 30 (1) of this Act. In such case, the person is required to inform the Financial Supervision Authority promptly after becoming aware of the loss of qualifying holding or control or the reduction of holding.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  Upon becoming aware of transactions specified in subsections 30 (1) and (2) of this Act or subsections (1) or (2) of this section, a bank is required to promptly inform the Financial Supervision Authority thereof.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(4)  Together with its annual report, a bank shall submit to the Financial Supervision Authority information concerning persons who, as of the end of the financial year, have qualifying holding in the bank and shall set out the size of holding owned by each person and the circumstances relating thereto pursuant to § 29 of this Act and §§ 10 and 72¹ of the Securities Market Act.
[RT I 2009, 37, 250 - entered into force 10.07.2009]

§ 34. Acquisition or taking as security of own shares

(1)  A bank may acquire its own shares and take its own shares as security in the conduct of ordinary business provided that the shares of the bank are traded on a regulated market.

(2) The provisions of clause 283 (2) 1) and subsection 284 (1) of the Commercial Code do not apply to a bank taking its own shares as security.

(3) The grant of a loan for the purchase of own shares is prohibited.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 35. Share capital of bank

(1)  Upon foundation of a bank, the paid in share capital of the bank must be equivalent to at least 5 million euros.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  Only amounts actually paid in may be indicated as the share capital of a bank.

§ 36. Methods of increase of share capital

(1)  Upon a resolution of the general meeting, the share capital of a bank may be increased by supplementary monetary contributions or, without supplementary contributions, out of the retained profits or share premium accounts of the bank (bonus issue) or by the conversion of convertible bonds to shares or by the settlement of a financial claim arising out of a subordinated debt agreement and the issue price of the shares.

(2)  Upon a resolution of the general meeting, shares may be paid for by a non-monetary contribution upon an increase of the share capital of the bank in the course of a merger of banks.

(3)  Prior written consent from the Financial Supervision Authority is required to increase the share capital of a bank by the conversion of convertible bonds to shares or by the settlement of a claim arising out of a subordinated debt agreement and the issue price of the shares.

(3¹)  The Financial Supervision Authority may refuse to grant consent if increasing the share capital of a bank by the method specified in subsection (3) of this section would damage the interests of depositors, other clients and creditors of the credit institution.

(4)  The provisions of § 349 of the Commercial Code also apply to a bank; however, the supervisory board shall not increase the share capital by more than 10 per cent of the share capital which existed at the time the supervisory board acquired the right to increase the share capital.

(5)  A bank is required to notify the Financial Supervision Authority of the conditions of an intended increase in share capital at least seven days before the adoption of the corresponding resolution.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 37. Reduction of share capital

(1)  Share capital may be reduced in order to cover a loss (simplified reduction of share capital), unless otherwise provided by this Act. After the adoption of a resolution to reduce share capital, the net own funds of the bank shall not be less than those provided for in subsection 78 (9) of this Act.

(2)  Prior written consent from the Financial Supervision Authority is required to reduce share capital for other purposes.

(3)  The Financial Supervision Authority may refuse to grant the consent provided for in subsection (2) of this section if the reduction of share capital would damage the solvency of the bank or the interests of depositors, clients or other creditors of the bank.

(4)  Section 358, the term provided for in the first sentence of subsection 359 (1), and subsection 359 (2) of the Commercial Code do not apply to banks. The management board shall publish a notice concerning the new amount of share capital in a national daily newspaper within fifteen days as of adoption of the resolution on the reduction of the share capital.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

Chapter 4
Association Banks as Credit Institutions

§ 38. Application of Acts

The provisions of law regarding savings and loan associations apply to the foundation, activities and dissolution of association banks, unless otherwise provided by this Act.

§ 39. Foundation of association banks

(1)  An association bank must be founded by at least fifty persons.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

(2)  The provisions of § 25 of this Act apply to the foundation of association banks.

(3)  The provisions of § 5, clause 7 (2) 1) and clause 10 (1) 1) of the Savings and Loan Associations Act do not apply to the foundation of association banks.
[RT I 2010, 34, 182 - entered into force 1.07.2010]

§ 40. [Repealed - RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 41. Foundation of association bank by merger of savings and loan associations

(1)  An association bank may be founded by a merger of savings and loan associations pursuant to the procedure prescribed in the Savings and Loan Associations Act.

(2)  The founders of an association bank are the merging savings and loan associations.

(3)  Upon the foundation of an association bank by a merger of savings and loan associations, all merging savings and loan associations shall be audited by at least one common auditor who meets the requirements specified in subsection 94 (1) of this Act.

(4)  The auditor shall prepare a report concerning the audit of the merger agreement and merger report and provide his or her opinion as to whether the share capital and the amount of net own funds of the association bank being founded meet the requirements of this Act and legislation issued on the basis thereof.
[RT I 2010, 34, 182 - entered into force 1.07.2010]

§ 42. Requirements for articles of association of association banks

(1)  In addition to that provided for in the Savings and Loan Associations Act, the articles of association of an association bank shall set out:
1)  a description of the organisational structure of the association bank and the procedure for the formation of structural units;
2)  the competence of the directing bodies;
3)  the body which establishes the procedure for conducting transactions with the members of the association bank and for issuing claims against members of the association bank;
[RT I 2010, 34, 182 - entered into force 1.07.2010]
4)  the reporting principles;
5)  the work procedure of the audit committee.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

(2)-(3)  [Repealed - RT I 2001, 102, 672 - entered into force 1.01.2002]

(4)  The provisions of § 27 of this Act apply to association banks.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 42¹. Members of association banks

(1)  The provisions of § 17 of the Savings and Loan Associations Act do not apply to members of association banks.

(2)  The management board of the association bank shall decide the acceptance of a person as a member of the association bank upon request by the person, unless this competence has been given to the supervisory board with the articles of association.

(3)  If a member leaves or is excluded from an association, the member has the right to the refund of the paid contribution if the member does not have any unperformed and enforceable obligations to the association bank.

(4)  The contribution shall be paid out not later than within three years as of the end of membership, unless the articles of association prescribe a shorter term. A new term for paying out the contribution may be stated with a decision of the general meeting, if the new term is reasonably necessary and if, after making the payout, the own funds of the association bank are insufficient for the prudential ratios provided for in subsection 71 (1) of this Act and for other requirements prescribed in this Act and in legislation issued on the basis thereof.

(5)  The provisions of subsection (4) of this section shall also apply to the successors of a deceased member if the successors do not become members of the association.

(6)  The provisions of §§ 34-37 of the Commercial Associations Act do not apply to members of association banks.
[RT I 2010, 34, 182 - entered into force 1.07.2010]

§ 43. [Repealed - RT I 2010, 34, 182- entered into force 1.07.2010]

§ 44. Share capital of association banks

(1)  Upon foundation of an association bank, the paid in share capital of the bank must be equivalent to at least 5 million euros.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  Only amounts actually paid in may be indicated as the share capital of an association bank.

§ 45. Legal reserve of association bank

(1)  In order to guarantee the obligations of an association bank, a legal reserve shall be formed in the amount of at least one-tenth of the share capital unless the articles of association prescribe a higher level.

(2)  During each financial year, at least one-twentieth of net profit shall be entered in the legal reserve. If the legal reserve reaches the amount prescribed in the articles of association, the increase of legal reserve from net profit shall be terminated.

§ 46. Distribution of profit of association bank

(1)  The profit of an association bank shall be calculated pursuant to accounting rules and distributed according to the resolution of the general meeting.

(2)  Upon a resolution of the general meeting, the shares of profit prescribed for payment to members in the profit distribution proposal submitted by the management board shall not be increased.

(3)  Payments shall not be made to members if the annual accounts of the association bank approved at the end of the previous financial year show that the amount of own funds of the association bank does not comply with the provisions of this Act.

§ 47. Covering of loss of association bank

The provisions of § 26 of the Savings and Loan Associations Act do not apply to association banks.

Chapter 5
Management and Organisational Structure of Credit Institutions. Requirements for Members of Directing Bodies and Employees of Credit Institutions

§ 48. Managers of credit institutions

(1)  The members of the supervisory board and management board of a credit institution are deemed to be the managers of the credit institution.

(2)  Only persons who have the education, experience and professional qualifications necessary to manage a credit institution and who have an impeccable business reputation may be elected or appointed managers of credit institutions or financial holding companies.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  A person whose earlier activities have caused the bankruptcy or compulsory liquidation or revocation of the activity licence of a company, or from whom the right to engage in economic activity has been taken away pursuant to law, or whose earlier activities as a manager of a company have shown that he or she is not capable of organising the management of a company such that the interests of the shareholders, members, creditors and clients of the company are sufficiently protected, or whose earlier activities have shown that he or she is not suitable to manage a company for other good reasons shall not be elected or appointed manager of a credit institution or a member of the supervisory board or management board of the parent company of a credit institution or a company belonging to the same consolidation group as the parent company.

(4)  The managers and employees of a credit institution are required to act with the prudence and competence expected of them and according to the requirements for their positions and the interests of the credit institution and the clients thereof.

(5)  The managers and employees of a credit institution are required to give priority to the economic interests of the credit institution and the clients thereof over their own personal economic interests.

(6)  A credit institution is required to notify the Financial Supervision Authority of the intention to elect or appoint the managers of the credit institution or of the intention to extend their term of office, and to submit the documents specified in subsection (7) of this section to the Financial Supervision Authority at least ten days before deciding such issues. This term shall not be applied if the prior submission of documents is not possible for good reasons.
[RT I 2010, 7, 30 - entered into force 26.02.2010]

(6¹)  A credit institution is required to notify the Financial Supervision Authority of the resignation or initiation of removal of the managers before the expiry of their term of office at least ten days before deciding such issues. This term shall not be applied if the prior submission of documents is not possible for good reasons.
[RT I 2010, 7, 30 - entered into force 26.02.2010]

(7)  In order to elect or appoint a manager of a credit institution, the written consent of the person to be elected or appointed is necessary. A person shall submit his or her written consent together with an overview of his or her education, work experience, engagement in enterprise and punishments entered in the punishment register, and confirmation concerning the absence of facts provided for in this Act which preclude the right to be a manager of a credit institution. The procedure for the submission of data and documents to confirm that a person is trustworthy and suitable and that he or she meets the requirements shall be established by the Bank of Estonia.

§ 49. Prohibition on competition, and declaration of economic interest

(1)  A member of the supervisory board of a credit institution shall not be a member of the supervisory board, management board or audit committee or an auditor of another credit institution unless the credit institutions are companies belonging to the same consolidation group or cannot be deemed to be in competition as they operate in different markets.

(2)  The following persons shall not be members of the management board of a credit institution:
1)  a member of the management board or supervisory board of another company unless the company belongs to the same consolidation group as the credit institution;
2)  a procurator, auditor, member of the audit committee, or controller of another company.

(3)  Members of the management board of a credit institution shall not be party to employment contracts entered into with other persons. Members of the management board of a credit institution are prohibited from entering into agreements with other persons if, pursuant to such agreements, the duties of the members include investment, the preparation or intermediation of loan and investment projects, or other similar activities.

(4)  The managers of a credit institution are required to declare their economic interests and conflicts of interest under the conditions and pursuant to the procedure established by the Bank of Estonia.
[RT I 2001, 102, 672 - entered into force 1.01. 2002]

§ 50. Removal of manager of credit institution

(1)  The Financial Supervision Authority has the right to issue a precept to demand the removal of a manager of a credit institution if:
1)  according to the opinion of the Financial Supervision Authority, the person does not meet the requirements established for the managers of credit institutions, or
2)  the person has submitted misleading or inaccurate information or falsified documents in connection with his or her election or appointment;
3)  the activities of the person in managing the credit institution have shown that he or she is not capable of organising the management of the credit institution such that the interests of the depositors, other clients and creditors of the credit institution are sufficiently protected.

(2)  If a credit institution fails to comply with a precept specified in subsection (1) of this section in full or within the specified term, the Financial Supervision Authority has the right to demand the removal of a manager of the credit institution by a court.

(3)  A court may, at the request of the Financial Supervision Authority or the management board, the supervisory board or a shareholder of the credit institution, appoint a new member to replace a member removed from the supervisory board. The authority of a court-appointed member of the supervisory board shall continue until the election of a new member of the supervisory board by the general meeting.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 51. General meeting

(1)  The management board shall call a special general meeting if:
1)  the net own funds of the credit institution are less than prescribed in subsection 78 (9) of this Act and if the credit institution has failed to increase its net own funds to the required level during the term specified in a precept of the Financial Supervision Authority;
2)  this is demanded by shareholders whose shares represent at least one-tenth of the share capital, or by one-tenth of the members;
3)  this is demanded by the supervisory board or the auditor;
4)  this is demanded by another person to whom the corresponding right has been granted by law.

(2)  In the case specified in clause (1) 1) of this section, the general meeting shall decide on:
1)  the increase of share capital or implementation of other measures to bring the net own funds of the credit institution into accordance with the requirements of this Act, or
2)  the merger of the credit institution, or
3)  the dissolution of the credit institution.

(3)  The provisions of clause 292 (1) 1), subsection 292 (3) and § 301 of the Commercial Code do not apply to banks, and the provisions of § 40 of the Savings and Loan Associations Act do not apply to association banks.

(4)  The management board, or shareholders whose shares represent at least one-tenth of the share capital, or one-tenth of the members, or the Financial Supervision Authority may demand the inclusion of a certain issue on the agenda. A demand shall be submitted before the notice calling the general meeting is sent to shareholders or members or is published.

(5)  The management board shall send a notice of the general meeting to the Financial Supervision Authority pursuant to the same procedure as to the shareholders or members of the credit institution.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 52. Supervisory board of credit institution

(1)  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.

(2)  The members of the supervisory board shall ensure verification that the activities of the credit institution and the management board and employees thereof are in accordance with legislation and the provisions of internal rules and other rules established by the directing bodies of the credit institution.

(3)  The members of the supervisory board must comprehend the risks involved in the activities of the credit institution and shall ensure that the management board of the credit institution identify risks and monitor and control the extent thereof.

(4)  The supervisory board is competent and required to:
1)  approve the strategy and general principles of the activities of the credit institution;
2)  approve the general principles of risk management of the credit institution;
3)  approve the principles of the organisational structure of the credit institution;
4)  approve the general principles of monitoring of the activities of the credit institution;
5)  approve the statutes of the internal audit unit;
6)  elect and remove the chairman and members of the management board of the credit institution;
7)  appoint and remove from office the head of the internal audit unit of the credit institution and, on the proposal of the head of the internal audit unit, appoint and remove from office employees of the internal audit unit;
8)  approve the budget and the investment plan of the credit institution;
9)  decide on the foundation or closure of branches in foreign states;
10)  approve the general principles of the activities and the competence of the credit committee;
11)  decide on the conclusion of transactions which are beyond the scope of the everyday economic activities of the credit institution;
12)  decide on the conclusion of transactions with members of the management board, and appoint the representative of the credit institution in such transactions;
13)  file claims against members of the management board, and appoint the representative of the credit institution in such claims;
14)  decide on other matters placed in the competence of the supervisory board by the articles of association.

(5)  The provisions of subsection 317 (1) of the Commercial Code do not apply to credit institutions.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 53. Members of supervisory board

(1)  The supervisory board shall have five members unless the articles of association prescribe a greater number of members.

(2)  In addition to persons provided for in subsection 48 (3) of this Act, members of the management board of the credit institution or other persons authorised to operate in the name of the credit institution, or employees exercising internal control, members of the audit committee, auditors of the credit institution and bankrupts shall not be members of the supervisory board. The articles of association may prescribe other persons who shall not be members of the supervisory board.

§ 54. Meeting of supervisory board

(1)  Meetings of the council shall be held when necessary but not less frequently than once every three months.

(2)  A meeting of the supervisory board shall be called if this is demanded by a member of the supervisory board, a member of the management board, an auditor, the head of the internal audit unit, the chairman of the audit committee, shareholders whose shares represent at least one-tenth of the share capital, one-tenth of the members, or other persons prescribed by law. An application for calling a meeting of the supervisory board shall set out the matters to be resolved.

(3)  An auditor, the head of the internal audit unit or the chairman of the audit committee are required to participate in a meeting of the supervisory board if this is demanded by at least one member of the supervisory board.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 55. Management board of credit institution

(1)  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 employees of the credit institution.

(2)  Among other obligations, the management board is required to:
1)  develop a business plan for implementation of the strategy approved by the supervisory board;
2)  develop, pursuant to the general principles approved by the supervisory board, the principles of risk management of the credit institution and approve the conditions and limits for the grant of debenture loans.
3)  identify and assess regularly all risks involved in the activities of the credit institution and ensure the monitoring and control of the extent of such risks;
4)  develop the organisational structure of the credit institution on the basis of the principles provided for in the articles of association and approve the structure of the credit institution;
5)  develop and implement systems for monitoring the activities of the credit institution, ensure adherence to such systems, assess the sufficiency thereof regularly and improve them if necessary pursuant to the principles established by the supervisory board;
6)  ensure that all employees of the credit institution are aware of the provisions of legislation relating to their duties of employment and of the principles provided for in the documents approved by the directing bodies of the credit institution;
7)  organise the effective functioning of the internal control system of the credit institution and ensure monitoring of the compliance of the activities of the credit institution and the managers and employees thereof with legislation and the documents approved by the directing bodies of the credit institution and with the principles of sound banking management;
8)  ensure the existence and functioning of systems to guarantee that information necessary for employees of the credit institution to perform their duties is communicated thereto in a timely manner;
9)  ensure the safety and regular monitoring of information technology systems used by the credit institution and systems used for the safekeeping of assets of clients;
10)  inform the supervisory board to the extent and pursuant to the procedure established thereby of all discovered violations of legislation or of internal rules or other rules established by the directing bodies of the credit institution.
11)  monitor that sufficient separation of functions is guaranteed in all the activities of the credit institutions, and avoid the creation of conflict of interests.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2¹)  The management board shall guarantee that the organisational structure of the credit institution is transparent, the areas of responsibility are clearly delineated and procedures for the establishment, measurement, management, constant monitoring and reporting of risks have been established and that such procedures are proportional to the nature, extent and level of complexity of the operation of the credit institution. In addition to the provisions of subsection (2) of this section, the management board has the following additional obligations in connection with risk management and risk assessment:
1)  in the case internal rating methods of credit risk are used, to approve of the general criteria for determination of ratings and for assessment of credit risk parameters;
2)  in the case the standard approach of operational risk is used, to approve of the general principles of mapping business lines;
3)  in the case a method based on an advanced measurement approach to operational risk is used, to approve of the description and general principles of functioning of the models;
4)  in the case the internal ratings based approach to credit risk is used, to ensure the conforming functioning of the rating system of the credit institution and regularly apprise of reports on the process of determining ratings which among other shall describe the profile of credit risk by rating class, changes in ratings, evaluation of the parameters of credit risks by rating class, areas of the rating system in need of improvement and elimination of deficiencies established before, and shall compare the actual indicators of credit risk parameters with the estimated credit risk parameters and results of stress tests;
5)  ensure the conforming functioning of the organisation of the management of the operational risk of the credit institution and to regularly appraise of the corresponding information.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3)  The management board shall present an overview of the activities and economic situation of the credit institution to the supervisory board at least once every three months.

(4)  The management board shall immediately inform the members of the supervisory board of any deterioration in the economic situation of the credit institution, danger of such deterioration or deviation from prudential ratios.

§ 56. Members of management board

(1)  The management board shall consist of three members unless the articles of association prescribe a greater number of members.

(2)  Persons with an impeccable business reputation, higher education, the necessary expertise and experience to manage a credit institution, professional qualifications and at least three years' professional experience may be members of a management board.

(3)  In addition to persons provided for in subsection 48 (3) of this Act, members of the supervisory board, employees exercising internal control, members of the audit committee, controllers, auditors and bankrupts shall not be members of the management board of a credit institution. The articles of association may prescribe other persons who shall not be members of the management board.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 57. Increased requirements for chairman of management board of credit institution

In addition to the requirements provided for in this Act for members of the management board of a credit institution, the chairman of the management board of a credit institution shall have at least five years' practical experience in the financial field in a management capacity.

§ 58. Credit committee

(1)  The credit committee shall be formed pursuant to the procedure prescribed in the articles of association of the credit institution and have at least five members, including the chairman of the management board of the credit institution who shall not be the chairman of the credit committee nor chair the sessions of the credit committee in the absence of the chairman. At least one-half of the members of the credit committee of an association bank shall be members or representatives of members of the association bank.

(2)  Loans which exceed the limits established by the supervisory board of a bank shall be granted or renewed on the basis of a specific prior decision of the credit committee. In association banks, loans shall be granted and renewed pursuant to the procedure prescribed in the articles of association.

(3)  Before deciding on the grant or renewal of loans, the committee shall review all documents and other information submitted to apply for a loan and, on the basis thereof, adopt a position as to the solvency and financial soundness of the loan applicant and the existence and sufficiency of collateral offered by the applicant. The positions of the members of the credit institution shall be recorded in the minutes of the session.

(4)  Sessions of the credit committee shall be closed. A session of the credit committee has a quorum if more than one-half of the members of the committee participate. The grant of loans shall be decided by an open vote by name with a majority of votes in favour. Members of the credit committee do not have the right to abstain from voting or to remain undecided. The chairman of the committee shall have the deciding vote upon an equal division of votes.

(5)  Minutes shall be taken of sessions of the credit committee. The minutes shall be signed by all members of the committee who participate in the session. A dissenting opinion of a member of the committee shall be recorded in the minutes and confirmed by his or her signature.

(6)  The credit committee is not required to substantiate a refusal to grant a loan.

§ 58¹. Risk management function

(1)  A credit institution which applies for the authorisation provided in subsection 86⁷ (1) of this Act must have a functioning credit risk management function. The credit risk management function must be organisationally independent and separated form the function of deciding on the grant of loans, including from the credit committee. The person responsible for the credit risk management function shall submit reviews directly to the management board of the credit institution.

(2)  The credit risk control function must involve at least the following activities:
1)  continuous monitoring and testing of rating classes and retail claims;
2)  analysing of the functioning of the rating system and preparation of corresponding reviews;
3)  elaboration of procedures for ensuring a continuous and uniform application by all the structural units of the credit institution of the definitions of the rating classes and sets of retail claims;
4)  establishment and recording of the changes taking place in the process of determining the ratings and of the reasons for such changes;
5)  reviewing rating criteria in order to assess whether the level of credit risk is reflected to an appropriate extent;
6)  participating in the elaboration or selection of the models used in the process of determination of ratings, in their application and assessment of their trustworthiness;
7)  continuous control over the models used in the process of determination of ratings;
8)  periodical review of the models and the making of necessary changes thereto.

(3)  A credit institution who applies for the authorisation provided in subsection 86⁴¹ (1) of this Act must have a functioning independent operational risk control function which ensures constant supervision over the measuring and management of the operational risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 59. Internal control system

(1)  A credit institution or a company belonging to the consolidation group of a credit institution must have a constantly functioning internal control system which shall be proportionate to the nature, extent and level of complexity of their activity, and which shall ensure the performance of the functions of risk management, adherence to the good practices of management of the association and internal audit.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  The internal control system of a credit institution shall cover all levels of management and operations of the credit institution in order to ensure the effective operation of the credit institution, the reliability of financial reporting and compliance with law, other legislation, documents approved by the directing bodies of the credit institution and the principles of sound banking management, and the adoption of resolutions based on reliable and relevant information.

(3)  An independent internal audit unit shall be formed as part of the internal control system of a credit institution and the internal audit unit shall monitor the activities of the whole credit institution.

(4)  The internal audit unit shall assess the ordinary business of the credit institution and the suitability and sufficiency of the internal rules and rules of procedure for the activities of the credit institution, regularly monitor compliance with the requirements, rules of procedure, limitations and other rules established by the supervisory board or the management board, and monitor compliance with precepts issued by the Financial Supervision Authority.

(4¹)  In the case the internal ratings based approach to credit risk is used, the internal audit unit or another equivalent independent party must inspect and evaluate, at least once a year, the conformity of the assessment of the credit risk parameters to this Act and legislation issued on the basis thereof.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(4²)  The internal audit unit or another equivalent independent party must inspect and evaluate, at least once a year, the conformity of the functioning of the management of the operational risk and, if the standard approach to operational risk is used, regularly check the conformity of the process of mapping the business lines to this Act and legislation issued on the basis thereof.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(5)  The internal audit unit shall analyse the deficiencies discovered in the activities of the credit institution and the employees thereof, cases of failure to perform duties and excess of authority, make proposals for the elimination of deficiencies and for measures to prevent errors, prepare reviews of the activities of the unit on a regular basis and submit the reviews to the supervisory board and management board of the credit institution pursuant to the procedure prescribed in the articles of association of the credit institution.

(6)  In an association bank, the duties provided for in subsections (4) and (5) of this section shall be performed by the audit committee, which also has the rights provided for in § 61 of this Act.

§ 60. Requirements for employees of internal audit unit and members of audit committee

(1)  A person with an impeccable business reputation, higher education and the necessary expertise and experience to manage the work of the internal audit unit may be the head of the internal audit unit or chairman of the credit committee of a credit institution, and the provisions of subsection 48 (6) of this Act apply to the person.

(2)  Employees of the internal audit unit and members of the audit committee of a credit institution must be natural persons with active legal capacity, impeccable business reputations and the education, experience and professional qualifications necessary for the work of the internal audit unit.

(3)  The employees of the internal audit unit shall be appointed to and removed from office on the basis of a resolution of the supervisory board of the credit institution. The members of the audit committee shall be elected and removed by the general meeting.

(4)  The number of employees of the internal audit unit and the number of members of the audit committee shall be sufficient for the performance of the duties assigned thereto.

(5)  The employees of the internal audit unit and members of the audit committee are required to maintain the confidentiality of information which becomes known to them in the course of their activities. This requirement does not apply to information which is submitted to the Financial Supervision Authority or the management board or supervisory board of the credit institution pursuant to the procedure provided by law, the articles of association of the credit institution or the statutes of the internal audit unit.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 61. Rights of internal audit unit

(1)  The internal audit unit shall operate pursuant to the procedure provided for in the statutes approved by the supervisory board of the credit institution.

(2)  The employees of the internal audit unit have the right to examine all documents of the credit institution, monitor the work of the credit institution at each stage without restrictions, and participate in the meetings of the management board or the committees formed on the basis of the articles of association of the credit institution.

(3)  The internal audit unit has the right to demand written explanations from the employees of the credit institution concerning deficiencies and errors discovered in their work, and the elimination of such deficiencies.

(4)  The internal audit unit shall co-operate with the Financial Supervision Authority.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 62. Monitoring committee of supervisory board

(1)  The supervisory board may form a committee for monitoring the activities of the management board of the credit institution (monitoring committee of the supervisory board) whose competence, rights and principles of activities shall be determined by the supervisory board of the credit institution.

(2)  Members of the supervisory board and other persons appointed by the supervisory board may be members of the monitoring committee of the supervisory board. Members of the management board and employees of the credit institution shall not be members of the committee.

(3)  The provisions of this section do not apply to association banks.

§ 63. Internal rules and rules of procedure of credit institutions

(1)  A credit institution shall establish internal rules and rules of procedure to regulate the activities of the managers and employees of the credit institution. The internal rules and rules of procedure shall ensure compliance with legislation regulating the activities of the credit institution and with the resolutions of the directing bodies of the credit institution.

(2)  Among other matters, the internal rules and rules of procedure of a credit institution shall set out:
1)  the procedure for prevention of conflicts between the interests of the credit institution and the personal economic interests of the managers and employees of the credit institution;
2)  the procedure for exchange of information and documents within the credit institution;
3)  the procedure for conclusion of transactions and performance of other acts at the expense of the credit institution and in the name and at the expense of the clients;
4)  relationships of subordination and the procedure for reporting and the delegation of rights, and shall provide the separation of functions upon assumption of obligations in the name of the credit institution, making of payments, recording of transactions for accounting and reporting purposes and assessment of risks involved in transactions;
5)  the procedure for the functioning of the internal control system;
6)  internal rules of procedure for application of international sanctions established on the basis of the International Sanctions Act, and the code of conduct and the internal audit rules to monitor compliance with the code of conduct provided in subsection 29 (1) of the Money Laundering and Terrorist Financing Prevention Act.
[RT I 2009, 61, 401 - entered into force 26.12.2009]

(3)  A person acting in the name of a credit institution shall not represent the credit institution in transactions or legal disputes with a third party with regard to whom the person acting in the name of the credit institution or a person with an economic interest equivalent to that of such person has personal economic interests.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 63¹. Process for ensuring capital adequacy

(1)  All the essential risks of a credit institution including the risks not mentioned in subsection 79 (2) of this Act must at all times be adequately covered by own funds.

(2)  A credit institution must have reliable, effective and all-inclusive strategies and corresponding procedures in order to continuously maintain an adequate level and structure of own funds, and an adequate division of the own funds between structural units and activities based on the level of the risks assumed by the credit institution or of potential risks.

(3)  The corresponding strategies and procedures must be regularly updated in order to guarantee that they continue to be proportional to the nature, extent and level of complexity of the operation of the credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Chapter 6
Merger of Credit Institutions

§ 64. Specifications for merger, division and transformation of credit institutions

(1)  The transformation of credit institutions is prohibited.

(2)  The division of credit institutions is prohibited.

(3)  The merger of credit institutions shall be effected pursuant to the procedure provided for in the Commercial Code, taking into consideration the specifications provided for in this Chapter.

(4)  The provisions of § 399, the term prescribed in subsection 400 (1), and the requirients provided for in subsections 400 (2) and (3) of the Commercial Code do not apply to the merger of credit institutions.

(5)  [Repealed - RT I 2007, 65, 405 - entered into force 15.12.2007]

§ 65. Methods of merger of credit institutions

(1)  A credit institution may merge only with an authorised credit institution established pursuant to the valid law of a contract party.
[RT I 2007, 65, 405 - entered into force 15.12.2007]

(2)  Credit institutions may merge by founding a new credit institution. A credit institution being founded as a result of merger shall apply for authorisation pursuant to the procedure provided for in Chapter 2 of this Act.

(3)  With the permission of the Financial Supervision Authority, a credit institution (credit institution being acquired) may merge with another credit institution (acquiring credit institution) such that the credit institution being acquired continues its activities on the basis of the authorisation of the acquiring credit institution.

(4)  The stringency of prudential ratios of a credit institution being founded or an acquiring credit institution shall comply with the requirients of this Act.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 66. Merger agreient and merger report

(1)  A merger agreient between credit institutions shall not be entered into with a suspensive or resolutive condition unless the condition is to obtain authorisation for merger from the Financial Supervision Authority.

(2)  Within three days after entry into a merger agreient, the managient boards of the merging credit institutions shall notify the Financial Supervision Authority thereof and submit a merger plan concerning the acts related to the merger.

(3)  A merger report and a final balance sheet which meets the requirients for annual reports and is prepared as of a date not earlier than three months before preparation of the merger report shall be prepared upon the merger of credit institutions.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 67. Appointment of auditor and auditor's report

(1)  Upon the merger of credit institutions, the Financial Supervision Authority shall, on the proposal of the merging credit institutions, appoint at least one common auditor for all the merging credit institutions.

(2)  The auditor shall prepare a report concerning the audit of the merger agreient and merger report, indicate the assessment methods used to determine the exchange ratio of shares or contributions, and give an opinion as to whether the stringency of prudential ratios of the acquiring credit institution and the credit institution being founded complies with the requirients of this Act.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 68. Application for authorisation for merger

(1)  In order to apply for authorisation for merger, an acquiring credit institution shall submit an application and the following documents to the Financial Supervision Authority:
1)  the merger agreient or a notarised or officially certified transcript thereof;
2)  the merger report;
3)  the merger resolutions;
4)  the auditor's report;
5)  the business plan for the first three years;
6)  a draft of the accounting policies and procedures and data relating to the information systems to be used;
7)  a description of the organisational structure of the credit institution;
8)  documents to certify that the managers of the credit institution, the head of the internal audit unit and the chairman of the audit committee are trustworthy and meet the requirients of this Act;
9)  written confirmation from the mibers of the managient board certifying the correctness of the data in the documents submitted pursuant to this section.

(2)  The Financial Supervision Authority may diand additional documents and information in order to specify or verify documents specified in subsection (1) of this section.

(3)  If shareholders of a credit institution being acquired acquire a qualifying holding in the acquiring credit institution to the extent prescribed in § 30 of this Act, the documents prescribed in § 30 shall also be submitted.

(4)  The Financial Supervision Authority may exercise on-the-spot supervision over acts related to a merger.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 69. Authorisation for merger

(1)  The Financial Supervision Authority may refuse to grant authorisation for the merger of credit institutions if:
1)  according to the opinion of the Financial Supervision Authority, the merging credit institutions do not have sufficient managient and financial resources;
2)  the merger would significantly reduce effective competition in the banking market;
3)  the applicant has failed to submit on time or has refused to submit the documents or information specified in subsections 68 (1) and (2) of this Act to the Financial Supervision Authority;
4) the merger may damage the interests of the depositors, clients or other creditors of the merging credit institutions.

(2)  The Financial Supervision Authority shall make a decision on the grant of or refusal to grant authorisation for the merger of credit institutions not later than within thirty days but not earlier than within seven days as of the submission of the documents or information specified in subsections 68 (1) and (2) of this Act. The applicant shall be notified of the decision in writing within three days as of the date on which the decision is made.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 70. Notification of merger

(1)  Merging credit institutions shall promptly give notice of obtaining authorisation for merger in at least one daily national newspaper and on websites of all the merging credit institutions.
[RT I 2007, 65, 405 - entered into force 15.12.2007]

(2)  A credit institution may submit an application for entry of a merger in the commercial register promptly after publication of the notice specified in subsection (1) of this section.

Chapter7
Guarantee of Financial Soundness of Credit Institutions and Protection of Interests of Clients

Division 1
Prudential Ratios for Credit Institutions
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 71. Prudential ratios

(1)  In order to guarantee the financial soundness of a credit institution, the credit institution is required at all times to adhere to prudential ratios which set out:
1)  minimum amount of own funds;
2)  capital adequacy;
3)  limitations on concentration of exposures;
4)  limitations on participation in companies.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  If a credit institution belongs to a consolidation group, capital adequacy, limitations on concentration of exposures and limitations on participation shall be observed both separately with regard to each credit institution and on the basis of consolidated indicators.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3)  Credit institutions are required to take measures rendering it possible to assess the prudential ratios at all times with sufficient precision.

(4)  The managient and internal audit systems and the organisation of accounting of a credit institution and companies belonging to the same consolidation group with a credit institution shall ensure the accuracy of the calculation of and reporting on prudential ratios.

(5)  The managers of a credit institution are required to notify the Financial Supervision Authority promptly of any violations of prudential ratios.

(6)  A credit institution is required to form reserves in order to cover possible losses arising from general risks involved in the principal activities of the credit institution. The Bank of Estonia may establish the procedure for the formation, maintenance and use of the reserves.

(7)  The procedure for application and calculation of prudential ratios, specifications of calculation and procedure for reporting shall be established by the Bank of Estonia. The Financial Supervision Authority has the right to decide on the application of the specifications of calculation of prudential ratios.

(8)  If a credit institution belongs to a financial conglomerate within the meaning of the § 187 of the Insurance Activities Act, the credit institution shall comply with the provisions of Division 3 of Chapter 11 of the Insurance Activities Act.

§ 72. Own funds of credit institutions

(1)  The own funds of a credit institution consist of Tier 1, Tier 2 and Tier 3 own funds from which the deductions provided in subsection 75 (1) of this Act have been made.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  Tier 3 own funds may be included in own funds of a credit institution only upon calculation of capital adequacy.

§ 72¹. Subordinated liability

A liability of a credit institution is deied to be subordinated if the claim arising out of such liability, in the event of the dissolution or bankruptcy of the credit institution is satisfied after the justified claims of all other creditors have been satisfied. In the event of the bankruptcy of a credit institution, a claim arising out of a subordinated liability shall be satisfied pursuant to the provisions of § 131 of this Act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 73. Tier 1 own funds

(1)  Tier 1 own funds consist of:
1)  paid-in share capital, except for amounts paid for preferred shares;
2)  issue priium;
3)  reserves formed on the basis of law and the articles of association on account of the profits, and reserve capital;
4)  audited profits from previous years;
5)  audited loss from previous years;
6)  profits for the current financial year, the size of which has been verified by an auditor;
7)  other instruments of a capital nature which are similar to those specified in clauses 1)-3) of this subsection.

(2)  Only amounts which actually exist may be indicated to be contained in the share capital, issue priium and reserves of a credit institution.

(3)  In order to calculate the size of Tier 1 own funds, the following shall be deducted from the total of own funds specified in subsection (1) of this section:
1)  the sum of the value of treasury shares, except for preferred shares treated as treasury shares;
2)  the sum of the value of intangible assets;
3)  losses of the current financial year.

(4)  The profit specified in clauses (1) 4) and 6) of this section shall be included in Tier 1 own funds only after deduction of all the requisite taxes and dividends.

(5)  Immediately after profit has been included in Tier 1 own funds, a credit institution must submit the following documents to the Supervision Authority:
1)  statient of the credit institution concerning the amount of the profit included in the own funds and the deduction of all possible taxes and estimated dividends made therefrom;
2)  the unqualified report by the auditor concerning the financial statients for the previous financial year if the profit of the previous financial year entered in the undistributed audited profit retained from previous years specified in clause (1) 4) of this section has been included in the own funds;
[RT I 2010, 9, 41 - entered into force 8.03.2010]
3)  the auditor's report confirming that, upon reviewing financial information, no facts have become evident which indicate that the data submitted in the income statient do not correctly and fairly reflect the income of the reviewed period in conformity to the accounting practices if the profit of the current financial year specified in clause (1) 6) of this section has been included in the own funds.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(5¹)  If the auditor's report contains notices, the credit institution is required to request prior authorisation from the Financial Supervision Authority for including the profit in the Tier 1 own funds and to submit a reasoned opinion on the size of the profit to be included in the Tier 1 own funds to the Financial Supervision Authority. The Financial Supervision Authority shall base the grant of authority on the content of the notices and the effect of the deficiencies set forth in the notices to the profit to be included in the Tier 1 own funds.
[RT I 2010, 9, 41 - entered into force 8.03.2010]

(6)  Upon calculation of the profit specified in clause (1) 6) of this section, the profit to be included in the own funds of a credit institution must not be higher than the value of the profit as verified by the auditor or the book value of the profit, depending of which of those two values is the lowest.

(7)  A credit institution is required to apply to the Financial Supervision Authority beforehand for permission for inclusion of the instruments specified in clause (1) 7) of this section in Tier 1 own funds, and to submit the documents and information concerning the corresponding instruments to the Financial Supervision Authority together with an independent legal assessment of the compliance of the terms of the instruments with the requirients established for Tier 1 own funds.

(8)  [Repealed - RT I 2006, 63, 467 - entered into force 1.01.2007]

(9)  The Tier 1 own funds shall be available to the credit institution for immediate and unrestricted use to cover losses or risks.

§ 74. Tier 2 own funds

(1)  Tier 2 own funds consist of:
1)  subordinated liabilities in the meaning of § 72¹of this Act;
2)  preferred shares, except for preferred shares treated as treasury shares;
3)  fixed assets revaluation reserve;
4)  securities for an unspecified term and other instruments which comply with the terms provided by § 74²of this Act;
5)  other liabilities and instruments of a capital nature which are similar to those specified in clauses 1) or 2) of this subsection.

(2)  A credit institution who uses the internal ratings based approach to credit risk for calculating capital requirements may include, in the Tier 2 own funds, the amount by which the adjustments and discounts of the value of the risk positions covered by the internal ratings based approach, except for the risk positions arising from own funds instruments, exceed the expected loss calculated from such risk positions. The amount taken into consideration shall not be greater than 0.6 per cent of the risk weighted assets which do not include the risk positions securitized at the highest possible risk weighting.

(3)  Only such instruments specified in clauses (1) 1), 2), 4) and 5) of this section are considered as Tier 2 own funds that have been placed in full as a monetary payment at the disposal of the credit institution.

(4)  A credit institution is required to apply for prior authorisation by the Financial Supervision Authority for inclusion of the instrument specified in clause (1) 5) of this section in the Tier 2 own funds by submitting the relevant documents and data together with an independent legal assessment to the Financial Supervision Authority.

(5)  The Financial Supervision Authority shall grant the authorisation specified in subsection (4) of this section if the instrument meets the following conditions:
1)  the accounting policies and procedures of the credit institution set out the nature and reflection of such instrument;
2)  the auditor of the credit institution exercises supervision over such instrument;
3)  the amount of such instrument has been determined by the management board of the credit institution;
4)  the amounts of the obligation or instrument may be used by the credit institution without restrictions for covering ordinary banking risks prior to determining profit or loss.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 74¹. Conditions for inclusion of subordinated liabilities in own funds of credit institutions

(1)  A subordinated liability may be included in Tier 2 own funds of a credit institution if the subordinated liability meets the following conditions:
1)  the credit institution does not issue a guarantee for the performance of such liability;
2)  the term for repayment of the subordinated liability shall not be less than five years or repayment of the liability is subject to at least five years' notice;
3)  the liability do not include a condition pursuant to which the credit institution would, under certain circumstances, be required to repay the liability before the agreed due date, except in the case of the dissolution of the credit institution.

(2)  Immediately after including a subordinated liability in Tier 2 own funds, the credit institution is required to submit the documents and information which constitute the basis of the subordinated liability to the Financial Supervision Authority together with an independent legal assessment of the compliance of the conditions of the transaction with the conditions of the subordinated liabilities subject to inclusion in Tier 2 own funds provided in this section.

(3)  Repayment before the agreed due date of a subordinated liability included in Tier 2 own funds of a credit institution is permitted only at the initiative of the recipient of the loan and on the basis of a permission obtained from the Financial Supervision Authority beforehand.

(4)  The Financial Supervision Authority has the right to refuse to grant the permission specified in subsection (3) of this section if in the opinion of the Financial Supervision Authority, the own funds of the credit institution after repayment of the subordinated liability are not sufficient to comply with the prudential ratios specified in subsection 71 (1) of this Act and other requirements established by or on the basis of this Act.

(5)  The Financial Supervision Authority shall decide to grant the permission specified in subsection (3) of this section or refuse to grant such permission within one month after receipt of all the requisite documents and information but not later than three months after the date of receipt of the corresponding application.

(6)  Immediately after the conditions of a subordinated liability included in Tier 2 own funds change, the credit institution is required to submit the documents and information which constitute the basis of the change of the conditions of the subordinated liability to the Financial Supervision Authority together with an independent legal assessment of the compliance of the conditions of the transaction with the requirements provided in this section.

(7)  During the five years before the date of extinguishment or termination of a subordinated liability, the calculated amount of the subordinated liability included in lower Tier 2 own funds shall be reduced by 20 per cent of the original amount of obligation. Such amount shall be reduced by 5 per cent after every three months.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

(1)  Securities and other instruments of indeterminate duration specified in clause 74 (1) 4) of this Act may be included in Tier 2 own funds provided that such securities and instruments meet the following conditions:
[RT I 2007, 58, 380 - entered into force 19.11.2007]
1)  the liability of the credit institution arising from the securities or other instruments of indeterminate duration is a subordinated obligation within the meaning of § 72¹ of this Act;
2)  the securities or other instruments of indeterminate duration cannot be redeemed or repaid at the initiative of the person submitting such claim without obtaining corresponding permission from the Financial Supervision Authority beforehand;
3)  the documents concerning the issue of securities provide that the amounts of refund and interest of unpaid liabilities may be used for covering loss in order to allow the credit institution to continue its ordinary business, or other documents concerning instruments provide that the credit institution has the right to postpone payment of interest if the own funds of the credit institution would be insufficient to comply with the prudential ratios specified in subsection 71 (1) of this Act or other requirements established by or on the basis of this Act.

(2)  Immediately after the inclusion of securities or other instruments of indeterminate duration in Tier 2 own funds, the credit institution is required to submit a description of such instruments or securities and the documents and information which constitute the basis thereof to the Financial Supervision Authority together with an independent legal assessment of the compliance of the conditions of such instruments or securities with the conditions provided in this section for securities or other instruments of indeterminate duration subject to inclusion in Tier 2 own funds.

(3)  The Financial Supervision Authority has the right to refuse to grant the permission specified in clause (1) 2) of this section if in the opinion of the Financial Supervision Authority, the own funds of the credit institution after redemption or repayment of the securities or other instruments of indeterminate duration are not sufficient to comply with the prudential ratios specified in subsection 71 (1) of this Act and other requirements established by or on the basis of this Act.

(4)  The Financial Supervision Authority shall decide to grant the permission specified in clause (1) 2) of this section or refuse to grant such permission within one month after receipt of all the requisite documents and information but not later than three months after the date of receipt of the corresponding application.

(5)  Immediately after the conditions of securities or other instruments of indeterminate duration included in Tier 2 own funds change, a credit institution is required to submit the documents and information which constitute the basis of the change of the conditions of the securities or other instruments of indeterminate duration to the Financial Supervision Authority together with an independent legal assessment of the compliance of the conditions of the transaction with the requirements provided in this section.

§ 75. Deductions

(1)  The following deductions shall be made from the own funds:
1)  qualifying holdings in other credit or financial institutions, subordinated claims and other instruments included in Tier 2 own funds pursuant to this Act which are included in the own funds of the credit or financial institutions specified in this clause;
2)  holdings the size of which remains below qualifying in credit or financial institutions, and subordinated claims and other instruments included in Tier 2 own funds pursuant to this Act which are included in the own funds of the credit or financial institutions specified in this clause if the total amount of all such holdings, subordinated claims and instruments is higher than 10% of the own funds of the credit institution before deductions;
3)  holdings in insurers, reinsurers and insurance holding companies which exceed 20 per cent of the share capital of or number of votes in the said company, subordinated claims and securities of indeterminate duration or claims arising from other instruments which conform to the requirements of § 68 of the Insurance Activities Act and are included in the own funds of the insurers, reinsurers and insurance holding companies specified in this clause.

(2)  A credit institution who uses the internal ratings based approach to credit risk for calculating capital requirements shall deduct, from the own funds, an amount by which the expected loss calculated from the risk positions covered by the internal ratings approach exceeds the adjustments and discounts of such risk positions, except for the risk positions arising from own funds instruments.

(3)  Securitized risk positions to which a maximum possible risk weighting is applied shall be deducted from the own funds unless the credit institution includes such risk position in the calculation of capital requirements.

(4)  From the total amount of deductions provided in subsections (1)-(3) of this section, 50 per cent shall be deducted from the Tier 1 own funds and 50 per cent from Tier 2 own funds after the limitations provided in subsections 78 (1) and (2) of this Act have been applied. If the amount to be deducted from the Tier 2 own funds exceeds the size of the Tier 2 own funds, then the deficit shall be covered out of the Tier 1 own funds.

(5)  The deductions specified in subsections (2) and (3) of this section are not made upon calculation of the minimum amount of own funds, limit rates of concentration of exposures and limitations to participation in companies.

(6)  With the prior agreement of the Financial Supervision Authority, a credit institution is permitted not to make the deductions specified in subsection (1) of this section if:
1)  holdings, subordinated claims and other instruments in other credit and financial institutions, insurers, reinsurers and insurance holding companies have been acquired temporarily within the framework of a financial assistance transaction for the purpose of reorganisation or rehabilitation of the business activities of the company;
2)  a holding in a credit or financial institution, insurer, reinsurer or insurance holding company has been acquired for trading purposes and the credit institution takes the risks of the trading portfolio into account upon calculation of capital adequacy;
3)  holdings or other investments in instruments of capital nature exist in an insurer, reinsurer or insurance holding company over which supervision on a consolidated basis together with the credit institution is exercised, or over which supervision is exercised as over a financial conglomeration within the meaning of the Insurance Activities Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 76. Trading portfolio and banking portfolio

(1)  Risk positions created from the following instruments are included in the trading portfolio of a credit institution:
1)  securities, goods and derivative instruments which have been acquired for trading and earning profits on differences between the actual and expected purchase and selling prices or on other fluctuations in prices and interest rates during short periods;
2)  commitments made and instruments acquired in order to manage risks related to instruments specified in clause (1) of this subsection;
3)  instruments which are of a similar nature to those specified in clauses 1) or 2) of this subsection.

(2)  A risk position included in the trading portfolio must be free of all reservations limiting trading or the risk related thereto must be fully manageable.

(3)  A credit institution must be able to prove to the Financial Supervision Authority, by way of the written strategies, policies and procedures for management of the risk position or trading portfolio, that trading is the only objective for maintaining the risk position which is to be included in the trading portfolio.

(4)  A credit institution may, with the prior agreement of the Financial Supervision Authority, include risk positions arising from reverse repurchase agreements or taking loans of securities or goods in the trading portfolio.

(5)  The Financial Supervision Authority shall give the permission specified in subsection (4) of the conditions specified in clauses 1), 2) and 4) or 3) and 4) of this subsection are met in respect of the corresponding risk positions:
1)  the risk positions are valued at the market price;
2)  the agreement concerning the transactions specified in subsection (4) of this section gives the credit institution the right to set off the claim thereof against the claim of the other party immediately and without a separate expression of intention on its part if the other party fails to perform its obligations;
3)  the agreement providing for the right for set-off has been entered into in the course of the main and permanent economic or professional activity of both parties;
4)  agreement providing for the right for set-off is used only for approved and appropriate purposes and fictitious transactions are precluded.

(6)  A banking portfolio consists of risk positions created from securities, goods, derivative instruments and other instruments which are not included in the trading portfolio.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 77. Tier 3 own funds

(1)  Tier 3 own funds consist of subordinated liabilities in the meaning of § 72¹, subsection 74 (1) and clauses 74¹ (1) 1) and 3) of this Act which have been placed at the full disposal of a credit institution in the form of monetary contributions, provided that the following conditions are met:
1)  the term of repayment of the subordinated liability is at least two years;
2)  the credit institution has the right to postpone payment of the subordinated liability or interest the arrival of the due date of payment, if the own funds of the credit institution are insufficient to comply with the prudential ratios specified in subsection 71 (1) of this Act.

(2)  Immediately after including a subordinated liability in Tier 3 own funds, a credit institution is required to submit the documents and information which constitute the basis of the subordinated liability to the Financial Supervision Authority together with an independent legal assessment of the compliance of the conditions of the transaction with the conditions of the subordinated liabilities subject to inclusion in Tier 3 own funds provided in subsection (1) of this section.

(3)  Repayment before the agreed due date of a subordinated liability included in Tier 3 own funds of a credit institution is permitted only on the basis of a permission obtained from the Financial Supervision Authority beforehand.

(4)  The Financial Supervision Authority has the right to refuse to grant the permission specified in subsection (3) of this section if the own funds of the credit institution after repayment of the subordinated liability are not sufficient to comply with the prudential ratios specified in subsection 71 (1) of this Act and other requirements provided by this Act and legislation established in the basis thereof.

(5)  [Repealed - RT I 2006, 63, 467 - entered into force 1.01.2007]

(6)  If the own funds of a credit institution are less than 120 per cent of the size of the own funds provided in subsection 79 (2) of this Act, the credit institution must inform the Financial Supervision Authority of payment of the subordinated liabilities included in Tier 3 own funds and of interest related thereto.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 77¹. Consolidated own funds

(1)  The provisions of §§ 72, 72¹, 73, 74, 74¹, 74² and 75-77 of this Act apply for calculation of own funds on a consolidated basis unless otherwise provided by this section.

(2)  For calculation of Tier 1 own funds on a consolidated basis, the following shall be added to the Tier 1 own funds listed in subsection 73 (1) of this Act:
1)  minority holding, except for the minority holding arising from preferential shares;
2)  the unrealised monetary differential amount created upon consolidation;
3)  other instruments of a capital nature which are similar to those specified in clauses 1) and 2) of this subsection.

(3)  A credit institution is required to apply to the Financial Supervision Authority beforehand for permission for inclusion of the instruments specified in clause (2) 3) of this section in Tier 1 own funds, and to submit the documents and information which constitute the basis of such instruments to the Financial Supervision Authority together with an independent legal assessment of the compliance of the instruments with the requirements established for Tier 1 own funds.

(4)  The Financial Supervision Authority shall decide to grant the permission specified in subsection (3) of this section or refuse to grant such permission within one month after receipt of all the requisite documents and information but not later than three months after the date of receipt of the corresponding application.

(5)  A credit institution has the right to include in its own funds the profit of the current financial year of a subsidiary thereof before the profit of the whole consolidation group has been audited by an independent auditor if the profit of the subsidiary has been audited by an independent auditor and the same requirements apply to the auditor of the subsidiary as the requirements provided by this Act for an auditor of a credit institution. The amount of the profit of a subsidiary included in the own funds of a credit institution must not be higher than the profit of the consolidation group to which the credit institution belongs.

(6)  A credit institution is required to submit to the Financial Supervision Authority a document concerning the results of auditing the formation of the profit of the subsidiary included in own funds prepared by the auditor of the credit institution and provide certification on the size of the part of the profit of the subsidiary included in own funds and on deduction of all requisite taxes and dividends therefrom.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 78. Limitations on own funds

(1)  The amount of Tier 2 own funds shall not exceed Tier 1 own funds.

(2)  The total amount of subordinated liabilities and preferred shares included in Tier 2 own funds shall not exceed 50 per cent of Tier 1 own funds.

(3)  The total amount of Tier 2 own funds used for covering the risks of the banking portfolio shall not exceed Tier 1 own funds used for the same purpose.

(4)  The total amount of Tier 2 and Tier 3 own funds together shall not exceed Tier 1 own funds of the credit institution.

(5)  The amount of Tier 3 own funds shall not exceed 150 per cent of the Tier 1 own funds used for covering risks related to the trading portfolio, foreign exchange risks and position risks exceeding the limitations on concentration of exposures out of the trading portfolio.

(6)  The limitation on own funds provided in subsection (5) of this section may be exceeded provided that Tier 2 and Tier 3 own funds together do not exceed 250 per cent of the Tier 1 own funds used for covering risks related to the trading portfolio, foreign exchange risks and position risks exceeding the limitations on concentration of exposures out of the trading portfolio.

(7)  Upon calculation of capital adequacy, the Tier 2 and 3 own funds which exceed the limitations provided in subsections (2)-(6) of this section shall not be included in the own funds.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(7¹)  The limitations provided in subsections (1)-(6) of this section shall be applied before making the deductions specified in subsection 75 (1) of this Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(8)  Tier 2 own funds which exceed the limitations provided in subsections (1) and (2) of this section shall not be taken into consideration upon calculation of the minimum amount of own funds, limitations on concentration of exposures and limitations on investments.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(9)  A credit institution shall have own funds in an amount equivalent to at least 5 million euros.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 79. Capital adequacy

(1)  Capital adequacy means the correspondence of the own funds of a credit institution to the risks arising from the economic activity, including the trading portfolio, of the credit institution.

(2)  The own funds of a credit institution must, at all times, be equal to or exceed the sum total of the following indicators:
1)  capital requirement against the credit risk associated with the banking portfolio;
2)  capital requirement against the position risk associated with the trading portfolio;
3)  capital requirement against the settlement delivery risk and counterparty risk associated with the trading portfolio;
4)  capital requirement against the foreign exchange risk;
5)  capital requirement against the commodities risk;
6)  capital requirement against the operational risk;
7)  the own funds required from amounts exceeding the limitation on the concentration of exposures.

(3)  Based on a corresponding written application of a credit institution, the Financial Supervision Authority has the right to exempt the credit institution from the obligation to calculate the own funds required to cover the risks specified in clauses (2) 2) and 3) of this section if:
1)  the value of the trading portfolio of the credit institution does not exceed 5 per cent of the total amount of total assets and off-balance sheet items for more than five consecutive working days;
2)  the value of the trading portfolio of the credit institution does not exceed 15 million euro for more than five consecutive working days;
3)  the value of the trading portfolio of the credit institution does not at any time exceed 20 million euro or 6 per cent of the total amount of total assets and off-balance sheet items.

(4)  The Financial Supervision Authority shall grant permission for the exemption specified in subsection (3) of this section if the value of the trading portfolio does not exceed the indicators provided in clauses (3) 1) and 2) of this section or the indicator provided in clause (3) 3) of this section.

(5)  A credit institution who has the exemption provided in subsection (3) of this section shall deem the risk positions of the trading portfolio as the risk positions of the banking portfolio and calculate the capital requirement specified in clause (2) 1) of this section in respect of the corresponding risk positions.

(6)  The Bank of Estonia shall establish the requirements and methods for calculating the capital requirements for the risk positions which exceed the limitations set for the credit risk of the banking portfolio, position risk of the trading portfolio, settlement delivery and counterparty credit risk, foreign exchange risk, operational risk and concentration of exposures, and the procedure for calculating own funds.

(7)  The Bank of Estonia shall establish, in accordance with subsection (6) of this section, the following concerning calculation of the capital requirement for the credit risk associated with the banking portfolio:
1)  based on the standard method of credit risk, the procedure for calculating the value of risk positions, the credit risk weightings and methods for determining thereof, the bases for use of credit quality assessments and the procedure for calculating risk weighted assets and capital requirements;
2)  on the basis of the internal ratings based approach to credit risk, the methods and minimum requirements for determining the parameters of credit risk, the procedure for calculating the value of risk positions and expected loss related thereto, and the procedure for calculating risk weighted assets and capital requirements;
3)  requirements for instruments for managing credit risk which are taken into account upon calculation of the capital requirement for credit risk and for persons offering protection against credit risk, and the methodology of taking account of managing credit risk upon calculation of the risk weighted assets and expected loss;
4)  methods for calculation of the value of securitized risk positions and risk weighted assets, and the procedure for calculating capital requirements.

(8)  The Bank of Estonia shall establish, in accordance with subsection (6) of this section, the following concerning calculation of the capital requirement for operational risk:
1)  the methods for calculating the capital requirement based on the basic indicator approach to operational risk;
2)  procedure for mapping business lines based on the standardised approach to operational risk, the requirements and methods for calculating the capital requirement for operational risk;
3)  requirements and methods for calculating the capital requirements on the basis of the alternative standardised approach to operational risk;
4)  requirements and methods for calculating the capital requirements on the basis of the advanced measurement approach to operational risk, and the requirements for the insurance contracts that are taken into account upon calculation of the capital requirements.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 80. Liquidity

(1)  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.

(2)  The managers of a credit institution are required to structure the assets of the credit institution such that financing is not based on funds which are too short-term or insufficient. The managers are also required to monitor the terms of claims and commitments on a regular basis. The activities of the credit institution shall not be endangered by the expiry of terms for the conclusion of commitments. A credit institution shall monitor its liquidity on the basis of cash-flows.

(3)  [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

(4)  Credit institutions are required to deposit some of their liquid assets in the Bank of Estonia unless otherwise prescribed by the Bank of Estonia.

(5)  The uniform rate of liquid assets to be deposited in the Bank of Estonia and the procedure for the use of such assets shall be established by the Bank of Estonia.

§ 81. Limitations on participation of credit institutions in companies

(1)  A credit institution shall not participate as a partner in a general partnership or as a general partner in a limited partnership.

(2)  The qualifying holding of a credit institution in any other company shall not 15% of the own funds of the credit institution provided that such holding has been acquired for use on a continuing basis and for gaining profit during an extended period.

(3)  The sum total of the qualifying holdings specified in subsection (2) of this section shall not exceed 60% of the own funds of the credit institution.

(4)  The limitations specified in subsections (2) and (3) of this section do not apply to:
1)  a qualifying holding which the credit institution has acquired in another credit institution or financial institution, insurer, reinsurer or ancillary undertaking of the same credit institution;
2)  a qualifying holding acquired by the credit institution in order to prevent loss or underwrite an issue of securities provided that the credit institution does not keep the investments for longer than one year;
3)  a qualified holding acquired in the name of the credit institution but for the account of another person.

(5)  A credit institution may exceed the limitations specified in subsections (2) and (3) of this section provided that upon calculation of capital adequacy, the amount by which the qualifying holding exceeds such limitations is deducted from the own funds. If both the limitations specified in subsections (2) and (3) are exceeded, the amount which is largest of the two shall be deducted from the own funds.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 82. General requirements for risk management and monitoring

(1)  A credit institution and the companies belonging to the same consolidation group as the credit institution shall not, in their activities, take risks which could endanger the solvency of the credit institution or the consolidation group.

(2)  For establishing, measuring and managing risks, a credit institution and companies belonging to the same consolidation group shall have adequate and uniform strategies and procedures which must be proportional to the nature, extent and level of complexity of their activities, which shall be regularly reviewed and updated and which are determined in the corresponding internal rules of procedure of the credit institution or the companies belonging in the same consolidation group.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2¹)  The procedures, strategies and corresponding internal rules specified in subsection (2) of this section shall guarantee sufficient possibilities for identifying and checking transactions carried out between a credit institution and its parent company which is a mixed-activity holding company, and between a credit institution and the other subsidiaries of its parent company which is a mixed-activity holding company. A credit institution is required to inform the Financial Supervision Authority immediately of any significant transaction with its parent company which is a mixed-activity holding company or with another subsidiary of such parent company.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3)  The credit risk strategy of a credit institution and the internal procedure rules based on such strategy must determine the objectives of the credit policy, the main principles of calculating the credit risk positions, the criteria for evaluating credit risk, the principles for establishing a rating to debtors, the principles for taking and evaluating securities, the principles or granting and refinancing of loans, the competence to grant loans and organisation of making the corresponding decisions, and the functioning of the management of the credit risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3¹)  A credit institution must use effective procedures for the management and adequate evaluation of credit risk positions, including for determining and write-down of receivables regarded as doubtful.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3²)  A credit institution must establish, in writing, objectives and rules of procedure for:
1)  managing and controlling the risks in respect of which the methods for managing credit risks used by the credit institution have less effect than estimated;
2)  control and management of concentration of exposures, including for the control and management of application of the methods for managing credit risks associated with clients, groups of connected persons, the economic sector, a geographic region, issuer of security, activity or product or concentration of exposures;
3)  the correct reflection, evaluation, management and control of the economic content of risks arising from securing transactions;
4)  management and control of interest risk;
5)  management and control of operational risk, including cases not likely to occur which could result in significant potential loss;
6)  management and control of liquidity and financing in order to ensure continuous planning for liquidity and alternative sources of financing.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3³)  A credit institution must have a system with clearly delineated areas of responsibility for managing the operational risk, and applied processes for determining, measuring and managing the operational risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(3⁴)  A credit institution must prepare and apply operational constancy plans in order to guarantee the restoration and continuity of business activities in the part of all essential business processes.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(4)  The management board of a credit institution is required to notify the Financial Supervision Authority promptly of all facts which may materially affect the financial situation of the credit institution or the companies belonging to the same consolidation group as the credit institution.

§ 83. Requirements for loans

(1)  For the purposes of this Act, a loan is deemed to be the assets or off-balance sheet items of a credit institution arising from contracts under which the lender grants or undertakes to grant money or other assets to the recipient of the loan or another entitled person pursuant to the contract and the recipient of the loan undertakes to return the money or other assets to the lender under the prescribed conditions.

(2)  The principles for the grant and monitoring of loans shall be established by the Bank of Estonia.

(3)  Upon granting loans, a credit institution is required to observe the main internal crediting principles of the credit institution, the principles of sound banking management and responsible lending. For observance of the principle of responsible lending, a credit institution is required to collect and store information on the size of the financial obligations of and performance of payment obligations by the clients and to use such data to calculate a reasonable loan load for the clients.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(4)  The procedure for granting loans to the employees of a credit institution shall be approved by the supervisory board of the credit institution.

§ 84. Loans to persons connected to credit institutions

(1)  Persons connected to a credit institution are:
1)  the managers of the credit institution, the head of the internal audit unit or the chairman of the audit committee, and the controller;
2)  persons with economic interests equivalent to those of the persons specified in clause 1) of this subsection;
3)  shareholders who are natural persons and have qualifying holdings in the credit institution;
4)  members of management boards or of substituting bodies of shareholders who are legal persons and have qualifying holdings in the credit institution.

(2)  Persons with equivalent economic interests are the spouse or cohabitee, children, parents, sisters and brothers of a manager of a credit institution, of the head of an internal audit unit or of the chairman of an audit committee.

(3)  The following are also deemed to be persons with equivalent economic interests:
1)  companies controlled, within the meaning of § 10 of the Securities Market Act, by a manager of a credit institution, by the head of the internal audit unit or chairman of an audit committee or by a person specified in subsection (2) of this section, and by parent companies and subsidiaries of such companies;
2)  companies where a manager of a credit institution, head of an internal audit unit or chairman of an audit committee or a person specified in subsection (2) of this section is a member of the directing body.

(4)  Loans may be granted to persons connected to a credit institution only on the basis of a specific unanimous resolution of the management board. The above-mentioned condition does not apply if the amount of the loan is less than 25 per cent of the annual remuneration which the chairman of the management board of the credit institution received from the credit institution, unless a smaller minimum rate has been established by a resolution of the supervisory board.

(5)  A manager of a credit institution or a member of the credit committee thereof, an employee who decides on the grant of loans, and other persons who have equivalent economic interests to such persons shall not participate in the process of deciding on the grant of a loan to him or her.

(6)  The conditions of loans granted to persons connected to a credit institution and granted to shareholders of a credit institution shall not be less stringent than those of loans granted to other persons who have similar solvency and collateral.

(7)  The provisions of clauses 281 (1) 1), 2) and 4) of the Commercial Code do not apply to credit institutions.
[RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 85. Limitations on concentration of exposures

(1)  Concentration of exposures means the ratio of the risk position of a credit institution to the own funds of the credit institution. The concentration of exposures shall be calculated separately for each client or group of connected persons. The concentration of exposures is deemed to be large if it exceeds 10 per cent.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(1¹) For the purposes of this section and § 852, the risk position of a credit institution is the total of claims, derivative instruments and off-balance sheet items of a credit institution and holdings acquired in the share capital of other companies.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(1²)  The following risk positions shall not be taken into account in the calculation of the limitations on concentration of exposures:
1)  claims resulting from foreign currency transactions which arise in the course of ordinary transactions within 48 hours after the payment is made;
2)  claims resulting from the sale or purchase of securities which arise in the case of transactions carried out under normal market conditions within five days after the payment is made or securities are transferred depending on which transaction takes place earlier;
3)  the risk positions deducted upon calculation of own funds according to § 75 of this Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  The management board is required to inform the supervisory board of the credit institution of each person or group of persons in respect of whom a large exposure arises.

(3)  The following are deemed to be a group of connected persons:
1)  two or more persons who constitute a single risk to a credit institution or the consolidation group thereof because one of the persons, either directly or indirectly, has control over the activities of the other or others, or
2)  two or more persons between whom there is no relationship specified in clause (1) of this subsection but who constitute a single risk to a credit institution or the consolidation group thereof because they are so interconnected that, if one of the persons were to experience financial problems, the other or others would also be likely to encounter repayment difficulties.

(3¹)  A credit institution shall take adequate measures to clarify the sum total of the claims of a group of connected persons.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(4)  Exposures of a credit institution to a client or a group of connected persons shall not exceed 25 per cent.

(5)  If a client or a group of connected persons is the parent undertaking, a subsidiary or an affiliated undertaking of a credit institution or a subsidiary of the parent undertaking of the credit institution, the concentration of exposures with respect thereto shall not exceed 20 per cent.

(6)  Exposures to persons specified in subsection 84 (1) of this Act or to shareholders of the credit institution and shareholders of companies belonging to the same consolidation group as the credit institution if such shareholders hold more than 1 per cent of the share capital of the companies shall not exceed 5 per cent. This limitation does not apply to undertakings specified in subsections (5) and (8) of this section.

(7)  A credit institution shall not incur large exposures which in total exceed 800 per cent.

(8)  The limitations provided for in subsections (4) and (5) of this section do not apply to parent companies and subsidiaries subject to supervision on a consolidated basis by financial supervision authorities of contracting states.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(9)  Deductions are permitted in the calculation of the limitations on concentration of exposures specified in subsections (4)-(7) of this section, the terms for and extent of which shall be established by the Bank of Estonia.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(10)  Credit institutions are required to inform the Financial Supervision Authority promptly if the limitations specified in subsections (4)-(7) of this section are exceeded.

§ 85¹. [Repealed - RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 85². Exceptions in calculation of limitations on concentration of exposures

(1)  A risk position secured by a third party guarantee may be deemed to be a risk position against the guarantor. If there is a difference in the currencies used or periods set out by the risk position and the guarantee, or a partial guarantee has been given, the procedure provided in Sub-subdivision 4 of Subdivision 1 of Division 2 of Chapter 7 of this Act shall be applied.

(2)  Based on a corresponding written application by a credit institution, the Financial Supervision Authority has the right to exempt a client of the credit institution or a company belonging to the same consolidation group from the relationship criterion provided by subsection 85

(3)  of this Act if under the specific circumstances, the relationship criterion is not relevant to the matter with respect to the concentration of exposures. (3) A credit institution may exceed the limitations provided in subsections 85 (4), (5) and (7) of this Act if all the following conditions are met:
1)  the excess is carried out fully on account of the risk positions of the trading portfolio;
2)  the credit institution has not been granted exemption from calculation of the capital requirements pursuant to subsection 79 (3) of this Act;
3)  additional capital requirements are calculated from the risk positions in excess of the limitations.

(4)  If the excess conforming to the conditions set out in subsection (3) of this section has lasted for less than ten days then, in the case of a trading portfolio, the risk exposure of a client or group of connected persons shall not be higher than 500% of the own funds of the credit institution.

(5)  The sum total of the risk positions which excess the limitations conforming to the conditions specified in subsection (3) of this section for more than ten days shall not be higher than 600% of the own funds of the credit institution.

(6)  Once in every three months, a credit institution is required to inform the Financial Supervision Authority of all cases where the limitations conforming to the conditions specified in subsection (3) of this section were exceeded. The credit institution shall inform the Financial Supervision Authority of the amount of the risk position in excess of a limitation and the name of the corresponding client.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 85³. Terms of authorisation procedure upon calculation of prudential norms

The Financial Supervision Authority shall decide to grant the permission specified in subsections 73 (5¹) and (7), 74 (4), 75 (6), 76 (4), 77 (3) and 79 (3) of this Act or refuse to grant such permission within one month after receipt of all the requisite documents and information but not later than three months after the date of receipt of the corresponding application.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86. Valuation of assets

(1)  Credit institutions are required to value their assets on a regular basis and use all measures in compliance with the principles of sound banking managient and law to collect claims.

(2)  Credit institutions are required to value all claims on the basis of the likelihood of payment thereof. Claims the full or partial payment of which is unlikely shall be written off to the extent which is valued as unlikely to be paid.

(3)  The procedure for valuation of claims shall be established by the Bank of Estonia.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

Division 2
Methods for Calculation of Capital Requirements
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Subdivision 1
Capital Requirement for Credit Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 1
General Provisions
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹. Methods for calculation of capital requirement for credit risk

(1)  A credit institution shall calculate the capital requirement for credit risk based on the standardised approach, basic approach or advanced measurement approach to internal ratings pursuant to the procedure provided by this Act and legislation issued on the basis thereof.

(2)  A credit institution shall use the chosen method for calculation of the capital requirement for credit risk in a uniform, constant and consistent manner.

(3)  Upon calculation of the capital requirement for credit risk, the amount of the capital requirement shall be 8-12% of the risk weighted assets. The amount of the capital requirement shall be established by the Bank of Estonia.

(4)  For the purposes of this Act, credit risk means a risk that the counterparty of a credit institution is unable or unwilling to perform its contractual obligations.

(5)  For the purposes of this Act, a rating means the assessment which characterises the credit risk of a debtor or transaction.

(6)  For the purposes of this Act, a rating scale means a scale on the basis of which debtors or transactions are arranged in a sequence based on ratings according to the size of the credit risk.

(7)  For the purposes of this Act, a rating system is a set of methods, processes, control mechanisms, databases and information technology systems the purpose of which is the assessment of credit risk.

(8)  For the purposes of this Act, debtors' rating classes are the risk categories which correspond to the credit risk of each debtor, into which the debtors are divided based on the rating criteria determined beforehand.

(9)  For the purposes of this Act, transactions' rating classes are the risk categories which correspond to the credit risk of each transaction, into which the risk positions are divided based on the rating criteria determined beforehand.

(10)  For the purposes of this Act, a rating criterion is a characteristic designated to each rating class which characterises the credit risk.

(11)  For the purposes of this Act, a probability of delay in payment means a probability that within a period of one year, the counterparty is unable or unwilling to perform the contractual obligations thereof.

(12)  For the purposes of this Act, the amount of damage caused by delay in payment means a percentage share of a claim which the credit institution loses in the case of failure by the counterparty to perform its contractual obligations.

(13)  For the purposes of this Act, the risk position conversion factor is a coefficient which expresses the ratio between the claim against the counterparty at the present moment and the claim which may arise against the counterparty by the time of delay in payment.

(14)  For the purposes of this Act, a set of retail claims is a group of retail claims with a similar credit risk which is taken as the basis for evaluation of the credit risk.

(15)  For the purposes of this Act, credit risk parameter is a quantitative indicator demonstrating the size of the credit risk.

(16)  For the purposes of this Act, a stress test is a simulation method used to assess the effect of changes in the conditions of the economic environment to the size of the credit risk and capital requirements.

(17)  For the purposes of this Act, credit quality means an assessment of the traits characterising credit risk.

(18)  For the purposes of this Act, risk positions are on-balance-sheet assets, off-balance-sheet obligations and derivative instruments.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 2
Standardised Approach to Credit Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86². General requirements for standardised approach to credit risk

(1)  In calculation of the capital requirement for credit risk based on the standardised approach (hereinafter standardised approach to credit risk), the risk weighted assets shall be the risk positions of the risk weighted assets multiplied by the corresponding risk weightings.

(2)  A risk weighting is determined based on the class of a risk position, credit quality level or both.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³. Risk position classes upon use of standardised approach to credit risk

(1)  If the standardised approach to credit risk is used, all the claims shall be classified in the following risk position classes:
1)  claims or conditional claims against central governments and central banks;
2)  claims or conditional claims against regional and local governments;
3)  claims or conditional claims against agencies administered by state authorities and non-profit agencies and associations;
4)  claims or conditional claims against multilateral development banks;
5)  claims or conditional claims against international organisations;
6)  claims or conditional claims against credit institutions and investment firms;
7)  claims or conditional claims against other companies;
8)  retail claims or conditional retail claims;
9)  claims or conditional claims secured by immovables;
10)  claims in delay;
11)  claims which in calculation of capital requirements are deemed to be assets with a high level of risk;
12)  covered bonds within the meaning of § 260 of the Investment Funds Act;
13)  securitized risk positions;
14)  short-term claims against credit institutions, investment firms and other companies;
15)  shares and units in investment funds;
16)  other assets.

(2)  A retail claim is a claim of a credit institution which shall meet the following conditions:
1)  the counterparty is a natural person or a small or medium-sized undertaking;
2)  the sum total of the arrears of a client or group of connected persons to the credit institution or its parent undertaking or subsidiary thereof, including claims in delay, shall not exceed 1 million euros. In calculation of the sum total, the claims secured by a mortgage established on an immovable used as residence shall be omitted;
3)  the claim belongs to a set made up of a large number of claims with similar characteristics where the total risk is lower due to dispersion;
4)  the claim is not based on a security.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁴. Credit quality levels

(1)  If the standardised approach to credit risk is used, the risk positions are divided into six levels of credit quality in order to calculate risk weighted assets.

(2)  The credit quality level is determined based on an assessment provided by a person engaged in the assessment of credit quality (hereinafter rating agency).

(3)  A credit institution shall be consistent in its use of the assessments on credit quality provided by a rating agency. If a credit institution uses the abovementioned assessments with respect to a certain risk position class, it must use such opinions consistently with respect to all the risk positions included in such class.

(4)  For determination of level of credit quality, a credit institution shall use only assessments ordered by the debtor or itself.

(5)  For calculation of capital requirements, the credit quality levels corresponding to the assessments of rating agencies shall be determined by a decision of the Financial Supervision Authority.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁵. Rating agencies

(1)  For determination of credit quality level, only the credit quality assessments by the rating agencies entered in the list maintained by the Financial Supervision Authority shall be used.

(2)  The Financial Supervision Authority shall make a decision for inclusion of a rating agency in the corresponding list if the methodology used by the rating agency for assessment of credit quality is objective, independent, consistent and clear, and ensures reliable and transparent assessment.

(3)  The Financial Supervision Authority shall delete a rating agency from the list by a decision if the criteria used by the rating agency for assessment of credit quality no longer conform to the requirements provided in subsection (2) of this section.

(4)  If a rating agency has been entered in a corresponding list maintained by a financial supervision authority of another contracting state, the Financial Supervision Authority may include such rating agency in its list without conducting additional evaluation procedures and use the credit quality levels already determined by the financial supervision authority of the other contracting state.

(5)  Upon determining the credit quality of the claims or conditional claims specified in clause 86³ (1) 1) of this Act, an assessment made by an export credit agency may be taken into consideration if at least one of the following conditions is met:
1)  it is a credit quality assessment reached by consensus of an export credit agency participating in the officially supported export credit arrangement of the Organisation for Economic Co-operation and Development;
2)  the export credit agency publishes its credit quality assessments which are based on methodology of the Organisation for Economic Co-operation and Development, and assessment of credit quality shall be connected, based on the corresponding methodology, to one of the eight minimum export insurance premiums.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 3
Internal Ratings Based Approach to Credit Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁶. General requirements for internal ratings based approach to credit risk

(1)  In order to calculate the capital requirements for credit risk, a credit institution shall use the basic approach or advanced measurement approach to internal ratings (hereinafter the internal ratings based approach to credit risk) pursuant to the procedure provided by this Act and legislation issued on the basis thereof.

(2)  Unless otherwise prescribed by this Sub-subdivision, the provisions of this Sub-subdivision apply to both the basic approach and advanced measurement approach to internal ratings.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁷. Requirements for use of internal ratings based approach to credit risk

(1)  A credit institution may use internal ratings based approach to credit risk only based on a prior written permission of the Financial Supervision Authority.

(2)  The Financial Supervision Authority shall give the permission specified in subsection (1) of this section only if the methods used by the credit institution for management and control of credit risk are reliable and used consistently, and the following conditions have been met:
1)  the rating system of the credit institution ensures adequate assessment of the credit risk level of debtors and transactions, and enables adequate separation of risk levels and exact and continuous measurement of credit risk;
2)  the ratings and credit risk parameters used for calculation of capital requirements are essential to the credit management and decision-making process of the credit institution, in granting loans, planning own funds and the general management functions of the credit institution;
3)  the credit institution uses an independent credit risk control function responsible for the rating system;
4)  the credit institution collects and stores all relevant information necessary for the effective measurement and management of credit risk,
5)  the rating system of the credit institution and its principles of operation are documented and the reliability of the rating system is constantly monitored.

(3)  A credit institution applying for permission for the use of the internal ratings based approach to credit risk must be able to prove to the Financial Supervision Authority that for at least three years prior to the grant of permission for use of the internal ratings based approach, it has used a rating system which conforms, in its essential part, to the minimum requirements provided by this Act and the legislation issued on the basis thereof.

(4)  A credit institution applying for permission for the use of the advanced measurement approach to internal ratings of credit risk must be able to prove to the Financial Supervision Authority that for at least three years prior to the grant of permission for use of the advanced measurement approach to internal ratings, it has used internal assessment for determining amounts of loss caused by delay in payment (hereinafter amounts of loss) or conversion factors for risk positions (hereinafter conversion factors) which conform, in the essential part, to the minimum requirements provided by this Act and the legislation issued on the basis thereof.

(5)  A credit institution holding permission for the use of an internal ratings approach to credit risk shall apply the corresponding approach in a consistent and uniform manner to all the risk position classes specified in § 86⁹ of this Act.

(6)  A credit institution who applies an internal ratings approach to credit risk to a risk position class must also use such approach with respect to the own fund investment class.

(7)  If a credit institution holding the permission specified in subsection (1) of this section who uses the standardised approach or advanced measurement approach to internal ratings of credit risk for calculation of capital requirements for credit risk wishes to use the basic approach to credit risk, the credit institution is allowed to do so only with the prior written permission by the Financial Supervision Authority. The Financial Supervision Authority shall give such permission if the approach is abandoned due to the merger, restructuring or transformation of the credit institution, or other exceptional and good reasons.

(8)  In duly substantiated cases and based on a prior written permission of the Financial Supervision Authority, a credit institution may use, during a reasonable term established in the permission, the internal ratings approaches to credit risk progressively, by different risk position classes or different companies of the consolidation group, if due to exceptional and good reasons, such transitional period is necessary for reliable application of the internal rating approaches to credit risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁸. Permission to use internal ratings approaches

(1)  The Financial Supervision Authority shall make a decision to grant or refuse to grant the permission specified in § 86⁷ of this Act within six months after receipt of all the requisite documents and data.

(2)  If a parent company and its subsidiaries operating in contracting states submit a common application for the use of an internal ratings approach to credit risk to the financial supervision authority of the contracting state exercising supervision over the parent company, the running of the term in the common decision-making procedure of the financial supervision authority of the contracting state and the Financial Supervision Authority shall commence as of the date of submission of the application by the parent undertaking of the credit institution and the decision shall be made pursuant to the procedure provided in § 47² of the Financial Supervision Authority Act.

(3)  The Financial Supervision Authority and the financial supervision authority of the contracting state may decide in the course of the common decision-making procedure specified in subsection (1) of this section that the conformity of the parent company and its subsidiaries operating in contracting states to the requirements for use of the internal ratings approach prescribed by legislation shall be assessed jointly with respect to the undertakings specified above.

(4)  The Financial Supervision Authority shall make a decision to grant or refuse to grant the permission to an Estonian subsidiary of a parent company operating in a contracting state based on the decision taken under the common decision-making procedure specified in subsection (2) of this section.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁹. Risk position classes upon use of internal ratings approach to credit risk

(1)  If the internal ratings approach to credit risk is used, all the claims shall be classified in the following risk position classes:
1)  claims or conditional claims against the central governments and central banks;
2)  claims or conditional claims against credit institutions and investment firms or regional and local governments;
3)  claims or conditional claims against other companies;
4)  retail claims or conditional retail claims;
5)  own funds investments;
6)  securitized risk positions;
7)  other assets.

(2)  Claims shall be categorised in risk position classes in a consistent manner.

(3)  All claims which cannot be categorised in the risk position classes specified in clauses (1) 1), 2) or 4)-6) of this section shall be categorised in the risk position class specified in clause (1) 3) of this section.

(4)  From the claims specified in clause (1) 3) of this section, a credit institution must separate claims for specific purposes which have the following characteristics:
1)  the claim is against a company which has been founded for the specific purpose of financing the acquisition of immovables or movables, or for the management thereof;
2)  the terms and conditions of the contract give the credit institution qualifying control over the things specified in clause 1) of this subsection, and over the cash flow earned on such things;
3)  the initial source for the performance dictated by the obligation are the cash flows received from the thing specified in clause 1) of this subsection.

(5)  In the case of use of the internal ratings approach to credit risk, a retail claim is a claim which, in addition to the requirements provided by subsection 86³ (2) of this Act, also meets the following requirements:
1)  the claim is not individually managed;
2)  upon risk management, the credit institution deals with similar claims in a consistent and uniform manner.

(6)  Claims not included in debt-claims which bring about a subordinated right to the assets or income of the issuer, and claims similar thereto in their economic content shall be categorised in the risk position class specified in clause (1) 5) of this section.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁰. Partial use of internal ratings approach to credit risk

A credit institution holding permission for the use of an internal ratings approach to credit risk may, with the prior written permission of the Financial Supervision Authority, permanently use the standardised method to credit risk to calculate the capital requirement for credit risk for one or several risk position classes, if they are:
1)  the risk position classes specified in clauses 86⁹ (1) 1) or 2) with a limited number of counterparties and application of a separate rating system to such counterparties would be unduly cumbersome for the credit institution;
2)  claims of an insignificant business unit of the credit institution against a third party, or a risk position class which is not significant due to its size and from the position of credit risk;
3)  claims against the Government of the Republic of Estonia;
4)  claims against the parent undertaking or subsidiary of the credit institution if the counterparty mentioned above is a credit institution, investment firm, financial holding company, financial institution, investment fund, e-money institution or ancillary undertaking of a credit institution;
5)  own funds investments made within the framework of a support program established on the basis of legislation for the purposes of promoting a particular economic sector and which result in significant investment support to the credit institution but bring about a certain degree of state supervision and limitations to own funds investments. This exception may be applied to the extent of up to 10% of the sum total of Tier 1 and Tier 2 own funds;
6)  claims against central, regional or local governments of foreign countries if there are no differences in the credit risks of the central, regional or local governments and the 0% risk weighting is applied, based on the standardised approach to credit risk, to the claims against the central government;
7)  risk positions arising from own funds investments if the 0% risk weighting is applied, based on the standardised approach to credit risk, to the conforming investment object;
8)  risk positions arising from the mandatory reserve maintained at the demand of the European Central Bank or the central bank of a contracting state, if the 0% risk weighting is applied, based on the standardised approach to credit risk, to such risk positions;
9)  risk positions arising from claims with the guarantee of a central government which conforms to the conditions for consideration upon calculation of the capital requirements for credit risk provided by this Act and legislation issued on the basis thereof.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹¹. Requirements for rating systems

(1)  A rating system is a set of methods, processes, control mechanisms, databases and information technology systems used by a credit institution with the objective to assess credit risk, determine ratings for risk positions and estimate the probability of delays in payment and amounts of loss.

(2)  The rating system of a credit institution shall take into consideration all the essential characteristics of debtors and transactions which relate to credit risk.

(3)  A credit institution shall periodically review and update the rating system in order to guarantee its continued correspondence to the operation of the credit institution and the conditions prevailing in the economic environment.

(4)  If a credit institution simultaneously applies several rating systems, then for each debtor or transaction, the rating system which reflects the risk level of that particular debtor or transaction shall be selected.

(5)  A credit institution shall record the structure of the rating system and the processes, procedures and definitions essential from the position of its operation, and also the principles of selecting the rating system.

(6)  The person in charge of matters related to credit risk shall immediately inform the management board of the credit institution of all important changes in the principles of application of the rating system or making of exceptions in such principles which significantly affect the functioning of the rating system of the credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹². Requirements for debtors' rating scale

(1)  A rating system shall include a rating scale which consists of rating classes for debtors and reflects the assessment of the probability of delay on payment by the debtors.

(2)  Debtors' rating classes are risk categories corresponding to the credit risk level of the debtors into which the debtors are divided based on identifiable rating criteria determined beforehand and on the basis of which each rating class is given an assessment of probability of delay in payment.

(3)  A rating scale shall have a sufficient number of rating classes. A rating scale shall include at least seven rating classes for debtors not in delay of payment and at least one rating class for debtors whose payment has been delayed.

(4)  In order to valuate the claims for specific purposes specified in subsection 86⁹ (4) of this Act, the rating system of a credit institution shall have a separate rating scale which contains at least four rating classes for debtors not in delay of payment and at least one rating class for debtors whose payment has been delayed.

(5)  If the characteristics reflecting the nature of the credit risk of the debtors of a credit institution are highly similar to one another, such debtors should not be concentrated in one rating class.

(6)  Significant concentration of debtors into one rating class is permitted only if the credit institution is able to prove to the Financial Supervision Authority that the corresponding debtors' rating class covers a sufficiently narrow range of probability of delay in payment and the estimates concerning the probability of delay in payment by all the debtors in that rating class fall within the prescribed range.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹³. Requirements for rating scale for transactions

(1)  Rating classes for transactions are risk categories corresponding to the risk level of the transaction into which the risk positions are divided based on identifiable rating criteria determined beforehand and on the basis of which each rating class is given an estimate of loss amounts.

(2)  A credit institution using the advanced measurement approach to internal ratings of credit risk shall apply a separate rating scale within its rating system which expresses the estimated amount of loss of each transaction.

(3)  Significant concentration of transactions into one rating class is permitted only if the credit institution is able to prove to the Financial Supervision Authority that the corresponding transactions' rating class covers a sufficiently narrow range of loss amounts created by delay in payment and the estimates concerning the loss amounts of the risk positions in that rating class fall within such range.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁴. Assessment of credit risk of retail claims

(1)  The rating system used for the assessment of the credit risk of retail claims shall reflect the credit risk level of both the debtor and the transaction.

(2)  Assessment of the credit risk of retail claims based on sets of risk positions shall guarantee that the number of risk positions in each set is sufficient for differentiating between the credit risk levels and assessment of the parameters of credit risk. A credit institution shall avoid unreasonable concentration of retail claims into sets.

(3)  A credit institution must be able to prove to the Financial Supervision Authority that the division into sets of the risk positions arising from retail claims and assessment of the credit risk parameters from the level of such sets guarantees the adequate differentiation of credit risk levels, the grouping of risk positions into sets with sufficiently similar characteristics and the accurate and consistent risk assessment.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁵. General requirements for designation of ratings

(1)  The size of remuneration and benefits received by persons who, in a credit institution, designate ratings and periodically check the designation of ratings shall not depend on each decision to grant a loan or designation of a rating.

(2)  In the process of deciding the grant of loans, a credit institution shall designate a rating to each debtor, against whom a claim has been submitted which belongs to a risk position class specified in clauses 86⁹ (1) 1)-3) of this Act. A separate rating shall be designated to each legal person or other legally independent person belonging to an abovementioned risk position class.

(3)  Claims against one debtor shall be designated to the same debtors' rating class regardless of possible differences in the character of the transaction.

(4)  As an exception, several ratings may be designated to a debtor in the following cases:
1)  in the case of reflection of land risk depending on whether the loan has been granted in local or foreign currency;
2)  in the case of reflection of a guarantee if, instead of the rating class of the debtor, the rating class of the guarantor is taken as basis;
3)  if legislation regulating consumer protection or banking secrets, or other legislation prohibit exchange of client data.

(5)  In the process of deciding the grant of a loan, a credit institution using the advanced measurement approach to internal ratings of credit risk shall designate a rating to every transaction.

(6)  In the process of deciding the grant of a loan, a credit institution shall designate a rating to every retail claim or classify a claim in a set of retail claims.

(7)  If a debtor has submitted a corresponding request to a credit institution then at the end of the process of deciding the grant of a loan, the credit institution shall communicate to each debtor the rating designated to such debtor.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁶. Basis for designation of ratings

(1)  The less information is at the disposal of a credit institution, the more conservative the credit institution shall be in designation of ratings to the debtors and transactions.

(2)  If designation of ratings is based on an external credit rating, the credit institution shall also consider other relevant and important information.

(3)  The definitions, processes and criteria used upon designating ratings to risk positions or designating them to sets shall meet the following requirements:
1)  the definition of a rating class or set of retail claims shall be sufficiently detailed and enable the consistent designation of debtors and transactions of a similar risk level to the same rating class or set;
2)  the documentation reflecting the designation of ratings shall enable a third party to understand and replicate the process of designation of a risk position to the same rating class or set, and to evaluate the adequacy of the designated rating class or set;
3)  the criteria must meet the loan-giving standards established at the credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁷. Updating of ratings and sets of retail claims

(1)  A credit institution shall review ratings at least once a year and in the case of debtors and transactions with a high credit risk, more frequently than once a year, and update them as necessary.

(2)  A credit institution shall apply adequate measures for updating the information reflecting the credit risk level of debtors and transactions.

(3)  If a credit institution receives new and important information concerning a debtor or transaction, the credit institution shall update the designated rating.

(4)  For retail claims, a credit institution shall review the parameters for classifying debtors and transactions into sets and the parameters for the credit risk of each set at least once year, and update such parameters as necessary.

(5)  Based on a representative sample, a credit institution shall analyse the relevance of classifying retail claims into sets based on the level of credit risk at least once a year.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁸. Adjustment of ratings

(1)  A credit institution shall document the principles for adjusting designated ratings, each case of rating adjustment and the names of the persons responsible therefor.

(2)  A credit institution shall retroactively analyse the justification of adjustment of ratings.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86¹⁹. Use of statistical models for designating ratings

(1)  A credit institution who uses statistical models for designating ratings shall be able to prove to the Financial Supervision Authority that:
1)  a model enables sufficient prognosis and the size of the capital requirement for credit risk is adequate for using it;
2)  the input of a model grant adequate output and the model includes no significant errors;
3)  the process of entering data in a model is reliable and includes assessment of the accuracy, adequacy and appropriateness of the data;
4)  the data used for preparation of a model reflect the debtors or risk positions of the credit institution with sufficient representation.

(2)  A credit institution shall periodically survey the functioning, consistency, appropriateness of description and results of follow-up tests of statistical models and where necessary, update the models.

(3)  A credit institution shall check the output of statistical models and where necessary, adjust is based on an expert opinion, and document all the corrections.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁰. Collection and storage of data

(1)  A credit institution using the internal ratings approach shall collect and store the following data:
1)  ratings designated to debtors and guarantors;
2)  dates on designation of ratings to debtors;
3)  the main data and methodology which was the basis for designating ratings to debtors;
4)  names of persons in charge who designated ratings to debtors;
5)  data concerning clients in delay of payment and concerning the corresponding risk positions;
6)  circumstances and dates of arising of delay in payment;
7)  estimates on probability of delay in payment of the rating classes of the debtors and the actual amounts of delay in payment and changes in ratings.

(2)  A credit institution who uses the basic approach to internal ratings of credit risk shall collect and store information on actual amounts of loss and revaluation factors in order to compare them with the factors provided by legislation.

(3)  A credit institution who uses the advanced measurement approach to internal ratings of credit risk shall, in addition to the data specified in subsection (1) of this section, collect and store the following information:
1)  ratings designated to transactions and the assessments of loss amounts or revaluation factors used for each rating class;
2)  dates of designation of ratings to transactions and dates of assessment of loss amounts or revaluation factors;
3)  data and methodology based on which ratings were designated to transactions, and assessments of loss amounts and revaluation factors were made;
4)  names of the persons responsible for designation of ratings to transactions and assessment of loss amounts or revaluation factors;
5)  data on the risk positions of clients in delay of payment and estimated and actual loss amounts and revaluation factors;
6)  data on assessments of loss amounts before and after taking account of the effect of guarantees or credit derivatives, if the credit institution reflects the effect of managing the credit risk of the guarantees and credit derivatives in the assessments of loss amounts;
7)  data on the credit risk parameters of the losses arising from the risk position of each client in delay of payment.

(4)  A credit institution using the internal ratings approach shall collect and store the following information concerning retail claims:
1)  data to be used upon division of risk positions into rating classes or sets;
2)  data on the basis of which the probability of delay in payment, loss amounts and revaluation factors for each rating class or set are estimated;
3)  data concerning clients in delay of payment and concerning the corresponding risk positions;
4)  for risk positions in delay of payment, data concerning the rating class or set in which the client was included in the year before the delay of payment, and the actual loss amounts and revaluation factors of the risk positions;
5)  data on the loss amounts of the lines of credit connected to retail claims.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²¹. Stress testing of credit risk

(1)  A credit institution must establish a reliable and periodic procedure for stress testing in order to assess the effect of changing economic conditions to the size of the capital requirements of its credit risk.

(2)  A stress test must include the possible changes in the economic environment which may negatively affect the credit risk positions of the credit institution and assess the ability of the credit institution to handle the corresponding changes in the external environment.

(3)  A stress test shall cover the major part of the credit risk positions of the credit institution.

(4)  A stress test which is used shall be relevant and sufficiently conservative and take account of at least the effect of a scenario for slight economic decline.

(5)  A credit institution shall assess changes in ratings according to the different scenarios included in the stress test.

(6)  A credit institution shall inform the Financial Supervision Authority of the stress test scenario used.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²². Delay in payment upon assessment of credit risk parameters

(1)  Upon designating credit risk parameters to rating classes or sets, a credit institution shall deem a debtor to be in delay of payment if at least one of the following circumstances arise:
1)  based on the assessment of the credit institution, the debtor is highly likely to fail to conformingly perform its obligations to the credit institution, its parent company or subsidiary without the credit institution having to use the possibility to satisfy its claim out of a security;
2)  the debtor is in delay of payment for over 90 days for any significant claim owed to the credit institution, its parent company or subsidiary.

(2)  Among other, the following facts refer to the situation that a debtor is probably not performing its obligations:
1)  the credit institution stops calculating interest on the claim;
2)  the credit institution discounts the claim due to a significant increase of the debtor's credit risk;
3)  the credit institution sells the claim against the debtor at a significant economic loss;
4)  the credit institution restructures the claim against the debtor due to which the value of the claim will probably decrease as a result of waiver of the principal, interest or service fee of the claim or postponement of the term of payment;
5)  the credit institution has filed for initiation of bankruptcy proceedings against the debtor in connection due to non-performance of claims to the credit institution, its parent company or subsidiary;
6)  the debtor has filed for bankruptcy or a bankruptcy proceeding or other similar insolvency proceeding has been initiated against the debtor which would prevent or delay performance of the claim to the credit institution, its parent company or subsidiary.

(3)  In the case of retail claims, a credit institution shall apply the definition of delay in payment specified in subsection (1) of this section based on the transaction and not the debtor.

(4)  If a credit institution establishes that a debtor deemed to be in delay of payment no longer is in delay of payment within the meaning of subsections (1) and (2) of this section, the debtor shall be designated a new rating.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²³. Requirements for assessment of credit risk parameters

(1)  Assessment of credit risk concerning probability of delay in payment, loss amounts, revaluation factors and estimated loss shall involve sufficiently long-term experience and empirical data, and be based on statistical indicators.

(2)  Assessments of credit risk shall be based on all the relevant information, data and methods.

(3)  The less restricted the amount of information and data at the disposal of a credit institution, the more caution the credit institution shall exercise upon assessment of the credit risk parameters.

(4)  A credit institution must adjust the assessments of credit risk parameters in a manner that ensures sufficient prudence arising from the possible inaccuracy of assessments and the unreliability of assessment methods or source data.

(5)  If a credit institution uses different assessments of credit risk parameters for calculation of credit risk and for the internal purposes of the credit institution, the credit institution must document the reasons for such differences and be able to justify the differences to the Financial Supervision Authority.

(6)  Every time that new and material information becomes known, a credit institution must review the assessments of credit risk parameters and where necessary, adjust them at least once a year.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁴. Requirements for source data for assessment of credit risk parameters

(1)  The quantity of the data used as the basis for giving an assessment of credit risk parameters (hereinafter source data for credit risk parameters) and the length of the observation period must be sufficient in order to guarantee the reliability and accuracy of assessment.

(2)  A credit institution shall be able to differentiate, in its past loss experiences, between different credit risk parameters, including the frequency of delay in payment, loss amounts and recalculation factors.

(3)  The risk positions used as basis for credit risk parameters, the standards for granting loans used before and other important conditions must be comparable to the existing risk positions and standards in force used by a credit institution.

(4)  A credit institution must be able to justify to the Financial Supervision Authority that the conditions in the economic environment during the period covered by the source data of the credit risk parameters are comparable to the existing and estimated conditions.

(5)  In assessment of the credit risk parameters, a credit institution shall take account of the changes that took place in loan policies and the customary practices for making a claim for payment on securities within the period of observation of the source data, and also consider the effect of technological development, new data and additional information.

(6)  The Financial Supervision Authority may make a derogation from the requirements set for the source data of credit risk parameters if a credit institution is able to justify to the Financial Supervision Authority that the source data collected before 1 January 2007 are, in the part of the definition of delay in payment, comparable to the requirements provided by subsection 86²² (1) of this Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁵. Requirements for length of observation period for source data of credit risk parameters

(1)  A credit institution shall assess the probability of delay in payment by credit institutions, investment firms, other companies, central governments and central banks by the rating class of each debtor based on the average annual indicators of an observation period which shall be as long as possible.

(2)  A credit institution shall assess the probability of delay in payment of retail claims by rating class or set based on the average annual indicators of an observation period which shall be as long as possible.

(3)  The length of the observation period of the source data specified in subsections (1) and (2) of this section shall be at least five years unless otherwise provided by this Act.

(4)  With the written permission of the Financial Supervision Authority, a credit institution may, at the time of commencing the use of the internal ratings approach, base its assessment of the probability of delay in payment on an observation period with the minimum length of two years which shall be extended by one year during each following year until the period is at least five years.

(5)  A credit institution shall assess loss amounts based on transactions by rating class or set on the basis of the cases of delay in payment during an observation period which shall be as long as possible.

(6)  If the advanced internal ratings approach to credit risk is used, the length of the observation period of the source data used as the basis for the internal assessments of loss amounts for the claims of credit institutions, investment firms, other companies, central governments and central banks shall be, at the time of commencing the use of the assessments, at least five years, whereas the length of the observation period shall be extended each year by one year until the length is at least seven years.

(7)  The length of the observation period of the source data used as the basis for the assessment of the loss amounts for retail claims shall be at least five years.

(8)  With the written permission of the Financial Supervision Authority, a credit institution may, at the time of commencing the use of the internal ratings approach, base its assessment of the loss amounts of retail claims on an observation period with the minimum length of two years and extend it by one year during each following year until the period is at least five years.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁶. Use of external data

(1)  A credit institution that uses data collected by other credit institutions or rating agencies as the basis for the source data of credit risk parameters (hereinafter external data) must be able to justify to the Financial Supervision Authority that:
1)  the rating system and rating criteria used by the other credit institution or rating agency are similar to those used by the credit institution itself;
2)  the set of external data are representative with respect to the set of risk positions for the assessment of which they are used;
3)  external data are used in a consistent manner for assessment.

(2)  In assessing the credit risk parameters of the risk position class of a purchased claim, a credit institution must take account of all the relevant information obtained from the seller of the claim and from other sources.

(3)  If a credit institution uses external data which do not correspond to the definition of delay in payment provided in subsection 86²² (1) of this Act, the credit institution must be able to prove to the Financial Supervision Authority that the data have been adjusted and they generally correspond to such definition

(4)  A credit institution is responsible for the conformity of its rating system also if the credit institution uses external data as the basis for assessment. A credit institution must be able to prove to the Financial Supervision Authority that the credit institution is sufficiently informed of the nature of the rating system and exercises constant control over the process of designation of ratings.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁷. Assessment of reliability of use of internal ratings approaches to credit risk

(1)  In order to assess the accuracy and reliability of the rating system, designation of ratings and assessment of credit risk parameters, a credit institution must apply appropriate internal procedure.

(2)  A credit institution must be able to prove to the Financial Supervision Authority that the internal control process enables adequate and constant assessment of the reliability of the designation of ratings and credit risk parameters.

(3)  A credit institution's internal assessment of the reliability of its rating system, designated ratings and parameters of credit risk must be based on a period of time which is as long as possible.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁸. Comparison of assessments and actual indicators

(1)  A credit institution must regularly compare the actual quantity of payments in delay with the assessments of the probability of the estimated delay in payments in each rating class of debtors.

(2)  A credit institution which holds the permission by the Financial Supervision Authority to use the advanced internal ratings approach to credit risk must regularly compare the actual amounts of loss and the assessments of the estimated loss amounts in each rating class of transactions, as well as the actual revaluation factors of the risk positions and the assessments of the estimated revaluation factors in each rating class of transactions.

(3)  In addition to the methods specified in subsections (1)-(2) of this section, a credit institution must also use other relevant quantitative methods for evaluation of the reliability of credit risk parameters and compare the assessments of the credit risk parameters not only with internal data but also with external sources.

(4)  The actual indicators of credit risk parameters and the assessments of estimated credit risk parameters must be compared at least on one occasion in a year. The statistical data on which the comparison is based must cover a period as long as possible.

(5)  A credit institution shall establish internal rules for situations where the actual indicators of credit risk parameters significantly differ from the assessments of estimated credit risk parameters. The internal rules shall take account of the effect of economic cycles and similar systemic variables to the assessments of credit risk parameters.

(6)  If the indicators of actual credit risk parameters significantly differ from the assessments of the estimated credit risk parameters, the credit institution shall establish the reasons for such difference and if the indicators continue to be higher than the estimated assessments, the credit institution must make its assessments more prudent.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 4
Managing of Credit Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86²⁹. Application of management of credit risk

(1)  A credit institution which uses the standard approach or basic internal ratings approach to credit risk for calculation of capital requirements may, upon calculation of the capital requirements for credit risk, take account of securities, settlement and other transactions for management of credit risk (hereinafter credit risk management instruments) pursuant to the procedure provided by this Act and legislation established on the basis thereof.

(2)  The credit risk management instruments together with the procedures and principles applied by a credit institution must ensure the conclusion of legally binding and efficient agreements which are exercisable pursuant to the legislation in force with respect to all the parties of a transaction.

(3)  A credit institution must take necessary measures to ensure that the agreements concluded in the part of the instruments for managing credit risk guarantee effective protection against the credit risk covered by them.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁰. Direct protection of credit risk

(1)  Direct protection of credit risk is a method of managing credit risk where the managing of the credit risk is based on the right of the credit institution to satisfy its claim out of the pledged object or by making settlements if the debtor delays payment or violates another prestation. The rights and objects specified in § 86³¹ of this Act may be the pledged objects.

(2)  In the case of direct protection of credit risk, the credit institution must be able to sell the pledged object without difficulty at the usual value of the thing whereas the value of the thing shall not materially depend on the level of the debtor's credit risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³¹. Pledged objects

(1)  In calculation of the capital requirements for credit risk, direct protection of the credit risk shall be taken into account if the pledged object is gold, or if the guarantee transaction is directed at the pledging of the following rights:
1)  money or equivalents of money deposited at the credit institution granting the loan or another credit institution;
2)  low credit risk securities;
3)  life insurance policies pledged for the benefit of the credit institution;
4)  securities issued by another credit institution or investment firm, provided that the issuer of the securities is required to cash them at demand;

(2)  In addition to the pledged rights specified in subsection (1) of this section, a credit institution using the basic internal ratings approach to credit risk may, in calculation of the capital requirement for credit risk, take account of mortgages and pledged rights of claim with the term of up to one year. Claims against groups of connected persons, securitized claims and claims connected to credit derivatives shall not be taken into account.

(3)  A mortgage suitable for taking into account must meet the following conditions:
1)  the value of the immovable does not materially depend on the level of the debtor's credit risk, except in the case of an effect caused by economic environment factors;
2)  the primary source of performing the obligation is not cash flow gained from the immovable used as security and therefore, the debtor's credit risk does not materially depend on the state of the immovable used as security.

(4)  A risk position arising from a leasing contract shall be handled in the same manner as a risk position arising from a secured loan, according to the class of the object of leasing.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³². Indirect protection of credit risk

(1)  Indirect protection of credit risk is a method for managing credit risk where the managing of the credit risk is based on the obligation assumed by a third party, including guarantors and sureties, to satisfy the credit institution's claim if the principal debtor delays payment or violates another prestation.

(2)  Indirect protection of credit risk is taken into account in calculation of capital requirements for credit risk if the third party undertaking to satisfy the claim of the credit institution in the case of delay of payment by the debtor is a trustworthy person with low credit risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³³. Minimum requirements for taking account of effect of managing of credit risk

(1)  A credit institution must be able to justify to the Financial Supervision Authority that it uses adequate risk management procedures for managing the additional legal risk, operational risk, liquidity risk and market risk which arise as the result of managing the credit risk.

(2)  In addition to taking account of the instruments for managing credit risk in calculation of the capital requirement for the credit risk, a credit institution must constantly valuate the size of the whole credit risk and be able to prove continuous compliance with such requirement to the Financial Supervision Authority.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁴. Taking account of effect of instruments for managing credit risk

(1)  If an instrument for managing credit risk conforming to this Act is used, the value of the risk position, the risk-weighted assets calculated therefrom or the expected loss shall be decreased.

(2)  An instrument for managing credit risk shall not be taken into account if as a result, the risk position, the risk-weighted assets calculated therefrom or the expected loss would increase.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 5
Capital Requirement for Credit Risk of Securitized Risk Positions
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁵. Calculation of capital requirement for credit risk of securitized risk positions

(1)  For the purposes of this Act, securitization shall mean a transaction whereby the credit risk related to a claim or a set of claims is transferred to series of securities with a different ranking of the right of claim and which bear the following characteristics:
1)  cashing of the securities has been made dependant, in a manner agreed upon beforehand, on performance by third parties of the obligations related to the securitized claim or claims;
2)  distribution of the possible losses arising from credit risk between the investors is based on the ranking of the right of claim of the corresponding series of securities.

(2)  A credit institution shall calculate the risk-weighted value of the risk position arising from a securitized claim or set of claims and shall take it into account in calculation of the capital requirement for credit risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Subdivision 2
Capital Requirement for Interest Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁶. Calculation of capital requirement for interest risk

(1)  In order to calculate the capital requirement for interest risk, a credit institution must establish written strategies, principles and rules of procedure which ensure continuous assessment of the size of the loss likely to arise as a result of changes in interest rates and the probability of such loss. The capital requirement for interest risk must be sufficient to cover the potential loss likely to arise as a result of changes in interest rates.

(2)  If a credit institution calculates capital requirements to cover the risks of the trading portfolio pursuant to § 76 of this Act, the credit institution shall not, in calculating the capital requirement pursuant to subsection (1) of this section, take account of the risk positions included in the trading portfolio.

(3)  A credit institution is required, at all times, to maintain own funds to the extent of the capital requirement calculated on the basis of subsection (1) of this section. The own funds which a credit institution keeps for fulfilling the capital requirement calculated based on subsection (1) of this section shall not be taken into account in fulfilling other capital requirements arising from this Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Subdivision 3
Capital Requirement against Operational Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 1
General Provisions
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁷. Methods for calculation of capital requirement for operational risk

(1)  A credit institution shall calculate the capital requirement for operational risk based on the basic approach, standardised approach, alternative standardised approach or advanced measurement approach pursuant to the procedure provided by this Act and legislation issued on the basis thereof.

(2)  A credit institution shall use the method for calculation of the capital requirement for operational risk in a uniform, constant and consistent manner.

(3)  For the purposes of this Act, operational risk shall mean the risk to suffer loss as a result of the inadequate operation or failure to operate in the foreseen manner by the internal processes, human activity, information technology systems or other systems of the credit institution or as a result of external events. Operational risk also includes legal risk.

(4)  For the purposes of this Act, a business line is an area of economic activity of a credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 2
Basic Approach to Operational Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁸. General requirements for basic approach to operational risk

(1)  In the case of calculation of operational risk according to the basic method (hereinafter basic approach to operational risk), the capital requirement rate shall be 15% of the sum total of the net interest proceeds, net financial proceeds and other operational proceeds (hereinafter net proceeds on principal activity).

(2)  The annual average net proceeds on the principal activity of a credit institution shall be calculated on the basis of the audited data for the three preceding financial years. Unaudited data may be used for the year immediately preceding if audited data are not available.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 3
Standardised Approach to Operational Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86³⁹. General requirements for standardised approach to operational risk

(1)  A credit institution calculating the capital requirement for operational risk based on the standardised approach (hereinafter standardised approach to operational risk) shall map all its business activities, corresponding income and loss in the from of business lines.

(2)  A credit institution shall establish written rules and procedures for mapping all its business activities, corresponding income and loss into business lines in conformity to the following requirements:
1)  all business activities must be mapped into business lines in a mutually preclusive and collectively exhaustive manner;
2)  an ancillary activity must be mapped into the business line whose business activity the ancillary activity supports; If an ancillary activity supports more than one business line, objective criteria shall be used for mapping the corresponding activity between different business lines;
3)  a business activity, including an ancillary activity, which cannot be mapped into a particular business line must be mapped into the business line which has the highest capital requirement rate;
4)  the classification of the proceeds and expenses of business activities used upon mapping them into business lines shall correspond to the categories used in the case of credit risk and market risk;
5)  in mapping proceeds and expenses of into business lines, the expenses incurred in one business line which are created from the activity of another business line can be transferred to the corresponding business line.

(3)  A credit institution must periodically review and update the principles and criteria for mapping business activities and corresponding proceeds and expenses, taking account of new or changed business activities and risks.

(4)  The capital requirement for the operational risk of each business line shall be the percentage of the net proceeds gained from the principal activity of the corresponding business line established pursuant to the procedure provided by subsection 79 (8) of this Act.

(5)  The capital requirement for operational risk according to the standard approach to operational risk is the three years' average of the sum total of the capital requirements of operational risk of all the business lines. A negative capital requirement for a single business line brought on by negative net proceeds created by the principal activity thereof shall included in the calculation of the entire capital requirement. The negative capital requirement for one year which is calculated by adding up the capital requirements of the business lines shall not be included in the calculation of the whole capital requirement and its value shall be substituted by zero.

(6)  A credit institution calculating the capital requirement for operational risk based on the standardised approach may stop using such method only with the prior written permission of the Financial Supervision Authority. The Financial Supervision Authority shall give such permission if the standardised approach to operational risk is abandoned and the use of the basic approach to operational risk is commenced due to the merger, restructuring or transformation of the credit institution, or other exceptional circumstances.

(7)  In justified cases, a credit institution may use the standardised approach and the basic approach to operational risk in a combined manner with the prior written permission of the Financial Supervision Authority during a reasonable term set for such purposes if a transitory period is needed for the reliable application of the standardised approach due to extraordinary and good reasons.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁴⁰. Alternative standardised approach to operational risk

(1)  If a credit institution uses the standardised approach to operational risk, the credit institution may use an alternative rate of capital requirement for the business lines of retail and commercial banking with the prior written permission of the Financial Supervision Authority which shall be 3.5% of the three years' average of the sum total of the book value of the loans.

(2)  The Financial Supervision Authority shall grant the permission specified in subsection (1) of this section if:
1)  the organisation of the management of operational risk in the credit institution conforms to the requirements provided by this Act and legislation issued on the basis thereof;
2)  retail or commercial banking is the principal and constant activity of the credit institution and such activities yield at least 90% of the proceeds of the credit institution;
3)  the credit institution is able to prove to the Financial Supervision Authority that a significant part of its retail or commercial banking activities consists of giving loans with a high probability of delay in payment and the alternative standardised approach would give a more adequate foundation for calculating the capital requirement for operational risk.

(3)  The Financial Supervision Authority shall decide to grant the permission specified in subsections 86³⁹ (6) and (7) of this Act and subsection (1) of this section or refuse to grant such permission within one month after receipt of all the requisite documents and information but not later than three months after the date of receipt of the corresponding application.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Sub-subdivision 4
Advanced Measurement Approach to Operational Risk
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁴¹. General requirements for advanced measurement approach to operational risk

(1)  A credit institution shall use the advanced measurement approach for calculation of the capital requirement for operational risk (hereinafter advanced measurement approach to operational risk) only with the prior written permission of the Financial Supervision Authority.

(2)  The Financial Supervision Authority shall grant the permission specified in subsection (1) of this section if the organisation of measuring and managing operational risk in the credit institution is reliable and the following conditions are met:
1)  the results of using the advanced measurement approach for calculation of the capital requirement for operational risk are important to the risk management and decision-making process of the credit institution;
2)  the credit institution uses an independent operational risk control function responsible for the operational risk;
3)  the credit institution has a functioning regular reporting system concerning the positions of operational risk and losses created by operational risk, and has established internal rules of procedure and procedures for application of appropriate measures;
4)  the credit institution keeps conforming documentation on the organisation of the measurement and management of operational risk;
5)  the transparency of the processes and availability of data flows related to the management of operational risk has been ensured;
6)  the credit institution applies appropriate internal procedures for assessing the reliability of the measurement of operational risk;
7)  an internal auditor or another equivalent independent party inspects the measurement and organisation of the management of operational risk periodically at least once a year.

(3)  A credit institution applying for permission to use the advanced measurement approach to operational risk must be able to justify to the Financial Supervision Authority that the model for measuring operational risk is based on an observation period with the length of at least five years or, if such model is used for the first time, on an observation period with the length of at least three years.

(4)  The advanced measurement approach to operational risk must be consistent and shall prevent the situation where the methods decreasing capital requirements taken into account upon calculation of the capital requirements for other risks could be taken into account repeatedly.

(5)  A credit institution's data on the losses of operational risk must be all-inclusive and cover all the important activities and loss categories of the credit institution, all its subsidiaries and companies within the same consolidation group. A credit institution must be able to prove to the Financial Supervision Authority that no omitted activity, taken separately or in combination, have a significant effect on the accuracy of the assessments of operational risk.

(6)  A credit institution shall use relevant data and a scenario analysis in order to assess the probability of extraordinary and significant losses related to operational risk which may arise in the course of its business. Assessments must be periodically compared to actual losses and updated as necessary.

(7)  A credit institution calculating the capital requirement for operational risk based on the advanced measurement approach may stop using such method only with the prior written permission of the Financial Supervision Authority. The Financial Supervision Authority shall give such permission if the advanced measurement approach to operational risk is abandoned and the use of the basic approach, standardised approach or alternative standardised approach to operational risk is commenced due to the merger, restructuring or transformation of the credit institution, or other exceptional circumstances.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁴². Permission to use advanced measurement approach to operational risk

(1)  The Financial Supervision Authority shall make a decision to grant or refuse to grant the permission specified in § 86⁴¹ (1) of this Act within six months after receipt of all the requisite documents and data.

(2)  If a parent company and its subsidiaries operating in different contracting states submit a common application for the use of the advanced measurement approach to operational risk to the financial supervision authority of the contracting state exercising supervision over the parent company, the running of the term in the common decision-making procedure of the financial supervision authority of the contracting state and the Financial Supervision Authority shall commence as of the date of submission of the application by the parent undertaking of the credit institution and the application shall be reviewed pursuant to the procedure provided in § 47² of the Financial Supervision Authority Act.

(3)  The Financial Supervision Authority and the financial supervision authority of the contracting state may decide in the course of the common decision-making procedure specified in subsection (1) of this section that the conformity of the parent company and its subsidiaries operating in contracting states to the requirements for the use of the advanced measurement approach to operational risk will be assessed jointly with respect to such companies.

(4)  The Financial Supervision Authority shall make a decision to grant or refuse to grant the permission to an Estonian subsidiary of a parent company operating in a contracting state based on the decision taken under the common decision-making procedure specified in subsection (2) of this section.

(5)  If a parent company and its subsidiaries operating in a contracting state, or a subsidiary of a financial holding company intend to use the advanced measurement approach to operational risk, the corresponding application shall contain a description of the method to be used for division of the capital related to operational risk between the companies belonging to the consolidation group. The application shall indicate the method for integration of the effects of risk dispersion into the advanced model for measuring operational risk.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 86⁴³. Combined use of advanced measurement approach to operational risk

(1)  In justified cases, a credit institution holding the right to use the advanced measurement approach to operational risk may use such method in combination with the basic approach, standardised approach or alternative standardised approach with the prior written permission of the Financial Supervision Authority.

(2)  The Financial Supervision Authority shall give the permission specified in subsection (1) of this section if the methods used by the credit institution for managing and assessing operational risk are reliable and meet the requirements of this Act and legislation issued on the basis thereof.

(3)  In cases justified by specific facts, the Financial Supervision Authority may apply the following additional requirements when granting the permission specified in subsection (1) of this section:
1)  at the time of commencing the application of the advanced measurement method to operational risk, the part of the operational risk to be measured using the model shall cover most of the operational risk of the credit institution;
2)  the credit institution is required to apply, within the term set by the Financial Supervision Authority, the advanced measurement method to operational risk in all the important areas of its operation.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

Division 3
Payment and Settlement Systems and Protection of Clients
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 87. Transactions between credit institutions

(1)  A credit institution shall open an account in the Bank of Estonia.

(2)  Payments of credit institutions shall be settled through a payment system pursuant to the procedure established by the Bank of Estonia.

(3)  A payment system is deemed to be a body of rules and procedures for the settlement of payments, established on the basis of an agreement entered into by three or more parties.

(4)  Upon making settlements through a payment system, credit institutions may offset liabilities pursuant to the procedure established by the Bank of Estonia.

(5)  A payment order given to the administrator of a payment system by a credit institution pursuant to the rules of the payment system is irrevocable. Declaration of a moratorium or commencement of bankruptcy proceedings shall not suspend the execution of payment orders given pursuant to the rules of the payment system. Payment orders given before the declaration of a moratorium or commencement of bankruptcy proceedings shall be executed out of the collateral instruments of the payment system, the procedure for formation and use of which shall be established by the Bank of Estonia.

(6)  A correspondent relationship is a legal relationship arising from a contract entered into by credit institutions on the basis of which a credit institution uses an account (correspondent account) at another credit institution (correspondent bank) and in addition to the services offered by the correspondent bank, such account is used by the credit institution for providing services to its customers in its name.
[RT I 2003, 81, 544 - entered into force 1.01.2004]

§ 88. Information subject to banking secrecy

(1)  All data and assessments which are known to a credit institution concerning of the clients of the credit institution or other credit institutions are deemed to be are deemed to be information subject to banking secrecy.

(2)  The following data are not deemed to be information subject to banking secrecy:
1)  data which are public or available from other sources to persons with a legitimate interest;
2)  consolidated data on the basis of which data relating to a single client or the identities of persons included in the set of persons referred to in the consolidated data cannot be ascertained;
3)  a list of the founders and shareholders or members of a credit institution and data relating to the sizes of their holdings in the share capital of the credit institution, regardless of whether or not they are clients of the credit institution.
4)  information relating to the correctness of the performance of a client's obligations to a credit institution.

(3)  Details of a client which are subject to banking secrecy may be disclosed by a credit institution to third persons only with the written consent of the client, unless the obligation or right to disclose information subject to banking secrecy arises from the provisions of subsection (5), (5¹), (8), (9) or (10) of this section.

(4)  The managers and employees of a credit institution and other persons who have access to information subject to banking secrecy are required to process the data which is subject to banking secrecy in conformity to the Personal Data Protection Act and maintain the confidentiality of such information indefinitely, unless otherwise provided for in this Act.

(5)  A credit institution is required to disclose information subject to banking secrecy to the Bank of Estonia and the Financial Supervision Authority for the performance of duties assigned thereto by law. In response to a written inquiry or an inquiry in a format which can be reproduced in writing, a credit institution shall disclose information subject to banking secrecy to:
1)  a court or, in the cases prescribed by law, a person specified in a court ruling;
2)  a pre-trial investigation authority and the Prosecutor's Office if a criminal proceeding is commenced, and on the basis of a request for legal assistance received from a foreign state pursuant to the procedure provided for in an international agreement;
3)  a bailiff pursuant to the Code of Enforcement Procedure, and to a security authority for performance of the duties provided by the Security Authorities Act;
4)  a tax administrator pursuant to the provisions of the Taxation Act, and also based on a reasoned ruling made in an initiated misdemeanour proceeding;
5)  the State Audit Office for the performance of its duties;
6)  a person entitled to succeed or a person authorised by the latter, to a notary, to a person making the inventory of an estate at the appointment of a notary and to the administrator of an estate appointed by a court, and to the consular representations of foreign states in connection with estates and data relating thereto, upon submission of relevant written documents;
7)  a person appointed by the Guarantee Fund pursuant to the Guarantee Fund Act;
8)  a foreign financial supervision authority or other financial supervision authority through the Financial Supervision Authority if the obligation to maintain the confidentiality of information subject to banking secrecy extends to such authority;
9)  [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]
10)  a depositary of declarations of economic interests for the verification of the correctness of the data submitted in a declaration of economic interests of a person specified in § 4 of the Anti-corruption Act in the case of suspicion of corruption;
11)  to the Tax and Customs Board in the scope of the information necessary for performance of the state supervision as provided in the Gambling Act.
[RT I 2008, 47, 261 - entered into force 1.01.2009]

(5¹)  In response to a written inquiry or an inquiry in a format which can be reproduced in writing, a credit institution may disclose information subject to banking secrecy to:
1)  its parent undertaking who needs the data subject to banking secrecy for the preparation of consolidated reports;
2)  another credit institution who needs the data concerning the history of performance of payment obligations of a client for calculation of the capital requirement for credit risk and application of the principle of responsible lending. The data regarding a violation by a client are allowed to be disclosed if no more than seven years have passed after the end of the violation, and the personal data of a client related to a violation by the client are allowed to be disclosed if no more than five years have passed after the end of the violation.

(6)  An inquiry shall set out:
1)  the name of the person submitting the inquiry, his or her official title or a reference to any other legal basis for his or her competence, and his or her address and telecommunications;
2)  the name or business name of the client with regard to whom the inquiry is submitted and the personal identification code or date of birth or registry code of the client;
3)  the purpose of use of the requested data and an exhaustive list or description of the data;
4)  the legal grounds for the inquiry;
5)  the signature of the person submitting the inquiry.

(7)  Persons to whom information subject to banking secrecy is disclosed may use such information only for the purpose specified in the inquiry, and the obligation to maintain the confidentiality of such information indefinitely and the liability therefor extend to such persons unless otherwise provided by law.

(8)  Credit institutions have the right and obligation to disclose information subject to banking secrecy to the Financial Intelligence Unit and to the Security Police Board in the cases and to the extent prescribed in the Money Laundering and Terrorist Financing Prevention Act and the International Sanctions Act.
[RT I 2010, 26, 129 - entered into force 5.10.2010]

(9)  A credit institution has the right to disclose information subject to banking secrecy to a preliminary investigator, the public prosecutor and the courts in order to protect its violated or contested rights or freedoms pursuant to the procedure determined by law.

(10)  A credit institution is required to disclose information subject to banking secrecy to the Tax and Customs Board in the case and to the extent prescribed by § 57² of the Income Tax Act.

§ 89. Protection of clients

(1)  For the purposes of this Act, a client of a credit institution is any person who uses or has used a service offered by the credit institution, or a person who has turned to the credit institution with a view to using a service and who has been identified by the credit institution.

(1¹) The provisions of clauses 711 (1) 1)-3), 9)-12), 21)-24), subsections 711 (2), (3) and (5) and sections 714 and 717-719¹ and subsections 720 (1)-( 3), (5) and (6) regarding agreements for payment services and regarding payment accounts shall apply to the accounts kept by a credit institution for the purpose of depositing clients' funds, which are not payment accounts within the meaning of subsection 709 (4) of the Law of Obligations Act, and to the services related thereto.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

(2)  The relationships of a credit institution with its clients shall be regulated by contracts entered into in writing, in a form enabling written reproduction or in electronic form.

(2¹)  Upon entry into contract or transaction, the credit institution is required to identify a client or the representative thereof. If a person or the representative thereof has been identified by the credit institution earlier, the credit institution shall decide on the need for additional identification. A credit institution has the right to verify the validity of identity documents presented for identification. For verification of identity documents, a credit institution has the right to obtain personal data from the databases of state agencies which issued the documents.

(2²)  Consent for processing of personal data as provided in section 12 of the Personal Data Protection Act may be contained in general conditions.

(2³)  Provisions of the subsection 43 (2) of the Law of Obligations Act shall apply to the general conditions with which a credit institution or a company belonging to the same consolidation group as the credit institution reserves its right to amend the general conditions specified in subsection (2²) of this section. Amendment of general conditions shall be considered unreasonable regarding a data subject primarily if the amendment grants the credit institution or company belonging to the same consolidation group as the credit institution the right to process personal data in a scope that the data subject could not have reasonably expected upon signing the contract.
[RT I 2008, 3, 21 - entered into force 28.01.2008]

(3)  All clients have the right to access all data subject to mandatory disclosure pursuant to this Act, and credit institutions are required to disclose such data to clients at the request thereof.

(3¹)  A credit institution is required to inform a client of the dangers related to the taking of loans.

(4)  At the request of a client, a credit institution is required to provide the client with information concerning the sizes of the holdings that shareholders with qualifying holdings have in the share capital of the credit institution, and information concerning the managers of the credit institution.

(5)  The list of transactions concluded or services provided by a credit institution, the general conditions for relationships between the credit institution and clients thereof (hereinafter general conditions), interest rates, service charges, and all amendments thereto shall be displayed in a visible place in the client service area of the credit institution. Clients have the right to request corresponding explanations and instructions from the credit institution.

(6)  For the purposes of this Act, the general conditions are a document which contains standard conditions applicable to all clients of a credit institution and which provides the general principles for relationships between the credit institution and clients, the procedure for communication between the credit institution and clients and general conditions for transactions between clients and the credit institution.

(7)  The general conditions shall be approved, amended or annulled by the management board of the credit institution. Amendments to the general conditions shall be displayed in a visible place in the client service area of the credit institution for at least fifteen days before the amendments enter into force. Application of the general conditions to relationships between the credit institution and a client shall be provided by a written agreement between the credit institution and the client.

(8)  The assets of a client in a credit institution may be seized or confiscated or a claim for payment may be made thereon only pursuant to the procedure prescribed by law.

(9)  Credit institutions are free to decide who to service.

(10)  A credit institution which is engaged in the issue of e-money is required to adhere to the provisions of § 63 of the Payment Institutions and E-Money Institutions Act.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

Chapter 8
Disclosure and Reporting
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 90. [Repealed - RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 91. Reports

(1)  The Bank of Estonia shall establish the following for credit institutions and branches of foreign credit institutions:
1)  the list of reports, and the regularity of submission and methods of preparation thereof;
2)  the procedure and terms for submission of reports;
3)  the requirements for consolidated accounting.

(1¹) A credit institution is required to prepare accounting reports concerning three, six, nine and twelve months of the current financial year (hereinafter interim accounting reports) in conformity to the international standards for financial reporting approved by the European Commission pursuant to the procedure provided by the Regulation No 1606/2002/EC of the European Parliament and of the Council on the application of international accounting standards (OJ L 243, 11.09.2002, pp. 1-4), and to submit such reports to the Financial Supervision Authority not later than two months after the end of the reporting period.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  The annual report of a credit institution shall be approved pursuant to the procedure established by law and the articles of association of the credit institution. The annual report and a copy of the resolution of the general meeting concerning the approval of or refusal to approve the annual report shall be presented to the Financial Supervision Authority not later than within two weeks after the general meeting of shareholders or members.

(3)  In order to perform duties arising from the Bank of Estonia Act, the Bank of Estonia has the right to demand that credit institutions submit additional reports on a regular basis. The reporting forms shall be established by the Bank of Estonia.

§ 92. Disclosure of reports and other information

(1)  A credit institution is required to publish the annual report and interim accounts on its website and make them accessible for the public at the address of the credit institution, and in all its subsidiaries and places of business.

(2)  The reporting forms and the methods of preparation of additional reports subject to disclosure shall be established by the Bank of Estonia.

(3)  A credit institution is required to disclose the interim accounts two months after the end of the corresponding reporting period and the annual accounts within two weeks after its approval but not later than within six months after the end of the financial year.

(4)  A credit institution whose parent company is a foreign credit institution shall disclose, in addition to the documents provided in subsection (1) of this section, the latest possible group report of the foreign credit institution which has been prepared in conformity to the legislation of the country of its location.

(5)  A subsidiary of a foreign credit institution shall disclose the latest possible reports of the foreign credit institution which have been prepared in conformity to the legislation of the country of its location and translated into Estonian.

(6)  If a material error becomes evident in a report which has been disclosed, the public shall be promptly informed of the error in the manner specified in subsection (1) of this section and a corrected report shall be disclosed.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 92¹. Information concerning risk management, own funds and capital adequacy subject to disclosure

(1)  A credit institution shall disclose the following information concerning risk management and the principles of calculation of capital adequacy:
1)  the risk management and processes, specified by significant risk;
2)  extent of application of Chapter 7 of this Act by the credit institution and its consolidation group;
3)  principles of calculation of Tier 1, 2 and 3 own funds;
4)  principles and methods of the process provided in § 63¹ of this Act;
5)  methods of calculation of capital requirement, presented by risk.

(2)  A credit institution shall disclose the following information on own funds and capital adequacy:
1)  the size of Tier 1, 2 and 3 own funds, set forth by component;
2)  size of capital requirements, set forth by risk.

(3)  A credit institution who holds the permission specified in § 86⁷ or 86⁴¹ of this Act shall, among other, disclose the following information:
1)  approval by the Financial Supervision Authority of the method to be used and the conditions for transfer to it;
2)  a description of the structure of the rating system, and the connections between the ratings given to its clients by the credit institution and the ratings given by external sources;
3)  a description of and the bases for designation of ratings, the basis for assessment of the credit risk parameters and other relevant information;
4)  control mechanisms of the rating system and the criteria for assessment of the controllability and independence of the rating system;
5)  use of the internal ratings approach to credit risk in other areas of risk management;
6)  a description of the process of directing and approval of the management of credit risk.

(4)  In application of the procedure provided in §§ 86²⁹-86³⁴ of this Act, a credit institution shall disclose the description of the credit risk management instruments taken into account upon calculation of the capital requirement for credit risk, and the principles for application and assessment thereof.

(5)  A credit institution using a method based on the advanced measurement approach to operational risk shall disclose the description of the insurance coverage by the insurer or reinsurer taken into account upon calculation of the capital requirement for operational risk.

(6)  The information provided in subsections (1) and (3)-(5) of this section shall be disclosed and submitted to the Financial Supervision Authority together with the annual account at least once a year at the time provided in subsection 91 (2) of this Act. If significant changes occur during a financial year in the information subject to disclosure by the credit institution, such changes shall be disclosed together with the interim account of the corresponding accounting period in the manner provided by subsection 92 (1) and at the time provided by subsection 92 (3) of this Act.

(7)  The information provided in subsection (2) of this section shall be disclosed and submitted to the Financial Supervision Authority together with the interim accounts and annual account at least once a quarter in the manner provided by subsection 92 (1) and at the time provided by subsection 92 (3) of this Act.

(8)  The Bank of Estonia shall establish specific requirements for the information subject to disclosure concerning risk management, own funds and capital adequacy.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 93. Audit

(1)  Annual accounts of credit institutions shall be audited by an auditor, in accordance with international auditing standards.

(2)  In the course of auditing a credit institution, an auditor shall audit a report and submit it to the credit institution and the Financial Supervision Authority, assessing at least the following areas:
1)  the compliance of the valuation of assets with the actual value of the assets;
2)  compliance with the rules established for own funds;
3)  the sufficiency and efficiency of the internal control system or the activities and acts of the audit committee;
4)  the security of the information systems of the credit institution.

(3)  Companies belonging to the same consolidation group as a credit institution shall be audited by at least one common auditor.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 94. Appointment of auditor

(1)  A trustworthy person with adequate expertise and experience to audit credit institutions may be appointed auditor of a credit institution.

(2)  The auditor of a credit institution may be appointed to conduct a single audit or for a specific term which shall not exceed five years. An auditor shall not be re-appointed for a period longer than five years.

(3)  An auditor shall be appointed by a court of the seat of the credit institution on the basis of a petition by the Financial Supervision Authority if:
1)  the general meeting has not appointed an auditor;
2)  the auditor appointed by the general meeting refuses to conduct an audit;
3)  according to the opinion of the Financial Supervision Authority, the auditor is no longer trustworthy.

(4)  The authority of a court-appointed auditor shall continue until appointment of a new auditor by the general meeting.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 95. Notification obligation of auditor

(1)  An auditor is required to notify the Financial Supervision Authority promptly in writing of circumstances which have become known to the auditor in the course of his or her professional activities and which result or may result in:
1)  material violation of legislation regulating the activities of credit institutions;
2)  interruption of the activities of the credit institution;
3)  interruption of the activities of a subsidiary of the credit institution;
4)  an adverse or qualified report by a sworn auditor concerning the annual accounts or consolidated accounts of the credit institution;
[RT I 2010, 9, 41 - entered into force 8.03.2010]
5)  a situation, or the risk of a situation arising, in which the credit institution is unable to perform its obligations;
6)  an act by a manager or employee causing significant proprietary damage to the credit institution or to a client thereof;
7)  the creation of close links due to circumstances specified in clause 7 (4) 3) of this Act.

(2)  The confidentiality requirements provided for in an agreement entered into by a credit institution and an auditor do not apply to data submitted to the Financial Supervision Authority.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

Chapter 9
Supervision

§ 96. Supervisory authority and purpose of supervision

(1)  Supervision over the activities of credit institutions shall be exercised by the Financial Supervision Authority pursuant to the procedure provided for in the Financial Supervision Authority Act, this Act and legislation issued on the basis thereof.

(1¹)  Supervision over the activities in Estonia of branches of credit institutions registered in contracting states shall be exercised by the financial supervision authority of the home country of the credit institution, including on-the-spot verifications if the Financial Supervision Authority is notified thereof in advance.

(2)  [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

(3)  The Financial Supervision Authority shall review applications for authorisation for activities and applications for authorisation for merger made by credit institutions, and other applications and accompanying documents prescribed in this Act, and verify and assess the compliance thereof with the requirements provided for in this Act.

(4)  The Financial Supervision Authority shall monitor the activities and situation of credit institutions on a regular basis and verify the compliance of credit institutions and consolidation groups thereof with the prudential ratios. If necessary, the Financial Supervision Authority may engage independent experts for such activities.

(4¹ )  The Financial Supervision Authority shall constantly monitor and assess whether the procedures, strategies, organisation and reporting systems of management and internal control mechanisms applied in a credit institution ensure reliable control of risks and sufficient coverage by own funds of the risks assumed. A corresponding assessment is given at least once a year.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(5)  The Financial Supervision Authority checks the transactions between credit institutions and their parent companies which are mixed-activity holding companies, and between credit institutions and other subsidiaries of such parent companies with the principal objective to prevent damage to the financial situation of the credit institutions.

§ 97. Scope of supervision

(1)  The supervision activities of the Financial Supervision Authority cover:
1)  all Estonian credit institutions;
2)  the subsidiaries, branches and representative offices of Estonian credit institutions in foreign states if they are not supervised by foreign supervisory bodies or if correspondingly agreed with a foreign supervisory body;
3)  the subsidiaries, branches and representative offices of foreign credit institutions in Estonia unless otherwise agreed with the supervisory body of the corresponding foreign state;
4)  companies belonging to the same consolidation group as a credit institution.

(2)  The Financial Supervision Authority shall exercise supervision on a consolidated basis if:
1)  an Estonian credit institution is a parent company;
2)  the parent company of an Estonian credit institution is a financial holding company;
3)  the parent company of credit institutions registered in two or more contracting states is a financial holding company registered in Estonia.

(3)  If none of the subsidiary credit institutions are located in the contracting state where the financial holding company which is the parent company is located, supervision on a consolidated basis shall be exercised by the supervisory authorities of the contracting state which authorised the subsidiary credit institution with the greatest balance sheet total unless otherwise agreed with the financial supervision authority of that contracting state.

(3¹)  If no financial supervision authority of a contracting state exercises consolidated financial supervision over the consolidation group of a credit institution whose parent company is a third country credit institution or financial holding company and if, in the joint opinion of the Financial Supervision Authority and other financial supervision authorities of relevant contracting states, the supervision exercised over the consolidation group by the financial supervision authority of the third country is not equivalent to consolidated supervision conforming to the requirements established by EU legislation, financial supervision over the consolidation group of the credit institution shall be exercised by the Financial Supervision Authority or the financial supervision authority of another relevant contracting state under an agreement between them.

(3²)  If the provisions of subsection (3¹) of this section cannot be applied, the Financial Supervision Authority has the right, under an agreement with other relevant financial supervision authorities, to take other measures to ensure that the supervision exercised over the activities of a credit institution belonging to a consolidation group would be at an equivalent level with consolidation supervision conforming to the requirements established by EU legislation and in particular, to demand the establishment of a financial holding company in a contracting state.

(3³)  The Financial Supervision Authority shall inform other relevant financial supervision authorities and the European Commission of the means used pursuant to subsection (3²) of this section.

(4)  The supervision activities of the Financial Supervision Authority cover monitoring the liquidity and reporting of a branch of a credit institution of a contracting state in co-operation with the financial supervision authority of the home country of the credit institution.

(5)  If a credit institution belongs to a financial conglomeration within the meaning of § 187 of the Insurance Activities Act, supervision is exercised over the activities of the credit institution as a unit of the financial conglomeration pursuant to the provisions of Division 3 of Chapter 11 of the Insurance Activities Act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 97¹. Supervision over credit institutions which have founded branches in foreign states and credit institutions providing cross-border services

(1)  If a credit institution whose branch is founded in a foreign state or which provides cross-border services in a foreign state violates the requirements of legislation established in a foreign state, the Financial Supervision Authority shall promptly apply measures for termination of the violation on the proposal of the foreign financial supervision authority. The Financial Supervision Authority shall inform the foreign financial supervision authority of the applied measures.

(2)  The Financial Supervision Authority shall promptly inform the financial supervision authority of the foreign state where the branch of the credit institution is founded or where the credit institution provides cross-border services of revocation of an activity licence of the credit institution or revoking of an authorisation for the foundation of a branch in a foreign state or a precept specified in subsection 20¹ (8) or 20⁴ (8) of this Act.

(3)  A branch of a credit institution or a credit institution which provides cross-border services shall, at the request of a foreign financial supervision authority, submit information which is necessary for the exercise of supervision over the activities of the branch or credit institution in the state.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 97². Supervision over branches and representative offices of foreign credit institutions in Estonia and credit institutions providing cross-border services in Estonia

(1)  The Financial Supervision Authority may demand that a foreign credit institution whose branch is founded in Estonia submit additional reports, information and documents which are necessary for the exercise of supervision over the credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  A credit institution whose branch or representative office is founded in Estonia or which provides cross-border services in Estonia and whose activity licence has been suspended or revoked by a foreign financial supervision authority shall not continue to operate or provide cross-border services in Estonia.

(3)  If a credit institution of a foreign state which is not a contracting state or its branch located in Estonia violates the requirements provided for in this Act or other legislation, the Financial Supervision Authority may apply the measures provided for in §§ 96-110 of this Act and the sanctions provided by this Act to terminate the violation or revoke the authorisation for foundation of the branch.

(4)  The Financial Supervision Authority may demand that a credit institution of a contracting state which has founded a branch is Estonia or provides cross-border services in Estonia terminate violation of the requirements provided for in Acts or legislation established on the basis thereof.

(5)  If a credit institution of a contracting state specified in subsection (4) of this section continues to violate the requirements provided for in legislation, the Financial Supervision Authority shall inform the financial supervision authority of the contracting state thereof.

(6)  If the measures applied by a financial supervision authority of a contracting state are insufficient and a credit institution of the contracting state continues to violate the requirements provided for in legislation, the Financial Supervision Authority may in turn, by its precept, apply measures provided for in this Act for the termination of the violation or prohibit the activities of or provision of cross-border services by the credit institution of the contracting state in Estonia and shall inform the financial supervision authority of the contracting state thereof beforehand.

(7)  The Financial Supervision Authority shall inform a foreign credit institution of the measures taken. A complaint against measures applied by the Financial Supervision Authority may be filed through a subsidiary of a foreign credit institution with a court of its location.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(8)  In exceptional cases, the Financial Supervision Authority may, in order to protect depositors, investors and the public interest, apply measures provided for in legislation with regard to a credit institution of a contracting state without informing the financial supervision authority of the contracting state of the measures beforehand.

(9)  The Financial Supervision Authority shall promptly inform the European Commission and the financial supervision authority of the contracting state of application of the measures on the basis of subsections (6) or (8) of this section.

§ 97³. Rights and obligations of participants in proceedings in supervision proceedings of credit institutions

(1)  If necessary, the Financial Supervision Authority shall explain the rights and obligations of a participant in the proceedings in supervision proceedings to the participant in the proceedings.

(2)  Participants in the proceedings have the right to access information concerning themselves which is collected by the Financial Supervision Authority and to copy and make extracts of such information. The Financial Supervision Authority has the right to refuse to provide such information if this damages or is likely to damage the justified interests of third persons, or if examining the data damages attainment of the objectives of the supervision or ascertainment of the truth in a criminal matter.

(3)  In supervisory proceedings, a participant in a proceeding has the right to submit questions to witnesses through the Financial Supervision Authority. The Financial Supervision Authority has the right to refuse to forward questions to witnesses with good reason.

(4)  In the common decision-making proceeding provided in §§ 86⁷ and 86⁴¹ of this Act, the parties to the proceeding have all the rights provided by this Act and the Administrative Procedure Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 98. [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 99. Rights of Financial Supervision Authority upon receipt of information

(1)  For the purpose of performing supervision activities, the Financial Supervision Authority has the right to demand, free of charge, information, documents and oral or written explanations concerning facts relevant to the exercise of supervision from the following persons:
1)  credit institutions, managers and employees of credit institutions;
2)  managers and employees of credit institutions belonging to the same consolidation group as the credit institutions;
3)  shareholders and members of credit institutions;
4)  in case of justified need, third persons;
5)  liquidators and trustees in bankruptcy of credit institutions;
6)  state authorities, local government agencies and chief and authorised processors of national databases;
7)  a subsidiary of a foreign credit institution, the head or an employee of a subsidiary of a foreign credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  For the purposes of supervisory activities, the Financial Supervision Authority has the right to:
1)  carry out on-the-spot verifications of companies belonging to the consolidation group of a credit institution in order to verify information submitted to the Financial Supervision Authority, and to demand submission of information and documents necessary for the exercise of supervision;
2)  demand submission of any information from a credit institution needed to verify compliance with prudential ratios;
3)  receive information from and co-operate with internal audit units and audit committees of credit institutions.

(3)  If necessary, the Financial Supervision Authority may require that a person appear at the offices of the Financial Supervision Authority at the time designated by the Financial Supervision Authority in order to provide explanations.

(4)  If necessary, the Financial Supervision Authority may issue an order whereby the Authority designates a term for the performance of obligations provided for in subsections (1)-(3) of this section.

(5)  For purposes of exercising supervision, the Financial Supervision Authority has the right to obtain information concerning a credit institution from third parties without informing the credit institution of transmission of such information. The third party are required not to inform the credit institution of transmission of such information.

(6)  If in the process of administrative proceedings, a participant in the proceedings fails to appear upon a summons by the Financial Supervision Authority without a legal impediment, the Financial Supervision Authority has the right to:
1)  impose penalty payment on the participant in the proceedings;
2)  impose compelled attendance by a police escort.

§ 99¹. Grounds for refusal to provide explanations

A person who has the obligation to provide information may refuse to provide information to the Financial Supervision Authority on the grounds provided in § 71 or § 73 of the Code of Criminal Procedure.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 100. Organisation of supervision

(1)  Supervision shall be organised on the basis of reporting and other information subject to submission by credit institutions and consolidation groups thereof and the Financial Supervision Authority has the right to conduct on-the-spot verifications of credit institutions, companies belonging to consolidation groups of credit institutions and branches of foreign credit institutions.

(2)  The Financial Supervision Authority shall carry out on-the-spot-verifications in credit institutions and companies which are parent companies of consolidation groups at least once every two years.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 101. On-site inspection

(1)  In order to exercise supervision, the Financial Supervision Authority has the right to organise on-site inspection at the seat or place of business of a credit institution, a company belonging to the consolidation group of a credit institution or a subsidiary of a foreign credit institution.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  An on-site inspection shall be carried out if:
1)  there is need to verify submitted information;
2)  the Financial Supervision Authority suspects that the provisions provided by or on the basis of legislation specified in this Act or subsection 2 (1) of the Financial Supervision Authority Act have been violated;
3)  there is need to verify, based on a corresponding request of a supervisory authority of a contracting state, information obtained from a contracting state credit institution, financial institution, ancillary undertaking of a credit institution, or mixed-activity holding company or subsidiary thereof;
4)  there is need to perform other supervisory duties.

(3)  In order to carry out an on-site inspection, the Financial Supervision Authority shall issue an order which sets out the purpose, extent, duration of the period and time of the inspection. The order shall be delivered to the credit institution or company belonging to the consolidation group of the credit institution (hereinafter person being inspected) at least three working days before the on-site inspection is commenced, unless giving such notice damages attainment of the objectives of the inspection. An on-site inspection shall be carried out by an employee authorised by the Financial Supervision Authority (hereinafter inspector), unless otherwise prescribed in this Act.

(4)  During on-site inspection, an inspector has the right to:
1)  enter all premises, in compliance with all security requirements in force with regard to the person being inspected;
2)  request existence of necessary working conditions and use a separate room necessary for their work;
3)  study documents and media necessary for exercising supervision, make excerpts and copies thereof and monitor the work processes without restrictions;
4)  acquire oral and written explanations from the managers and employees of the person being inspected. Explanations shall be recorded if necessary or if the person providing the explanations so requests.

(5)  The management of a person being inspected is required to appoint a competent representative in whose presence the inspection is carried out and who shall provide the inspector with documents and other information necessary for the performance of his or her duties, including the sworn auditor's report concerning the reports of the person being inspected and the special reports of the auditor, and provide necessary explanations with regard to such documents and information.
[RT I 2010, 9, 41 - entered into force 8.03.2010]

(6)  In the case specified in clause (2) 3) of this section, the Financial Supervision Authority may authorise a financial supervision authority of a contracting state or an auditor or expert appointed thereby to carry out on-site inspection.

§ 101¹ . Report concerning on-site inspection

(1)  An inspector is required to prepare a report concerning the results of the on-site inspection within two months after completion of the on-site inspection and the Financial Supervision Authority shall promptly deliver the report to the person being inspected.

(2)  A person being inspected has the right to provide written explanations within one month after the date of delivery of the report.

(3)  After reviewing the written explanations of the person being inspected, but not later than within four months after the on-site inspection is completed, the Financial Supervision Authority shall prepare a final report which is delivered to the person being inspected.

(4)  In the event of disagreement with the facts set forth in a report, the person being inspected has the right to append a written dissenting opinion to the report.

(5)  If, after the on-site inspection or the written explanations of the person being inspected, additional circumstances become evident or the Financial Supervision Authority obtains additional information, the Financial Supervision Authority may extend the term for preparation of the report or a final report specified in subsection (3) of this section by up to two months, and shall communicate the new term for preparation of the report or the final report to the person being inspected and shall indicate the reason for extension of the initial term.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 102. Assessment and special audit in supervisory proceedings

(1)  In order to clarify important matters which require specific expertise, the Financial Supervision Authority has the right to involve an expert in the supervision proceedings.

(2)  The Financial Supervision Authority has the right to demand the conduct of a special audit if:
1)  there is justified suspicion that the reports submitted to the Financial Supervision Authority or the public are misleading or inaccurate;
2)  transactions have been concluded which may result or have resulted in significant damage to the credit institution, a company belonging to the consolidation group of the credit institution, or their depositors or other clients;
3)  other important issues relevant to the financial situation supervision of the credit institution or a company belonging to the consolidation group of the credit institution need additional clarification in the supervision proceedings.

(3)  The Financial Supervision Authority shall involve an expert or, for a special audit, an auditor on its own initiative or at the request of a participant in the proceeding. The name of an expert or auditor and the reasons for involvement of the expert or auditor shall be communicated to a participant in the proceeding before involvement of the expert or auditor, unless proceedings regarding the matter need to be conducted quickly or communication of the information may impede attainment of the objectives of the assessment or special audit.

(4)  If an expert or an auditor who performs a special audit ascertains facts relevant in the supervision proceedings and the Financial Supervision Authority did not directly assign the task of ascertaining these facts to the expert or auditor, the expert or auditor shall also provide his or her opinion or assessment with regard to these facts.

(5)  An expert or an auditor who performs a special audit has the right to exercise the rights provided for in subsection 101 (4) of this Act only for the purpose of performance of the tasks assigned to him or her and make proposals to the Financial Supervision Authority and participants in proceedings for the submission of additional information and documents. An expert or an auditor who performs a special audit has the right to exercise the rights provided for in clause 101 (4) 1) of this Act only with the permission or in the presence of the person being inspected. The expert is required to maintain the confidentiality of any confidential information which becomes known to him or her in connection with performance of the duties of an expert.

(6)  Costs related to the conduct of an assessment or a special audit shall be covered from the budget of the Financial Supervision Authority. If an expert or auditor is involved at the request of a participant in the proceeding, costs related to the conduct of an assessment or a special audit shall be covered by the participant in the proceeding.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 103. Precepts

The Financial Supervision Authority has the right to issue a precept if:
1)  violations of the requirements of this Act or legislation specified in subsection (2) and clause 6 (1) 7) of the Financial Supervision Authority Act are discovered as a result of supervision;
[RT I 2009, 61, 401 - entered into force 26.12.2009]
2)  there is a need to prevent the offences specified in clause 1) of this section;
[RT I 2004, 86, 582 - entered into force 1.01.2005]
3)  the risks taken by a credit institution increase significantly or if other circumstances exist which endanger the activities of the credit institution, damage the interests or soundness of its depositors or the financial sector as a whole;
[RT I 2004, 86, 582 - entered into force 1.01.2005]
4)  it is necessary in order to defend the interests of the credit institution or to guarantee the transparency of the financial sector.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 104. Rights upon issue of precepts

(1)  The Financial Supervision Authority has the right, by issuing a precept, to:
1)  prohibit the concluding of certain types of transactions or to restrict the volume thereof;
2)  prohibit, wholly or partially, payment of dividends from the profit of a credit institution;
3)  demand restrictions on the operating expenses of a credit institution;
4)  demand appropriate write-down of the assets of a credit institution in conformity to the requirements provided by this Act and legislation issued on the basis thereof;
[RT I 2006, 63, 467 - entered into force 1.01.2007]
5)  require improvement of the ratio of liquid assets to short-term liabilities.
[RT I 2006, 63, 467 - entered into force 1.01.2007]
6)  demand from a credit institution which operates in a foreign state termination of the violation of requirements arising from legislation in force in the foreign state;
7)  prohibit a credit institution of a contracting state from operating in Estonia or an Estonian credit institution from operating in a contracting state, or to prohibit a credit institution from providing cross-border services;
8)  demand amendment of internal rules or rules of procedure of a credit institution;
9)  demand that the supervisory board of a credit institution remove a member of the management board;
10)  make a proposal to the general meeting of a credit institution for removal of a member of the supervisory board;
11)  make a proposal to the general meeting of a credit institution for replacement of an auditor;
12)  demand suspension of an employee of a credit institution from work;
13)  demand submission of a reorganisation plan for a credit institution;
14)  demand payment of a contribution prescribed by the Guarantee Fund Act;
15)  make other demands for compliance with legislation regulating the operation of a credit institution.
16)  set a term for bringing the limitations on concentration of exposures into conformity with the requirements.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

(2)  If all the risks of a credit institution are not sufficiently covered by own funds or risk management has not been organised in conformity to the requirements of this Act or legislation established on the basis thereof, the Financial Supervision Authority has the right to issue a precept to require, pursuant to the provisions of subsection 79 (2) of this Act, a capital adequacy level from the credit institution that is higher than the level established by this Act or the Bank of Estonia.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 104¹. Penalty payment

(1)  In the event of failure to comply or inappropriate compliance with a precept issued pursuant to this Act or another administrative act, the Financial Supervision Authority has the right to impose a penalty payment pursuant to the procedure provided for in the Substitutive Enforcement and Penalty Payment Act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(2)  In the event of failure to comply or inappropriate compliance with an administrative act, the upper limit for a penalty payment is, in the case of a natural person, up to 1,200 euros for the first occasion and altogether up to 4,800 euros for each subsequent occasion to enforce the performance of the same obligation and, in the case of a legal person, up to 3,200 euros for the first occasion and altogether up to 48,000 euros for each subsequent occasion to enforce the performance of the same obligation.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 105. Calling of and participation in meetings of directing bodies of credit institutions

(1)  The Financial Supervision Authority has the right to issue a precept in order to:
1)  call a meeting of the supervisory board or management board of a credit institution or to call the general meeting of a credit institution;
2)  include an issue on the agenda of a meeting of the supervisory board or management board or the general meeting if this is necessary according to the opinion of the Financial Supervision Authority.

(2)  The Financial Supervision Authority has the right to send representatives to a meeting who have the right to present positions and make proposals and demand the recording thereof in the minutes of the meeting.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 106. Invalidation of resolutions of directing bodies of credit institutions

On the basis of a petition from the Financial Supervision Authority, a court of the seat of a credit institution may declare invalid a resolution of the general meeting, supervisory board or management board of a credit institution which is in conflict with an Act, legislation issued on the basis thereof or the articles of association of the credit institution, if the petition is submitted within three months after adoption of the resolution.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 107. Reorganisation plan of credit institution

(1)  If a credit institution fails to comply with prudential ratios, the credit institution is required to submit a reorganisation plan to the Financial Supervision Authority during the term determined by a precept.

(2)  The Financial Supervision Authority has the right to demand that a credit institution order an assessment of the reorganisation plan by one or several auditors appointed by the Financial Supervision Authority.

(3)  A reorganisation plan shall set out a detailed description of measures to be applied in order to achieve compliance with prudential ratios during the term determined by the Financial Supervision Authority.

(4)  If, according to the opinion of the Financial Supervision Authority, the reorganisation plan of a credit institution is not feasible or does not ensure the protection of the interests of clients and creditors or if the credit institution is unable to perform the acts or apply the measures specified in the reorganisation plan on time, the Financial Supervision Authority has the right to establish a moratorium on the credit institution or revoke the authorisation of the credit institution or to apply other measures arising from this Act.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

§ 108. Obligation to notify Financial Supervision Authority

(1)  A credit institution is required to notify the Financial Supervision Authority promptly of any changes to information or circumstances which constituted the basis for issue of the activity licence and to submit the following information and documents:
1)  in the case of a change in the business name, address of the seat or contact details of the credit institution, the new business name, address or contact details;
[RT I 2006, 63, 467 - entered into force 1.01.2007]
2)  in the case of foundation, acquisition or dissolution of a company belonging in the consolidation group of the credit institution, the business name and address of the company and, in the case of a company being founded or acquired, also the contact details thereof;
[RT I 2006, 63, 467 - entered into force 1.01.2007]
3)  in the case of changes to the procedures or rules determined by the internal rules and rules of procedure of the credit institution as listed in subsection 63 (2) of this Act, the amended internal rules and rules of procedure;
4)  upon a change of auditors, information specified in clause 13¹ (1) 11) of this Act;
5)  upon a change of a shareholder or member, if the share of the shareholder or member exceeds 2 per cent of the share capital of the credit institution, information specified in clause 13¹ (1) 12) of this Act;
6)  circumstances which affect or may materially affect the financial situation of the credit institution;
7)  information concerning entry into debt agreements for subordinated liabilities;
8)  other information if prescribed by this Act.

(2)  At the request of the Financial Supervision Authority, a credit institution is required to immediately publish the information specified in subsection (1) of this section, except for the information specified in clauses (1) 3) and 6) of this section.

(3)  The data specified in this section shall be disclosed pursuant to the provisions of subsection 53 (4) of the Financial Supervision Authority Act.

§ 109. [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 110. Submission of complaints and resolution of disputes

(1)  If upon the inspection of a credit institution, the officials of the Financial Supervision Authority or other persons conducting supervisory activities as authorised by the Financial Supervision Authority exceed the rights vested in them by the Financial Supervision Authority Act or by this Act, the credit institution has the right to annex an opinion to this effect to the inspection report or certificate by making a notice expressing a corresponding opinion next to the signature of the representative of the credit institution.

(2)  [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

(3)  [Repealed - RT I 2004, 86, 582 - entered into force 1.01.2005]

(4)-(5)  [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

Chapter 10
Moratorium

§ 111. Definition of moratorium

(1)  A moratorium is a total or partial suspension of the activities of an Estonian credit institution, a branch of such credit institution founded in a contracting state or a branch of a third country credit institution founded in Estonia (hereinafter in this Chapter credit institution) with solvency problems in order to ascertain the reasons for and nature of the solvency problems and the possibilities of restoring solvency, and to protect the proprietary interests of creditors.

(2)  Only the Financial Supervision Authority has the right to decide to establish a moratorium with respect to an Estonian credit institution or a branch of such credit institution founded in a contracting state.

(3)  The Financial Supervision Authority has the right to decide to establish a moratorium with respect to a branch of a third country credit institution founded in Estonia unless otherwise agreed with the supervisory authority of the corresponding third country.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 112. Establishment of moratorium

(1)  The Financial Supervision Authority may establish a moratorium on a credit institution if:
1)  the credit institution fails, as a result of the financial situation thereof, to perform at least one of its obligations to the depositors on time, or
2)  the ratio of liquid assets to current liabilities of the credit institution is such that, according to the opinion of the Financial Supervision Authority, the credit institution is unable to perform its obligations on time, or
3)  during the previous calendar month, the credit institution failed to comply with the requirement provided for in subsection 80 (4) of this Act and, according to the opinion of the Financial Supervision Authority, will be unable to comply with the requirement during the current calendar month.

(1¹) If the circumstances specified in subsection (1) of this section become evident, the Financial Supervision Authority has the right to establish a moratorium in respect of a credit institution even if the credit institution was earlier granted authorisation for voluntary dissolution specified in subsection 117 (3) of this Act.

(2)  [Repealed - RT I 2001, 48, 268 - entered into force 1.01.2002]

(3)  Upon establishment of a moratorium, the Financial Supervision Authority shall determine the term, extent and conditions of the moratorium, appoint a moratorium administrator and determine the competence thereof.

(3¹) A decision to establish a moratorium enters into force in all contracting states simultaneously with the entry into force of such decision in Estonia. The decision and the consequences thereof are valid under the same conditions and to the same extent in Estonia as well as in other contracting states.

(4)  The duration of a moratorium shall not exceed six months.

(5)  Moratorium administrators shall meet the requirements provided for in subsection 56 (2) of this Act. Moratorium administrators shall not be employees of the Financial Supervision Authority.

(6)  The Financial Supervision Authority shall promptly send a notice concerning a moratorium to the commercial register of the seat of an Estonian credit institution and known registers of the contracting states where the branches of the credit institution are founded for a corresponding entry to be made and shall add the name, personal identification code and contact details of the moratorium administrator to the notice.

(7)  A notice concerning the establishment of a moratorium shall be promptly published by the Financial Supervision Authority in at least two daily national newspapers.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 113. Management of credit institution during moratorium
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(1)  Unless otherwise established pursuant to subsection 112 (3) of this Act, a moratorium administrator has the right during the moratorium to:
1)  represent, manage and monitor the credit institution;
2)  suspend compliance with resolutions of the directing bodies of the credit institution;
3)  administer and dispose of the assets of the credit institution.

(1¹) The authority of a moratorium administrator in a contracting state shall be certified by the certified copy of the decision on establishment of the moratorium together with the translation of the decision on establishment of the moratorium into the official language or one of the official languages of the relevant contracting state.

(1²)  A moratorium administrator has the right to exercise, in a contracting state, the same powers he or she is authorised to exercise in Estonia. In addition to the above, he or she may appoint persons to assist or where necessary, represent him or her in the process of the moratorium. Upon exercising his or her rights, sale of assets and notification of workers, a moratorium administrator shall adhere to the provisions of legislation the relevant contracting state. A moratorium administrator has no right to apply coercive measures upon exercising his or her rights or to make decisions on matters which are subject to court action.

(2)  The authority of members of the directing bodies of a credit institution shall be suspended on the basis of a resolution concerning establishment of a moratorium, unless otherwise established pursuant to subsection 112 (3) of this Act.

(3)  Within two days after appointment, the moratorium administrator is required to:
1)  display a notice at the seat and every branch and representative office of the credit institution concerning the appointment of the moratorium administrator, indicating the names of the persons whose authority to conclude transactions in the name of the credit institution has been revoked or whose earlier right to give orders in the name of the credit institution to make payments or transfers has been revoked;
2)  publish a notice with the content provided for in clause 1) of this subsection in at least one daily national newspaper and one local newspaper of the seat of the credit institution and the branches thereof and to repeat the notice once a week for four weeks;
3)  notify the correspondent banks and the registrar Estonian Central Register of Securities and also the registrars of similar registers located in contracting states where branches of the Estonian credit institution are founded of persons who are no longer authorised to dispose, in the name of the credit institution, of the assets of the credit institution or assets administered on the basis of authorisation, and of persons to whom corresponding authorisation has been granted;
4)  suspend all distributions of profit, including payment of bonuses, additional remuneration, other incentives, loans and other amounts, to the managers, employees, and shareholders or members of the credit institution.

(4)  A moratorium administrator shall submit data to the depositors and the Guarantee Fund pursuant to the procedure prescribed in the Guarantee Fund Act.

(5)  A moratorium administrator shall receive remuneration corresponding to his or her tasks from the funds of the credit institution. The remuneration of a moratorium administrator shall be determined by the Financial Supervision Authority. Assistants to a moratorium administrator, including experts, auditors and employees of the credit institution, may be remunerated corresponding to the tasks and qualifications thereof.

(6)  A moratorium administrator shall ascertain whether the credit institution is able to eliminate solvency problems and continue its activities.

(7)  Not later than within thirty days after appointment, the moratorium administrator shall submit a written report concerning the financial situation of the credit institution to the Financial Supervision Authority. The format of the report shall be established by the Bank of Estonia.

(8)  A moratorium administrator is required to submit activity reports at the request of the Financial Supervision Authority but not less frequently than once a month.

(9)  [Repealed - RT I 2005, 13, 64 - entered into force 18.03.2005]

§ 114. Performance of obligations during moratorium

(1)  A moratorium administrator is required to act in the most economically purposeful manner pursuant to the interests of all depositors, other clients and creditors of the credit institution.

(2)  During a moratorium, the moratorium administrator may sell assets of the credit institution in the most profitable manner and invest the amounts received in credit institutions or low-risk money market instruments with a view to eliminating the solvency problems of the credit institution. A moratorium administrator may conclude transactions and perform acts in the interests of creditors in order to prevent further losses.

(3)  During a moratorium, a credit institution shall not perform financial and other proprietary obligations assumed before establishment of the moratorium. This provision does not apply in the case provided for in subsection (4) of this section or if otherwise established pursuant to subsection 112 (3) of this Act.

(4)  During a moratorium, it is permitted to:
1)  perform obligations arising from payment orders accepted for settlement by the credit institution before the establishment of the moratorium;
2)  perform netting through a payment system;
3)  execute payment orders issued for the exercise of rights or performance of obligations arising from a financial collateral arrangement specified in § 314¹ of the Law of Property Act if the payment orders for the disposal of objects of financial collateral are issued before establishment of a moratorium or at a time specified in subsection (11) of this section.

(5)  Compulsory executions or seizure of the assets of a credit institution shall not be carried out in the credit institution during a moratorium.

(6)  During a moratorium, a court shall refuse, by a ruling, to accept a petition against the credit institution and shall return the petition. A court shall suspend the proceedings in which the credit institution is a defendant until the end of the moratorium.

(7)  Unless otherwise established pursuant to subsection 112 (3) of this Act, the performance under a moratorium of such obligations of the clients of a credit institution which are contingent on the credit institution shall be suspended for the time of the moratorium.

(8)  Unless otherwise provided for in this Act, the obligation of a credit institution to pay a debt pursuant to a principal or accessory financial obligation shall be suspended from the date of establishment of a moratorium until termination thereof. Payment of debts shall be resumed immediately after termination of the moratorium if the credit institution has restored its solvency. Fines and interest on arrears shall not be imposed, calculated or paid during a moratorium. Calculation of interest shall continue but the payment thereof shall be commenced pursuant to contracts, on the date following the date of termination of the moratorium.

(9)  A credit institution shall commence performance of obligations assumed before the establishment of a moratorium on the date following the date of termination of the moratorium if the credit institution has restored its solvency.

(10)  The provisions of this section do not affect the validity of disposition for the exercise of rights or performance of obligations arising from a financial collateral arrangement specified in § 314¹ of the Law of Property Act, or the netting performed through a payment system specified in subsection 87 (2) of this Act or through a securities settlement system specified in subsection 213 (1) of the Securities Market Act.

(11)  Provision of financial collateral and disposal of objects of financial collateral provided for in § 314¹ of the Law of Property Act after the establishment of a moratorium are valid if carried out on the date of establishment of the moratorium and the counterparty to the financial collateral arrangement proves that they were not aware nor should have been aware of establishment of the moratorium.
[RT I 2004, 37, 255 - entered into force 1.05.2004]

§ 115. Termination of moratorium

(1)  The Financial Supervision Authority shall decide on the termination of a moratorium on the basis of data submitted in the reports of the moratorium administrator and during the term specified in the resolution on establishment of the moratorium, but not later than within six months after establishment of the moratorium.

(2)  A moratorium administrator may apply for termination of the moratorium before the end of the specified term.

(3)  The Financial Supervision Authority shall decide on the termination of a moratorium and grant consent for resumption of the activities of a credit institution if:
1)  according to the report of the moratorium administrator, the solvency problems of the credit institution have been eliminated and the proprietary interests of the clients and creditors are protected, and
2)  according to the opinion of the Financial Supervision Authority, the circumstances specified in § 17 of this Act do not exist.

(4)  On the basis of a resolution passed pursuant to subsection (3) of this section, a credit institution shall reacquire the right to administer the assets thereof and the authority of the members of the directing bodies shall be resumed.

(5)  If, after the end of the term of a moratorium but not later than within six months after establishment of the moratorium, a credit institution fails to comply with the requirements provided for in this Act, the Financial Supervision Authority shall decide on the revocation of authorisation of the credit institution on the bases prescribed in § 17 of this Act.
[RT I 2001, 102, 672 - entered into force 1.01.2002]

Chapter 10¹
Reorganisation of Credit Institutions Operating in Several States
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 115¹. Law applicable to reorganisation measures

(1)  For the purposes of this Act, reorganisation measures are acts performed in the course of corresponding proceedings (reorganisation proceedings) of an administrative authority or court of another contracting state with the objective to preserve or restore the solvency of the credit institution of the corresponding contracting state or a branch thereof, or a branch founded in that contracting state by a third country credit institution, and which may affect earlier rights of third parties or result in suspension of payments or execution proceedings, or reduction of claims.

(2)  The provisions of this section concerning reorganisation measures and proceedings also apply to a moratorium established in respect of an Estonian credit institution, its branch founded in a contracting state or a branch founded in Estonia by a third country credit institution, as well as to the bankruptcy proceedings before making a bankruptcy order in respect of a Estonian credit institution or third country credit institution with a branch in Estonia.
[RT I 2008, 59, 330 - entered into force 1.01.2009]

(3)  Reorganisation measures in respect of a credit institution of a contracting state or its branches shall be carried out in adherence to the law of the home country of the contracting state unless otherwise provided for in this section.

(4)  The consequences of unfinished proprietary court dispute where a credit institution of Estonia or another contracting state or a branch thereof founded in a contracting state, or a branch founded in Estonia by a third country credit institution (hereinafter in this Act credit institution or branch of credit institution) are the participants in the proceedings shall be determined pursuant to the law of the contracting state conducting the proceedings.

(5)  The law of the contracting state applicable to the corresponding contract or transaction shall apply, in the part of the consequences of application of reorganisation measures, to:
1)  employment contracts;
2)  agreements regulating netting;
3)  agreements whereby securities are sold subject to a commitment to repurchase the securities or similar securities at a fixed price at an agreed time in the future (repo agreement) unless otherwise provided by subsection (8) of this section;
4)  transactions performed on a regulated securities market unless otherwise provided by subsection (8) of this section.

(6)  The law of the contracting state of the location of the relevant immovable applies to the consequences of application of reorganisation measures with respect of a contract from which the right to acquire or use the immovable arises, and to the validity of a disposition made in respect of an immovable belonging to a credit institution or branch of a credit institution if such transaction is performed after application of reorganisation measures in respect of the credit institution or branch.

(7)  The law of the contracting state exercising supervision over the relevant register applies to the consequences of application of reorganisation measures with respect to a person's rights concerning an immovable, vessel or aircraft subject to entry in a public register which belongs to a credit institution or branch of a credit institution, and to the validity of a disposition made in respect of an immovable, vessel or aircraft which belongs to a credit institution or branch of a credit institution if such transaction is performed after application of reorganisation measures in respect of the credit institution or branch.

(8)  The provisions of § 23¹ of the Private International Law Act apply to the consequences of application of reorganisation measures with respect to a person's rights concerning a security subject to registration, and to the validity of a disposition made in respect of a registered security which belongs to a credit institution or branch of a credit institution if such transaction is performed after application of reorganisation measures in respect of the credit institution or branch.

(9)  Application of reorganisation measures does not affect a creditor's right to set off the claim thereof against the claim of the credit institution if setting off claims is permitted pursuant to the law applicable to the credit institution.

(10)  Application of reorganisation measures does not affect the real rights of a creditor or third party encumbering an object of a credit institution or branch of a credit institution which at the time of commencement of the proceedings is located in another contracting state, above all the following:
1)  the right of sale of the object arising from the right of security;
2)  pre-emptive right to the satisfaction of a claim primarily arising from the right of security or an agreement to assign a security;
3)  the right to claim delivery of a thing from everyone who possesses the thing without legal basis;
4)  the right to the fruits of an object.

(11)  The provisions of subsection (10) also apply to the right to acquire the real rights specified in the section above entered in a public register and valid with respect to third parties.

(12)  Application of reorganisation measures with respect to a credit institution or a branch of a credit institution does not affect the rights arising from the reservation of title of the seller of a movable acquired by the credit institution or branch if, at the time of application of the reorganisation measures, the movable was located in a contracting state where the application of reorganisation measures was not decided.

(13)  Application of reorganisation measures with respect to a credit institution or a branch of a credit institution selling a movable does not give the right, after transfer of possession of the thing, to cancel or terminate the contract of sale, or hinder the acquisition of the thing by the buyer if, at the time of application of the reorganisation measures, the movable was located in a contracting state where the application of reorganisation measures was not decided.

(14)  The law of the home country of the relevant credit institution or branch of a credit institution applies to declaration of the transactions provided in subsections (9), (10), (12) and (13) of this section invalid due to damage to the interests of creditors.

(15)  The law of the home country of a credit institution of a contracting state does not apply upon application of reorganisation measures by a court, provided that all the following conditions are met concurrently:
1)  the reorganisation measure applied by the court prescribes for a procedure for declaring invalid or subject to recovery such legal acts which are damaging to the creditors as a whole and were performed before the application of such measure;
2)  the person who benefited from a legal act specified in clause 1) of this subsection certifies that the law of a contracting state other than the home country of the credit institution applies to the legal act and pursuant to such law, no basis exists for contestation of the legal act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 115². Application of reorganisation measures

(1)  Only an administrative authority or court of the home country of the relevant credit institution has the right to decide on application of reorganisation measures with respect to a credit institution of a contracting state or a branch founded thereby in another contracting state, including Estonia.

(2)  A decision to apply reorganisation measures with respect to a credit institution of a contracting state or a branch founded thereby in Estonia enters into force in Estonia simultaneously with the entry into force of such decision in the home country of the credit institution.

(3)  The reorganisation measures applied with respect to a credit institution of a contracting state or a branch founded thereby in Estonia are valid under the same conditions and to the same extent in Estonia as well as in the home country of the credit institution.

(4)  The authority, in Estonia, of a person applying reorganisation measures with respect to a credit institution of a contracting state or branch thereof, or a branch founded in such contracting state by a third country credit institution shall be certified by a certified copy of the decision on appointment of such person or other appropriate certificate issued by the administrative authority or court of the relevant contracting state. The document specified above shall be accompanied by a translation into the Estonian language.

(5)  A person applying reorganisation measures specified in subsection (4) of this section has the right to exercise, in Estonia, the same powers he or she is authorised to exercise in the relevant contracting state. In addition to the above, he or she may appoint persons to assist or where necessary, represent him or her in the process of reorganisation. Upon exercising his or her rights, sale of assets and notification of workers, a person applying reorganisation measures shall adhere to the provisions of legislation of Estonia. A person applying reorganisation measures has no right to apply coercive measures upon exercising his or her rights or to make decisions on matters which are subject to court action.

(6)  A person applying reorganisation measures specified in subsection (4) of this section is required to perform, under the conditions and to the extent provided in Estonian law, the acts necessary for making entries in Estonian public registers.

(7)  Upon becoming aware of application of reorganisation measures with respect to a credit institution of a contracting state or branch thereof founded in Estonia, or a branch founded in Estonia by a third country credit institution, the Financial Supervision Authority shall promptly publish a notice to this effect in at least one national newspaper and on its website.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 115³. Information concerning establishment of moratorium in respect to Estonian credit institution

(1)  The Financial Supervision Authority shall promptly notify the financial supervision authorities of the contracting states where the relevant credit institution has branches of its decision to establish a moratorium in respect of the credit institution with branches in other contracting states, or of a court decision to commence bankruptcy proceedings against such credit institution. Information on the practical consequences of material importance arising from establishment of the moratorium or commencement of bankruptcy proceedings shall be added to such notice.

(2)  If application of moratorium or commencement of bankruptcy proceedings with respect to a credit institution is likely to affect third party interests in a contracting state where a branch of the credit institution is founded and such decision can be contested, the Financial Supervision Authority shall promptly publish an excerpt of the decision in the Official Journal and at least two national newspapers in each contracting state where a branch of the credit institution is founded.

(3)  The excerpt of the decision specified in subsection (2) of this section shall be published in the official language or one of the official languages of the relevant contracting state. The excerpt shall include the objective and legal basis of the decision, the term and deadline for submission of complaints and the full address of the court competent to review the complaints. The deadline for submission of complaints must be indicated in an especially clear and understandable manner.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 115⁴. Cooperation with financial supervision authority of contracting states

(1)  The Financial Supervision Authority shall notify the financial supervision authority of the home country of the relevant credit institution of the necessity to apply a reorganisation measure or reorganisation measures with respect to the branch founded in Estonia by the credit institution of the contracting state.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(2)  The Financial Supervision Authority shall give immediate notice of its decision to establish a moratorium in respect of a branch of a third country credit institution to the financial supervision authorities of the contracting states where the credit institution's other branches entered in the list provided by Article 14 of Directive 2006/48/EC of the European Parliament and of the Council (OJ L 177, 30.06.2006, pp. 1-200) regarding founding and activities of credit institutions and published annually in the Official Journal are located. Information on the practical consequences of material importance arising from establishment of the moratorium shall be added to such notice.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

(3)  For application of measures necessary to conduct a moratorium with respect to a branch of a third country credit institution, the Financial Supervision Authority shall cooperate with the financial supervision authorities specified in subsection (2) of this section.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

Chapter 11
Dissolution of Credit Institutions

Division 1
Voluntary Dissolution and Compulsory Dissolution

§ 116. Methods of dissolution of credit institution

(1)  A credit institution shall be dissolved:
1)  by a resolution of the general meeting of the shareholders or members of the credit institution, on the basis of Acts and the articles of association of the credit institution (voluntary dissolution);
2)  on the initiative of the Financial Supervision Authority, on the basis of a court judgment (compulsory dissolution);
[RT I 2008, 59, 330 - entered into force 1.01.2009]
3)  in the case of insolvency, pursuant to this Act and the Bankruptcy Act.

(1¹)  A decision to dissolve a credit institution enters into force in all contracting states simultaneously with the entry into force of such decision in Estonia. The decision and the consequences thereof are valid under the same conditions and to the same extent in Estonia as well as in other contracting states.

(2)  A credit institution may be voluntarily or compulsorily dissolved on the condition that the assets thereof are sufficient to satisfy the justified claims of all creditors in full.

(3)  If, during liquidation proceedings, it becomes evident that the assets of the credit institution are not sufficient to satisfy the justified claims of all creditors in full, the liquidators shall suspend their activities and commence bankruptcy proceedings, and shall notify the Financial Supervision Authority thereof in advance in writing.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 117. Voluntary dissolution

(1)  In order to decide on the dissolution of a credit institution at the general meeting of shareholders or members, an overview of the economic activities of the credit institution during the current year and of the financial situation of the credit institution shall be submitted to the general meeting by the management board. The overview shall set out the term and funds for satisfaction in full by the credit institution of the justified claims of all creditors.

(2)  In co-ordination with the supervisory board, the management board of a credit institution is required to submit, at least fifteen days before the date of the general meeting, an application for authorisation for voluntary dissolution of the credit institution together with the data specified in subsection (1) of this section to the Financial Supervision Authority. The Financial Supervision Authority may establish a term for satisfaction of all claims of depositors.

(3)  The Financial Supervision Authority shall grant authorisation to a credit institution for voluntary dissolution only on the condition that the credit institution is able to satisfy the justified claims of all creditors in full not later than within three months after the date of publication of the liquidation notice.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 118. Compulsory dissolution

(1)  A credit institution shall be dissolved by a court ruling on the basis of a petition of the Financial Supervision Authority if the authorisation of the credit institution has been revoked by the Financial Supervision Authority.
[RT I 2005, 39, 308 - entered into force 1.01.2006]

(2)  Evidence concerning circumstances provided for in § 17 of this Act shall be submitted to the court together with a petition.

(3)  A court shall decide on the compulsory liquidation of a credit institution promptly but not later than within three working days after submission of the corresponding petition.

(4)  [Repealed - RT I 2008, 59, 330 - entered into force 1.01.2009]

(4¹)  The provisions of subsection 36⁶ (3) of the Commercial Code do not apply to the case specified in subsection (1) of this section.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

(5)  A ruling on compulsory liquidation shall be executed promptly, and the filing of and proceedings regarding an appeal do not suspend the activities of liquidators.

§ 119. Requirements for liquidators

(1)  At least three persons who have experience in the banking field or higher education in law shall be elected or appointed liquidators and at least one of them shall meet the requirements specified in subsection 56 (2) of this Act.

(2)  Liquidators shall remain impartial upon performance of their duties. At the request of the Financial Supervision Authority, a liquidator shall submit information concerning his or her personal and economic interests and any conflicts of such interests. The content of the information shall be determined and the procedure for submission thereof shall be established by the Bank of Estonia on the basis of this Act.

(3)  The Financial Supervision Authority has the right to intervene in the activities of liquidators and demand, through a court, the appointment of new liquidators if data exists to show that the activities of the liquidators are not in compliance with law or that the claims of creditors are not satisfied objectively.

(4)  Liquidators shall receive remuneration corresponding to their tasks from the funds of the credit institution being liquidated but not more than the average remuneration of the members of the management boards of an operating credit institution. Remuneration paid to assistants to liquidators, including experts and auditors, shall not exceed the average remuneration paid by an operating credit institution to persons working or operating in corresponding positions.

(5)  The authority of liquidators in a contracting state shall be certified by the certified copy of the decision on their election or appointment together with the translation of the decision into the official language or one of the official languages of the relevant contracting state.

(6)  A liquidator has the right to exercise, in a contracting state, the same powers he or she is authorised to exercise in Estonia. In addition to the above, he or she may appoint persons to assist or where necessary, represent him or her in the process of liquidation. Upon exercising his or her rights, sale of assets and notification of workers, a liquidator shall adhere to the provisions of legislation the relevant contracting state. A liquidator has no right to apply coercive measures upon exercising his or her rights or to make decisions on matters which are subject to court action.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 120. Duties and tasks of liquidators

Liquidators are required to:
1)  carry out a full inventory of all assets of the credit institution as of the date of entry into force of the dissolution resolution;
2)  publish a notice of the liquidation proceedings of the credit institution in at least two national newspapers on two occasions with an interval of two weeks;
3)  notify in writing all known creditors of the credit institution of the liquidation proceedings and specify the credit institution through which claims shall be paid;
4)  demand that all known creditors submit the balance confirmations of their financial claims within two months after the date of publication of the first liquidation notice in a newspaper;
5)  notify correspondent banks promptly of the dissolution resolution and close correspondent accounts and where necessary or provided by the legislation of the relevant contracting state, send a notice concerning the dissolution resolution to the registrars of public registers of the contracting states where the branches of the credit institution are founded;
6)  submit activity reports and a final balance sheet pursuant to the procedure established by the Bank of Estonia.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 121. Submission and satisfaction of claims of creditors

(1)  [Repealed - RT I 2005, 39, 308 - entered into force 1.01.2006]

(2)  Liquidators have the right to demand additional data and documents from all known creditors in order for the debt-claims of the creditors to be proven.

(3)  The provisions of subsection 379 (3) and § 380 of the Commercial Code do not apply to credit institutions.

Division 2
Bankruptcy of Credit Institutions

§ 122. Receipt of bankruptcy caution

A credit institution is required to notify the Bank of Estonia promptly, but not later than on the following working day, of the receipt of a bankruptcy caution specified in clause 10 (2) 1) of the Bankruptcy Act from a creditor.
[RT I 2003, 17, 95 - entered into force 1.01.2004]

§ 123. Submission of bankruptcy petition

(1)  A bankruptcy petition against a credit institution may be submitted by:
1)  the creditors;
2)  the liquidators in the cases prescribed by law;
3)  Financial Supervision Authority.

(2)  An operating credit institution which is a debtor may submit a bankruptcy petition only with the written consent of the Financial Supervision Authority.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 124. Submission of bankruptcy petition by Financial Supervision Authority

(1)  The Financial Supervision Authority has the right to submit a bankruptcy petition against a credit institution regardless of whether the Financial Supervision Authority is a creditor of the credit institution.

(2)  In addition to the grounds prescribed in § 1 of the Bankruptcy Act, the Financial Supervision Authority also has the right to submit a bankruptcy petition if the credit institution fails to satisfy a justified claim of at least one client and the Financial Supervision Authority has sufficient data concerning the insolvency of the credit institution.
[RT I 2003, 17, 95 - entered into force 1.01.2004]

§ 125. Commencement of bankruptcy proceedings and hearing of petitions

(1)  A court shall promptly decide on the commencement of bankruptcy proceedings with regard to a credit institution but not later than within three working days after submission of the bankruptcy petition.

(2)  The provisions of §§ 17-24 of the Bankruptcy Act do not apply if the bankruptcy petition against a credit institution is submitted by the Financial Supervision Authority. A court shall hear a bankruptcy petition promptly but not later than on the following working day and decide on the declaration of bankruptcy on the basis of evidence annexed to the bankruptcy petition.

(3)  On the basis of a petition by a creditor or liquidator, a court shall hold a preliminary hearing for the commencement of bankruptcy proceedings with regard to a credit institution. A representative of the Financial Supervision Authority shall be summoned to a preliminary hearing to give his or her opinion on the commencement of bankruptcy proceedings with regard to the credit institution.

(4)  A court shall hear a bankruptcy petition specified in subsection (3) of this section not later than within seven calendar days as of the commencement of the bankruptcy proceedings.

(5)  The court ruling on the commencement of bankruptcy proceedings and bankruptcy order enter into force in all contracting states simultaneously with the entry into force thereof in Estonia. The court ruling and order specified above and the consequences thereof are valid under the same conditions and to the same extent in Estonia as well as in other contracting states.
[RT I 2008, 59, 330 - entered into force 1.01.2009]

§ 126. Appointment of interim trustee and trustees in bankruptcy

(1)  A court shall appoint the interim trustee and trustees in bankruptcy of a credit institution on the proposal of the Financial Supervision Authority.

(2)  At least three trustees in bankruptcy shall participate in the bankruptcy proceedings of a credit institution and at least one of them must meet the requirements provided for in subsection 56 (2) of this Act. The provisions of § 61 of the Bankruptcy Act do not apply to bankruptcy proceedings of credit institutions.

(3)  A court shall release a trustee in bankruptcy at his or her request. The trustee in bankruptcy shall notify the Financial Supervision Authority of his or her request thirty days in advance and shall submit an activity report.

(4)  If a trustee in bankruptcy has failed to perform his or her duties or has not performed them adequately, a court shall release the trustee in bankruptcy on the basis of a petition by the Financial Supervision Authority or a resolution of the bankruptcy committee.

(5)  If a trustee in bankruptcy is released, a new trustee in bankruptcy shall be appointed pursuant to the procedure prescribed in subsection (1) of this section.

(6)  Information specified in subsection 119 (2) of this Act shall be submitted to the court and the Financial Supervision Authority by an interim trustee or a trustee in bankruptcy within seven days after his or her appointment.

(7)  The provisions of the second sentence of subsection 65 (5) of the Bankruptcy Act do not apply to determination of the remuneration of a trustee in bankruptcy of a credit institution. The provisions of subsection 119 (4) of this Act apply to payment of remuneration to assistants to a trustee in bankruptcy, including experts and auditors.

(8)  The authority of the interim trustee or a trustee in bankruptcy of a credit institution in a contracting state shall be certified by the certified copy of the court judgment or ruling concerning their appointment together with the translation of such document into the official language or one of the official languages of the relevant contracting state.

(9)  The interim trustee or a trustee in bankruptcy has the right to exercise, in a contracting state, the same powers he or she is authorised to exercise in Estonia. In addition to the above, he or she may appoint persons to assist or where necessary, represent him or her in the course of the bankruptcy proceedings. Upon exercising his or her rights, sale of assets and notification of workers, the interim trustee or a trustee in bankruptcy shall adhere to the provisions of legislation the relevant contracting state. The interim trustee or a trustee in bankruptcy has no right to apply coercive measures upon exercising his or her rights or to make decisions on matters which are subject to court action.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 127. Duties of interim trustee

(1)  An interim trustee shall, pursuant to the principle of conservatism, ascertain the true and fair value of the assets of the credit institution which is a debtor and submit the relevant documents to the court together with his or her report.

(2)  If a credit institution is the parent company of a consolidation group, the interim trustee is required to ascertain the net assets of the consolidation group in the manner specified in subsection (1) of this section.

(3)  The interim trustee shall organise execution of payment orders accepted by the credit institution before the commencement of bankruptcy proceedings, pursuant to the procedure provided for in § 87 of this Act.

(4)  Upon performance of his or her duties, an interim trustee has the right to co-operate with and receive information and documents from the Financial Supervision Authority and the auditors of the credit institution.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 128. Duties of trustees in bankruptcy

(1)  A trustee in bankruptcy shall notify the depositors, other clients and the creditors of the bankruptcy order and perform the duties prescribed in the Guarantee Fund Act.
[RT I 2008, 59, 330 - entered into force 1.01.2009]

(2)  The trustee in bankruptcy shall promptly notify correspondent banks of the bankruptcy order and close correspondent accounts and where necessary or provided by the legislation of the relevant contracting state, send a notice concerning the bankruptcy order to the registrars of public registers of the contracting states where the branches of the credit institution are founded.
[RT I 2008, 59, 330 - entered into force 1.01.2009]

(3)  A trustee in bankruptcy shall organise execution of payment orders accepted by a credit institution before the commencement of bankruptcy proceedings, pursuant to the procedure provided for in § 87 of this Act.

(4)  A trustee in bankruptcy is required to deposit funds pursuant to the procedure specified by the bankruptcy committee.

(5)  A trustee in bankruptcy of a credit institution is required to submit activity reports at the request of the Financial Supervision Authority but not less frequently than once every three months. The format of the reports shall be established by the Financial Supervision Authority.

§ 129. Bankruptcy committee

(1)  The bankruptcy committee of a credit institution shall consist of at least five members, at least one of whom shall be appointed by the Guarantee Fund and one by the Financial Supervision Authority.

(2)  A court shall appoint the bankruptcy committee of a credit institution on the proposal of a trustee in bankruptcy and the Financial Supervision Authority.

(3)  The provisions of subsections 74 (1), (5) and (7) of the Bankruptcy Act do not apply to bankruptcy proceedings of credit institutions.
[RT I 2003, 17, 95 - entered into force 1.01.2004]

§ 130. Claims in bankruptcy proceedings of credit institutions

(1)  The following shall be released from the obligation to submit a proof of claim:
1)  the Guarantee Fund, to the extent of compensation paid on the basis of the Guarantee Fund Act;
2)  depositors whose deposits are guaranteed pursuant to the procedure and to the extent prescribed in the Guarantee Fund Act, in claims to the extent not compensated by the Guarantee Fund, if the amount of the deposit exceeds the limit provided for in subsection 25 (2) or §§ 110 and 111 of the Guarantee Fund Act and if they have submitted the positions prescribed in subsection 38 (3) of the Guarantee Fund Act.

(2)  The provisions of subsections 99 (1) and (2) of the Bankruptcy Act may be applied in the bankruptcy proceedings of a credit institution after the last meeting for the defence of claims is held.
[RT I 2003, 17, 95 - entered into force 1.01.2004]

§ 131. Specifications regarding priority of claims

(1)  In the bankruptcy proceedings of a credit institution, claims shall be satisfied according to the rankings provided for in the Bankruptcy Act, with the specifications provided for in this section.

(2)  Accepted claims of a credit institution which arise from own funds provided for in §§ 74 and 77 of this Act shall be satisfied after satisfaction of claims which are not filed on time but are accepted.

§ 132. Specifications regarding formation of bankruptcy estate

(1)  Collateral instruments of payments shall not be included in the bankruptcy estate of a credit institution in the amount which is necessary for execution of payment orders accepted by the credit institution before the commencement of bankruptcy proceedings.

(2)  Assets removed from the ownership of a debtor in accordance with the provisions of subsection 114 (2) or (4) of this Act during a moratorium of a credit institution or in accordance with the provisions of § 87 of this Act during bankruptcy proceedings are not subject to recovery.

§ 133. Sale of bankruptcy estate

(1)  A trustee in bankruptcy has the right to sell the set of assets of the credit institution with the consent of the bankruptcy committee on the condition that the buyer secures all the claims of creditors.

(2)  If the assets of a credit institution cannot be sold in any other manner, the general meeting of creditors may, by a resolution, issue a precept to a trustee in bankruptcy for the sale of the assets of the credit institution to creditors by way of payment with the claims thereof, in proportion to the claims defended by them. At least three-quarters of the creditors present must vote in favour of the specified resolution and the claims of the creditors present must make up at least two-thirds of the amount of all claims.

§ 134. Reorganisation and compromise of credit institution

(1)  The reorganisation plan of a credit institution may be submitted by a trustee in bankruptcy to the general meeting of creditors for approval only with the consent of the Financial Supervision Authority.

(2)  A compromise may be made in the course of the bankruptcy proceedings of a credit institution only with the consent of the Financial Supervision Authority. In order to resume activities, a credit institution shall obtain new authorisation pursuant to the provisions of Chapter 2 of this Act.
[RT I 2005, 13, 64 - entered into force 18. 03. 2005]

Division 3
Liquidation of Credit Institutions Operating in Several States
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134¹. Law applicable to liquidation proceedings

(1)  For the purpose of this Division, liquidation proceedings shall mean proceedings commenced by an administrative authority or court of another contracting state, in the course of which the claims of the creditors are satisfied out of the assets of a credit institution of such contracting state or a branch thereof, or a branch founded in such contracting state by a third country credit institution, and other acts are performed which are necessary for the dissolution of the credit institution of that contracting state or a branch thereof, or a branch founded in such contracting state by a third country credit institution, including proceedings which are terminated with the consent of the creditors, by approval of a compromise or based on another similar agreement.

(2)  The provisions of this section concerning liquidation proceedings also apply to liquidation proceedings of Estonian credit institutions in the case of voluntary as well as compulsory dissolution, to bankruptcy proceedings following a bankruptcy order with respect to such credit institution, and to revocation of authorisation for the foundation of a branch in Estonia of a third country credit institution.
[RT I 2008, 59, 330 - entered into force 1.01.2009]

(3)  Liquidation proceedings in respect of a credit institution of a contracting state or its branches shall be carried out in adherence to the law of the home country of the credit institution unless otherwise provided for in this section.

(4)  The provisions of subsections 115¹ (4)-(14) of this Act correspondingly apply to determination of the law applicable to liquidation proceedings.

(5)  In the cases provided by subsections (2) and (3) of this section, above all the following shall be determined by the law of the relevant state:
1)  the composition of assets of the credit institution of Estonia or another contracting state and branches thereof founded in contracting states, or a branch founded by a third country credit institution in Estonia undergoing liquidation (hereinafter in this section credit institution or branch of credit institution), and the legal status of the assets acquired by the credit institution or branch of a credit institution after the commencement of liquidation proceedings;
2)  the rights and obligations of a credit institution or branch of a credit institution, and of the liquidators;
3)  conditions for setting off claims;
4)  effect of the liquidation proceedings on contracts in which one of the parties is the credit institution or branch of credit institution;
5)  the effect of liquidation proceedings on proceedings initiated by creditors, except on court cases before Estonian courts concerning assets or rights transferred from the credit institution or branch of credit institution;
6)  claims asserted against the credit institution or branch of credit institution and conditions for conduct of proceedings concerning the claims after commencement of liquidation proceedings;
7)  notification, verification and acceptance of claims;
8)  distribution of money received from the sale of assets, rankings of claims and rights of creditors if their claims are only partially satisfied as a result of sale of securities related to real rights or set-off;
9)  conditions and effect of termination of liquidation proceedings including in the case of compromise;
10)  rights of creditors after termination of liquidation proceedings;
11)  the person required to bear the expenses incurred in the course of liquidation proceedings;
12)  the procedure for declaration invalid or subject to recovery of legal acts damaging to the creditors as a whole.

(6)  Clause (5) 12) of this section is not implemented if the person who benefited from the legal act specified above certifies that the law of a contracting state other than the home country of the credit institution applies to the legal act and pursuant to such law, no basis exists for contestation of the legal act.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134². Application of liquidation proceedings

(1)  Only an administrative authority or court of the home country of the relevant credit institution or branch of credit institution has the right to commence liquidation proceedings with respect to a credit institution of a contracting state or a branch thereof founded in Estonia.

(2)  A decision to commence liquidation measures with respect to a credit institution of a contracting state or a branch thereof founded in Estonia enters into force in Estonia simultaneously with the entry into force of such decision in the home country of the credit institution.

(3)  Liquidation proceedings applied with respect to a credit institution of a contracting state or a branch thereof founded in Estonia are valid under the same conditions and to the same extent in Estonia as well as in the home country of the credit institution.

(4)  The authority, in Estonia, of a person applying liquidation proceedings shall be certified by the certified copy of the decision on appointment of such person or other appropriate certificate issued by the administrative authority or court of the relevant contracting state. The document specified above shall be accompanied by a translation into the Estonian language.

(5)  The person applying liquidation proceedings specified in subsection (4) of this section has the right to exercise, in Estonia, the same powers he or she is authorised to exercise in the relevant contracting state. In addition to the above, he or she may appoint persons to assist or where necessary, represent him or her in the course of the liquidation proceedings. Upon exercising his or her rights, sale of assets and notification of workers, a person applying liquidation proceedings shall adhere to the provisions of legislation of Estonia. A person applying liquidation proceedings has no right to apply coercive measures upon exercising his or her rights or to make decisions on matters which are subject to court action.

(6)  A person applying liquidation proceedings specified in subsection (4) of this section is required to perform, under the conditions and to the extent provided in Estonian law, the acts necessary for making entries in Estonian public registers.

(7)  After becoming aware of application of liquidation proceedings with respect to a credit institution of a contracting state or branch thereof founded in Estonia, or a branch founded in Estonia by a third country credit institution, the Financial Supervision Authority shall promptly publish a notice to this effect in at least one national newspaper and on its own website.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134³. Information of liquidation of Estonian credit institutions

(1)  The Financial Supervision Authority shall promptly notify the financial supervision authorities of the contracting states where the relevant credit institution has branches of its decision to initiate compulsory dissolution of the credit institution with branches in the contracting states or to grant authorisation to such credit institution for voluntary dissolution, or of a court decision to compulsorily dissolve such credit institution or to declare such credit institution bankrupt. Information on the practical consequences arising from the liquidation proceedings shall be added to such notice.

(2)  In addition to the information specified in subsection (1) of this section, the Financial Supervision Authority shall publish an excerpt of the corresponding decision of the Financial Supervision Authority or a court in the Official Journal and at least two national newspapers in each contracting state where a branch of the credit institution is founded.

(3)  If, after commencement of liquidation proceedings against an Estonian credit institution, an obligation due to the credit institution is performed in another contracting state to the credit institution in lieu of the liquidator, such obligation is deemed to be performed if the person who performed the obligation was not and did not have to be aware of commencement of the liquidation proceedings. It shall be presumed that the person who performed the obligation was not and did not have to be aware of commencement of the liquidation proceedings if the obligation was performed before publication of the excerpt provided in subsection (2) of this section.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134⁴. Notification of creditors located in contracting states of liquidation of Estonian credit institutions
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(1)  In additions to the requirements provided in §§ 120 and 128 of this Act, liquidators or trustees in bankruptcy are required to promptly inform all known creditors of the credit institution located or residing in other contracting states of the commencement of liquidation proceedings or a bankruptcy order in respect of the credit institution.
[RT I 2008, 59, 330 - entered into force 1.01.2009]

(2)  A notice specified in subsection (1) of this section shall contain at least the following information:
1)  time-limits of proceedings and sanctions in the case of failure to adhere thereto;
2)  the names of bodies or agencies competent to receive claims;
3)  other relevant information concerning the measures planned under the liquidation or bankruptcy proceedings if absence of such information may prevent a creditor from exercising his rights;
4)  information on whether a creditor is required to file a claim even if the claim is preferential or if the claim is secured by a real right.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  Liquidators and trustees in bankruptcy are required to regularly inform the creditors of circumstances which become evident in the course of liquidation or bankruptcy proceedings which the creditors should be aware of in order to protect their interests.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134⁵. Languages

(1)  The information specified in subsection 134³ (2) and § 134⁴ of this Act shall be provided in Estonian. For such purpose, a standard format shall be used bearing the title "Notice on filing of claims. Established terms" in the official languages of all contracting states.

(2)  Creditors residing or located in a contracting state are permitted to file their claims in the official language or one of the official languages of such contracting state. In such case the claim submitted by the creditor shall bear the Estonian title "Nõude esitamine" [filing of claim]. A liquidator or trustee in bankruptcy may require that a creditor submit a translation of the claim into the Estonian language.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134⁶. Cooperation with financial supervision authorities of contracting states

(1)  The Financial Supervision Authority shall give immediate notice of its decision to revoke an authorisation for foundation, in Estonia, of a branch of a third country credit institution to the financial supervision authorities of the contracting states where the credit institution's other branches entered in the list provided by Article 14 of Directive 2006/48/EC of the European Parliament and of the Council and published annually in the Official Journal of the European Union are located. Information on all the practical consequences of the decision shall be added to such notice.
[RT I 2010, 2, 3 - entered into force 22.01.2010]

(2)  Upon application of the decision specified in subsection (1) of this section with respect to a branch of a third country credit institution, the Financial Supervision Authority shall cooperate with the financial supervision authorities of the contracting states where the relevant credit institution has branches.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

(3)  Liquidators of a branch founded in Estonia by a third country credit institution are required to cooperate with the liquidators of the branches of that credit institution in other contracting states.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

Chapter 12
Liability
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134⁷. Violation of prudential ratios

A credit institution which violates the prudential ratios provided for in this Act or on the basis thereof shall be punished by a fine of up to 32,000 euros.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 134⁸. Failure to submit information

Failure, by a credit institution, to make public or submit to the Financial Supervision Authority a mandatory report, document, explanation or other data in a timely manner, or publishing or submission of an inaccurate or misleading information is punishable by a fine of up to 32,000 euros.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 134⁹. Violation of procedure for settlements

(1)  Violation of the procedure for settlements by credit institutions provided by legislation is punishable by a fine of up to 200 fine units.

(2)  The same act, if committed by a legal person, is punishable by a fine of up to 32,000 euros.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 134¹⁰. Violation of obligation to maintain confidentiality of information subject to banking secrecy

(1)  A head or employee of a credit institution, or any other person acting in the interests of a credit institution, who unlawfully discloses information subject to banking secrecy shall be punished by a fine of up to 300 fine units.

(2)  The same act, if committed by a legal person, is punishable by a fine of up to 32,000 euros.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 134¹¹. Violation of procedure for acquisition of qualifying holding in bank

(1)  Acquisition or transfer of a holding in a bank, or turning a bank into a controlled company without giving prior notice thereof to the Financial Supervision Authority pursuant to this Act or in violation of a precept specified in subsection 31 (3) of this Act, or exercise of voting rights or other rights granting control in a bank in violation of a precept of the Financial Supervision Authority in punishable by a fine of up to 300 fine units.

(2)  The same act, if committed by a legal person, is punishable by a fine of up to 32,000 euros.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 134¹². Violation of obligations of manager of credit institution

Violation, by a manager of a credit institution, of the obligations provided for in this Act resulting in failure or danger of failure to provide sufficient protection to the interest of the clients of the credit institution is punishable by a fine of up to 300 fine units.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

§ 134¹³. Violation of requirements for activities of foreign credit institution

Provision, by a credit institution of a contracting state, of a financial service specified in clause (6) (1) 1) of this Act in Estonia without informing the Financial Supervision Authority thereof or a violation of the requirements of this Act established with regard to the activities of foreign credit institutions is punishable by a fine of up to 32,000 euros.
[RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 134¹⁴. Proceedings

(1)  The provisions of the General Part of the Penal Code and the Code of Misdemeanour Procedure apply to the misdemeanours provided for in §§ 134⁷-134¹³ of this Act.

(2)  Extra-judicial proceedings concerning the misdemeanours provided for in this Act shall be conducted by the Financial Supervision Authority.
[RT I 2004, 86, 582 - entered into force 1.01.2005]

Chapter 13
Implementation of Act

§ 141. Application of Act to operating credit institutions

(1)  Credit institutions operating on the date of entry into force of this Act shall bring their activities and documents into conformity with the requirements of this Act within one month after the entry into force of this Act, unless otherwise provided for in this section.

(2)  The articles of association of credit institutions shall be brought into conformity with the requirements of this Act within nine months after the entry into force of this Act. If the articles of association of a credit institution founded before the entry into force of this Act are in conflict with this Act, the provisions of this Act shall apply.

(3)  Credit institutions founded before the entry into force of this Act are required to bring the membership of their directing bodies into conformity with the requirements of this Act and submit the documents prescribed in subsection 48 (7) of this Act to the Bank of Estonia within one year after the entry into force of this Act.

(4)  A person who has a qualifying holding in a bank but does not hold corresponding authorisation is required to apply for authorisation to acquire a qualifying holding from the Financial Supervision Authority within six months after the entry into force of this Act. From 1 September 1999, votes representing qualifying holdings without corresponding authorisation shall not be included in the quorum of the general meeting.

(5)  If a merger agreement between credit institutions was entered into before 1 July 1999, the Act in force at the time of entry into the merger agreement applies to acts performed in connection with the merger.

(6)  If liquidation proceedings, bankruptcy proceedings or a moratorium regarding a credit institution commenced before 1 July 1999, the Act in force at the time of adoption of the liquidation resolution, commencement of the bankruptcy proceedings or establishment of the moratorium applies to acts performed in connection with the liquidation proceedings, bankruptcy proceedings or moratorium, unless otherwise prescribed in this section.

(7)  The provisions of clause 120 6) of this Act apply to liquidation proceedings commenced before 1 July 1999 and the provisions of subsections 128 (4) and (5) and subsection 130 (2) of this Act apply to bankruptcy proceedings commenced before 1 July 1999.

(8)  All circumstances and obligations which are not in compliance with this Act and which a credit institution is unable to eliminate or perform during the terms specified in this section shall be set out in a list which, together with a plan for the elimination of such circumstances and for the performance of such obligations, shall be submitted to the Bank of Estonia within six months after the entry into force of this Act. The Bank of Estonia shall specify a term for elimination of such circumstances and deficiencies.

(9)  The Bank of Estonia has the right to establish legislation and give explanations and instructions for the implementation of this Act.
[RT I 2001, 48, 268 - entered into force 1.01.2002]

§ 141¹. Transitional provisions for calculation of capital requirements

(1)  Until 31 December 2007, a credit institution may apply the legal provisions in force before 1 January 2007 upon calculation of risk-weighted assets.

(2)  The provisions of subsection (1) of this section do not apply to credit institutions who obtained the activity licence after 1 January 2007.

(3)  If a credit institution calculates the capital requirements for credit risk pursuant to subsection (1) of this section, the credit institution shall prepare and submit to the Financial Supervision Authority reports in compliance with the legal provisions in force before 1 January 2007.

(4)  If a credit institution calculates the capital requirements for credit risk pursuant to subsection (1) of this section, the credit institution may:
1)  decrease the capital requirement for operational risk in the same proportion as the extent to which the legal provisions in force before 1 January 2007 are applied in calculation of the risk-weighted assets;
2)  base the calculation of the limitations for concentration of exposures on the legal provisions in force before 1 January 2007.

(5)  If a credit institution calculates the capital requirements for credit risk pursuant to subsection (1) of this section, the requirements provided by §§ 63¹ and 92¹ of this Act do not apply.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 141². Requirements for own funds

(1)  If a credit institution calculates the capital requirements for credit risk pursuant to the basic approach to internal ratings, then during the year 2007, its own funds shall make up at least 95% of the requisite own funds calculated pursuant to the legal provisions in force before entry into force of this Act.

(2)  If a credit institution calculates the capital requirements for credit risk pursuant to an internal ratings approach, its own funds shall make up:
1)  during the year 2008, at least 90% of the requisite own funds calculated pursuant to the legal provisions in force before 1 January 2007;
2)  during the year 2009, at least 80% of the requisite own funds calculated pursuant to the legal provisions in force before 1 January 2007.

(3)  If a credit institution calculates the capital requirements for credit risk pursuant to an internal ratings approach, then until 31 December 2010, the weighted average amount of loss related to the retail claims secured by immovables in the case of housing shall not be less than 10% unless the central government has granted a guarantee for such claims.

(4)  If a credit institution calculates the capital requirements for operational risk pursuant to an advanced measurement approach, then its own funds shall make up:
1)  during the year 2008, at least 90% of the requisite own funds calculated pursuant to the legal provisions in force before 1 January 2007;
2)  during the year 2009, at least 80% of the requisite own funds calculated pursuant to the legal provisions in force before 1 January 2007.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 141³. Transactions for managing credit risk

A credit institution who uses the standardised approach or basic internal ratings approach to credit risk for calculation of capital requirements may, in order to decrease risk positions or lower risk weight, take account of the securing transactions performed before 1 January 2007 upon calculation of the capital requirements if such transactions meet the conditions provided by this Act.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 141⁴. Differences in licence terms for use of methods for calculation of capital requirements

(1)  If a credit institution applies for permission for the use of an internal ratings approach to credit risk from the Financial Supervision Authority before 31 December 2009, the credit institution must be able to prove that it has used, at least during one year before obtaining permission for the use of the internal ratings approach, a rating system which, in its essence, conforms to the minimum requirements provided by this Act.

(2)  If a credit institution applies for permission for the use of the advanced measurement approach to internal ratings of credit risk from the Financial Supervision Authority before 31 December 2008, the credit institution must be able to prove that it has assessed and used, at least during two years before obtaining permission for the use of the internal ratings advanced measurement approach, internal ratings concerning loss amounts and revaluation factors which, in their essence, conform to the minimum requirements provided by this Act.

(3)  A credit institution may commence the use of the advanced internal ratings approach to credit risk upon calculation of the capital requirements for credit risk and the advanced measurement approach upon calculation of operational risk as of 1 January 2008.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 141⁵. Administrative procedure upon application for licences

(1)  The provisions of the Credit Institutions Act in force until 31 December 2006 apply to administrative proceedings which the Financial Supervision Authority has initiated before 1 January 2007.

(2)  The permissions regarding the calculation of prudential norms granted by the Financial Supervision Authority before 1 January 2007 remain in force to the extent in which they are not contrary to this Act and legislation issued on the basis thereof.
[RT I 2006, 63, 467 - entered into force 1.01.2007]

§ 141⁶. [Repealed - RT I 2010, 22, 108 - entered into force 01.01.2011]

§ 141⁷. Bringing activities of savings and loan associations and association banks into conformance with the requirements entered into force on 1 July 2010

Savings and loan associations and association banks founded before 1 July 2010 shall bring their activities into conformance with the version of this Act entered into force on 1 July 2010 not later than by 1 July 2011. Until bringing their activities and documents into conformance with the aforementioned version of this Act, the activities and documents of savings and loan associations and association banks shall be in conformance with the legislation being into force until 1 July 2010.
[RT I 2010, 34, 182 - entered into force 1.07.2010]

§ 142. Entry into force of Act

This Act enters into force on 1 July 1999, except for:
1)  subsections 87 (3)-(5), 114 (4), 128 (3) and 132 (1), which enter into force on 1 January 2000;
2)  Chapter 4, which enters into force upon the entry into force of the Savings and Loan Associations Act;
3)  subsections 21 (4) and 30 (6), which enter into force upon accession of the Republic of Estonia to the European Union unless otherwise provided by an international agreement of the Republic of Estonia.

§ 143. Application and repeal of earlier legislation

(1)  [Omitted from this text]

(2)  Other legislation regulating the activities of credit institutions upon the entry into force of this Act applies to credit institutions in so far as such legislation is not in conflict with this Act.

[1] Directive 2006/48/EC of the European Parliament and of the Council (OJ L 177, 30.06.2006, pp. 1-200) regarding founding and activities of credit institutions;
Directive 2006/49/EC of the European Parliament and of the Council (OJ L 177, 30.06.2006, pp. 201-255) regarding capital adequacy of investment firms and credit institutions;
Directive 2007/44/ EC of the European Parliament and of the Council, amending the Directive 92/49/EEC of the European Council and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC regarding the procedures and criteria for reliability assessment applied to transactions for acquiring and increasing holdings in the financial sector (OJ L 247, 21.09.2007, pp. 1-16).
[RT I 2009, 37, 250 - entered into force 10.07.2009]
[2] RT = Riigi Teataja = State Gazette