CREDIT INSTITUTIONS ACT
Chapter 1
GENERAL PROVISIONS
§ 1. Purpose of Act
This Act provides the legal bases for the foundation,
activities and dissolution of credit institutions and the
principles and legal bases for supervision of credit
institutions.
§ 2. Application of Act
(1) This Act applies to all credit institutions founded or
operating in Estonia and to the subsidiaries, branches and
representative offices thereof.
(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 host country, 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.
§ 3. Definition of credit institution
(1) A credit institution is a company the principal and
permanent 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.
(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.
§ 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, and to
invest such money or funds or use them for granting loans for
their own account as their permanent activity.
(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 a previously unspecified set of
persons.
(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 repayable funds in any other
manner by:
1) the Government of the Republic;
2) local governments;
3) international organisations or other international
institutions governed by public law of which the Republic
of Estonia or a member state of the European Union is a
member;
4) legal persons whose activities upon receipt of
money from the public and investment thereof is
sufficiently regulated by legislation and over whose
activities in such areas of activity state supervision
has been established by legislation 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)-14) of this Act.
§ 6. Transactions and acts permissible for credit
institutions
(1) Credit institutions are permitted to conclude the
following transactions and perform the following acts:
1) deposit transactions for the receipt of deposits
and other repayable funds from the public;
2) lending;
3) leasing transactions;
4) money transmission services;
5) issue and administration of non-cash means of
payment;
6) guarantees and commitments and other transactions
involving off-balance-sheet items;
7) transactions for their own account or for the
account of clients in
8) provision of services related to the issue and sale
of securities;
9) provision of advice to clients on issues concerning
investments and economic activities, and provision of
services related to the merger, division or acquisition
of companies;
10) money broking;
11) portfolio management;
12) safekeeping and administration of securities;
13) credit reference services;
14) safe custody services;
15) other transactions which are essentially similar
to transactions specified in clauses 1)-14).
(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 or acquire an ancillary undertaking.
(3) For the purposes of this Act, an ancillary undertaking
of a credit institution (hereinafter ancillary undertaking)
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.
§ 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 Banking Supervision Department of the Bank of
Estonia (hereinafter Banking Supervision) 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.
§ 8. Financial holding company and mixed-activity holding
company
(1) A financial holding company is a financial institution
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.
(2) A mixed-activity holding company is a parent company,
other than a financial holding company or a credit
institution, the subsidiaries of which include at least one
credit institution.
§ 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 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 Banking Supervision, 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 euros on the basis of the
exchange rate of the Bank of Estonia 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.
(5) With the consent of the Banking Supervision, an
undertaking shall not be included in the consolidation group
of a credit institution if, according to the opinion of the
Banking Supervision, the inclusion of the undertaking in the
consolidation group would distort the actual financial
situation of the consolidation group of the credit
institution.
§ 10. Procedure for calculation of voting rights
(1) For the purposes of calculating voting rights in a
company, a person is deemed to hold the following votes:
1) votes determined by shares held by the person;
2) votes determined by shares held by a company
controlled by the person;
3) votes determined by shares held by a third party
with whom the person has entered into a written agreement
which obliges the parties to use concerted voting to
adopt a common policy towards the management of the
company;
4) votes determined by shares which are held by a
third party but which, pursuant to a written agreement
entered into by the person or a company controlled by him
or her and the third party, have been temporarily
transferred to the person.
(2) For the purposes of this Act, a controlled company is
a company in which a person:
1) holds at least one-half of the votes, or
2) has the right to appoint or remove a majority of
the members of the supervisory or management board of the
company and is at the same time a shareholder in the
company, or
3) is a shareholder in the company and controls a
majority of the votes of the shareholders pursuant to an
agreement entered into with other shareholders, or
4) according to the opinion of the Banking
Supervision, actually exercises dominant influence in any
other manner.
§ 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,
which concludes one or more of the transactions or performs
one or more of the acts for which the credit institution has
been authorised, and which operates on the basis of statutes.
(2) The activities of a branch of a credit institution
shall be regulated by the statutes of the branch which shall
be approved by the management board of the credit
institution.
(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.
§ 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 the business name of the credit institution as
registered in the home country thereof 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 Banking Supervision 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.
Chapter 2
AUTHORISATION OF CREDIT INSTITUTION
§ 13. Application for authorisation
(1) A person who wishes to found a credit institution is
required to submit a written application for authorisation of
the credit institution to the Bank of Estonia.
(2) An application for authorisation shall be submitted to
the Banking Supervision. The following shall be annexed to
the application:
1) the notarised memorandum of association of the
credit institution;
2) the articles of association of the credit
institution;
3) the business plan of the credit institution and a
detailed description of the intended activities;
4) a description of the organisational structure of
the credit institution;
5) a draft of the internal accounting rules, and data
relating to the information systems to be used;
6) documents to certify that candidates for the
positions of managers of the credit institution, the head
of the internal audit unit or the chairman of the audit
committee of the credit institution are trustworthy and
meet the requirements of this Act;
7) the list of shareholders or members with data
relating to the number of shares and votes acquired or
the contributions paid by them;
8) if a shareholder or member who is a natural person
holds more than 2 per cent of the share capital or votes
in the credit institution, documents certifying the
financial status of the person during the last three
years;
9) if a shareholder or member 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 auditor's reports, and the
list of shareholders together with data relating to the
percentage of capital held by them in the company in
question;
10) data relating to the auditor;
11) a document by which the credit institution assumes
the obligation to make the single payment prescribed in
the Deposit Guarantee Fund Act (RT I 1998, 40, 612);
12) a document certifying the existence of the share
capital of the credit institution;
13) the draft statutes of the internal audit unit;
14) the internal rules and rules of procedure
regulating the activities of the managers and employees
of the credit institution pursuant to the requirements of
§ 63 of this Act;
15) written confirmation from the members of the
management board certifying the correctness of the data
in documents submitted pursuant to this section.
(3) In order to obtain authorisation for an association
bank, the following shall be submitted in addition to the
documents and data specified in subsection (2) of this
section:
1) the minutes of the foundation meeting and a list of
the members who participated in the meeting;
2) documents relating to the members of the audit
committee, certifying that they are trustworthy and meet
the requirements of this Act.
(4) A person who wishes to acquire a qualifying holding
upon the foundation of a credit institution shall submit the
documents specified in § 30 of this Act in addition to the
documents specified in subsection (2) of this section.
(5) A credit institution being founded must have rooms
which meet the requirements for the provision of services to
clients and for security, and the necessary technical
equipment, information technology and other technological
equipment and systems, security systems, and control
mechanisms and systems to conclude the intended transactions
and perform the intended acts.
(6) The Banking Supervision may demand additional
documents or information and carry out on-the-spot
verification in order to specify or verify the certificates,
documents or equipment specified in subsections (2)-(5) of
this section.
(7) The procedure for application for authorisation and
the list of documents to be submitted shall be established by
the Bank of Estonia pursuant to law.
§ 14. Grant of authorisation
(1) The Bank of Estonia shall grant authorisation to a
credit institution if:
1) the share capital of the credit institution being
founded is equivalent to at least 5 million euros on the
basis of the exchange rate of the Bank of Estonia and has
been fully paid in in money;
2) the founders have assumed the obligation to make
the single payment prescribed in the Deposit Guarantee
Fund Act;
3) candidates for the positions of managers of the
credit institution, the head of the internal audit unit
or the chairman of the audit committee of the credit
institution being founded, and the shareholders who have
qualifying holdings, meet the requirements prescribed in
this Act;
4) the conditions for acquisition of shares by the
shareholders of the credit institution being founded or
the conditions for acceptance or removal of the members
of an association bank being founded comply with law and
meet the conditions of the memorandum of association of
the credit institution;
5) according to the opinion of the Banking
Supervision, the business plan of the credit institution
being founded is feasible;
6) the seat of the credit institution being founded is
in Estonia;
7) according to the opinion of the Banking
Supervision, close links between the credit institution
being founded and other persons do not prevent sufficient
supervision;
8) other data and equipment required pursuant to § 13
of this Act are in accordance with this Act.
(2) The Bank of Estonia shall make a decision on the grant
of or refusal to grant authorisation within three months
after all the documents and data required on the basis of §
13 of this Act are submitted and all the requirements are
met. The decision shall be communicated to the applicant in
writing within ten days after the date on which the decision
is made. Authorisation shall be issued by the Banking
Supervision.
§ 15. Refusal to grant authorisation
(1) The Bank of Estonia shall refuse to grant
authorisation if:
1) the requirements provided for in § 14 of this Act
are not met, or
2) the applicant has failed to submit on time or has
refused to submit the data, documents or information
required by § 13 of this Act or by the Banking
Supervision to the Banking Supervision, or
3) the applicant has submitted misleading or
inaccurate data or falsified documents.
(2) The reasoned decision on refusal to grant
authorisation shall be sent promptly to the applicant.
(3) A decision on refusal to grant authorisation may be
contested in court within ten days as of the date of receipt
of the decision.
§ 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 Bank of Estonia;
4) in the event of the withdrawal of authorisation, upon
the withdrawal of the authorisation;
5) in the event of the bankruptcy of the credit
institution, upon the commencement of bankruptcy proceedings
on the basis of a petition from the Bank of Estonia.
§ 17. Withdrawal of authorisation
The Bank of Estonia may withdraw authorisation if:
1) the credit institution fails to commence activities
within six months after the issue of authorisation, if an act
or omission by the founders of the credit institution shows
that the credit institution will be unable to commence
activities within six months after the issue of
authorisation, or if the activities of the credit institution
are suspended for more than six months, or
2) the credit institution violates the prudential rules
established by or on the basis of this Act and, during the
term specified in a precept issued by the Banking
Supervision, fails to restore the stringency required by such
rules, or
3) the Banking Supervision establishes that misleading or
inaccurate data or falsified documents were submitted upon
application for authorisation, or
4) a manager of the credit institution or a shareholder
who has a qualifying holding does not meet the requirements
provided for in this Act and if the credit institution has
failed to comply with the corresponding precept issued by the
Banking Supervision during the term specified in the precept,
or
5) the credit institution does not meet the conditions
under which authorisation was issued, or
6) the credit institution violates the procedure
established by legislation for the prevention of money
laundering, or
7) the credit institution submits misleading or inaccurate
data or falsified documents or repeatedly and materially
violates this Act or the Accounting Act (RT I 1994, 48, 790;
1995, 26-28, 355; 92, 1604; 1996, 40, 773; 42, 811; 49, 953;
1998, 59, 941), or
8) 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, or
9) close links between the credit institution and other
persons prevent the exercise of sufficient supervision, or
10) the credit institution concludes transactions or
performs acts which are beyond the scope of activities
determined by this Act or the articles of association of the
credit institution, or
11) the activities of the credit institution cause
significant damage to the interests of depositors or other
clients or hinder the circulation of currency or the
functioning of the money or capital markets, or
12) the credit institution repeatedly fails to pay the
obligatory contribution to the Deposit Guarantee Fund on
time.
§ 18. Procedure for withdrawal of authorisation
(1) A proposal for withdrawal of authorisation shall be
made by the Banking Supervision.
(2) The Bank of Estonia shall decide on the withdrawal of
authorisation within seven days as of making the
corresponding proposal.
(3) A reasoned decision on the withdrawal of authorisation
shall be sent promptly to the credit institution whose
authorisation is withdrawn and to other Estonian credit
institutions and the Deposit Guarantee Fund.
(4) The public shall be informed of the withdrawal of the
authorisation of a credit institution in at least one daily
national newspaper and one local newspaper of the seat of the
credit institution not later than on the third day after the
corresponding decision is made.
(5) A decision on the withdrawal of authorisation may be
contested in court by the management board of the credit
institution within ten days as of the date of adoption of the
decision.
§ 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.
(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.
§ 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 Banking Supervision setting out the
following data:
1) the name of the 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 business 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 Banking Supervision may demand additional
documents or information in order to specify or verify the
data specified in subsection (1) of this section;
(3) The Banking Supervision shall inform the banking
supervision authority of the foreign state of a submitted
application within three months as of the submission of the
application, and shall co-ordinate liability and the
principles of supervision with the banking supervision
authority of the host country.
(4) The Banking Supervision 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 Banking Supervision 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.
(6) A credit institution which has a subsidiary credit
institution or a branch in a foreign state is required to
notify the Banking Supervision and the banking 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.
(7) The Banking Supervision shall be notified of the
opening of a representative office of a credit institution in
a foreign state at least ten days before such opening. The
procedure and conditions for submission of the corresponding
information shall be established by the Bank of Estonia.
(8) The Bank of Estonia shall maintain a database of the
subsidiary credit institutions, branches and representative
offices of Estonian credit institutions in foreign states.
The chief processor of the database is the Banking
Supervision.
§ 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
authorisation from the Bank of Estonia pursuant to § 13 of
this Act.
(2) A foreign credit institution which wishes to acquire a
holding in an Estonian credit institution such that the
latter would become a subsidiary thereof shall submit an
application and the data and documents required by clauses 13
(2) 3)-6) and 10) and § 30 of this Act to the Banking
Supervision.
(3) A foreign credit institution which wishes to found a
branch in Estonia is required to apply in writing for
authorisation from the Bank of Estonia. An application for
authorisation shall be submitted to the Banking Supervision
and the following shall be annexed thereto:
1) the business plan of the branch being founded and a
detailed description of the intended activities, a
description of the organisational structure, and the
relationship with the credit institution founding the
branch;
2) the address of the branch;
3) data relating to the director of the branch, in
accordance with subsection 48 (7) of this Act;
4) the data and documents required by subsection 30
(2) 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 (RT I 1995, 26-28, 355;
1998, 91-93, 1500; 1999, 10, 155).
(4) A credit institution registered in a member state of
the European Union shall inform the Banking Supervision if
the credit institution wishes to open a branch, and submit
the data specified in clauses (3) 1)-3) and subsection (5)
of this section through the banking supervision authority of
the home country of the credit institution. Upon the entry of
a branch in the commercial register, confirmation from the
Bank of Estonia concerning receipt of such data shall be
submitted.
(5) The consent of the banking supervision authority of
the home country of the credit institution to the foundation
or acquisition of a subsidiary credit institution or
foundation of a branch in Estonia, confirmation that the
credit institution holds valid authorisation or a valid
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 country shall be
submitted to the Banking Supervision in addition to the data
required by subsections (2) and (3) of this section.
(6) Documents and data specified in this section shall be
submitted to the Banking Supervision together with a
notarised translation into Estonian.
(7) In addition to the provisions of subsection 15 (1) of
this Act, the Bank of Estonia may refuse to grant
authorisation if:
1) according to the opinion of the Banking
Supervision, the financial situation of the foreign
credit institution is not sufficiently sound, or
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, or
3) the legislation of the home country of the foreign
credit institution does not require or the banking
supervision authority of the home country does not
exercise sufficient supervision, including supervision on
a consolidated basis.
(8) A reasoned decision on the grant of or refusal to
grant authorisation shall be made within three months as of
the receipt of an application and all the data and documents
specified in subsection (1), (2) or (3) of this section.
Authorisation shall be issued by the Banking Supervision.
(9) The reasoned decision on refusal to grant
authorisation shall be sent promptly to the applicant.
§ 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 Banking Supervision:
1) confirmation from the banking supervision authority
of the home country that the credit institution holds
valid authorisation;
2) the activities programme 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.
(2) The documents specified in subsection (1) of this
section shall be submitted to the Banking Supervision
together with a notarised translation into Estonian.
(3) The Bank of Estonia shall maintain a database of the
representative offices of foreign credit institutions in
Estonia. The chief processor of the database is the Banking
Supervision.
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.
§ 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 Banking
Supervision 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
Banking Supervision within ten days as of the adoption of the
resolution by the general meeting of shareholders:
1) the resolution of the general meeting concerning
amendments to the articles of association;
2) the minutes of the general meeting;
3) the new text of the articles of association.
(3) The Banking Supervision shall refuse to grant consent
to amendments to articles of association if such amendments
do not comply with current legislation.
(4) The Banking Supervision 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 Banking Supervision to amendments
to the articles of association of a credit institution shall
be annexed to the application submitted to the commercial
register.
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 Banking Supervision, 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 of preferred shares
shall not be greater than one-tenth of the share capital.
(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) The shares of a bank shall be registered in the
Estonian Central Register of Securities. The registrar of the
share register of a bank is the registrar of the Estonian
Central Register of Securities. If any shareholder acquires a
qualifying holding in the bank, the number and date of the
authorisation issued by the Banking Supervision for the
acquisition of a qualifying holding shall be entered in the
share register.
§ 29. Qualifying holding
(1) For the purposes of this Act, a holding in a company
which represents 10 per cent or more of the share capital or
votes in the company is deemed to be a qualifying holding.
(2) Qualifying holdings in a bank may be held by persons
who, according to the opinion of the Banking Supervision, are
able to ensure the sound and prudent management of the bank
and whose business connections and structure of owners are
transparent and do not prevent the exercise of supervision.
§ 30. Application for authorisation for acquisition of
qualifying holding
(1) A person who intends to acquire a qualifying holding
in a bank or to increase a qualifying holding so that the
proportion of the share capital or votes in the bank held by
the person exceeds 20, 33 or 50 per cent or so that the bank
would become the subsidiary of the person as a result of the
transaction is required to apply in writing for authorisation
for acquisition of the qualifying holding from the Banking
Supervision.
(2) In order to obtain authorisation for acquisition of a
qualifying holding, an application shall be submitted to the
Banking Supervision setting out the size of the intended
holding. The following shall be annexed to the application:
1) data relating to the identity of the acquirer of
the holding, including documents which certify the
trustworthiness and impeccable business reputation of the
members of the management board and supervisory board of
the acquiring company;
2) the last three annual reports of the acquiring
company. If more than nine months have passed since the
end of the previous financial year, an interim report for
the first six months of the financial year shall be
submitted;
3) if the acquirer of the holding is a company
belonging to a 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 group;
4) if the acquirer is a natural person, documents
certifying the financial status of the person during the
last three years.
(3) The procedure for submission of the data and documents
specified in subsection (2) of this section and the exact
list of data shall be established by the Bank of Estonia.
(4) The Banking Supervision may demand additional
documents or information in order to specify or verify the
documents specified in subsection (2) of this section.
(5) A foreign credit institution, insurance company or
investment fund which wishes to acquire a qualifying holding
shall, in addition to documents specified in subsection (2)
of this section, submit a certificate issued by the
supervisory authority of the home country, which proves that
the credit institution, insurance company or investment fund
holds valid authorisation or a valid licence and that the
activities thereof comply with prudential rules, to the
Banking Supervision.
(6) A credit institution, insurance company or investment
fund registered in a member state of the European Union shall
inform the Banking Supervision of a wish to acquire a
qualifying holding and submit the documents and data
specified in subsection (5) of this section.
(7) Upon becoming aware of a transaction by which a
qualifying holding is acquired, a bank shall promptly inform
the Banking Supervision of the transaction.
§ 31. Requirements for and consequences of granting
authorisation for acquisition of qualifying holdings
(1) The Banking Supervision may refuse to grant
authorisation for the acquisition or increase of a qualifying
holding if:
1) the acquisition or increase of the qualifying
holding may significantly restrict free competition in
the banking market, or
2) the acquisition of the qualifying holding does not
comply with the principles of sound and prudent
management of credit institutions, or
3) the person acquiring or increasing the holding does
not have an impeccable business reputation or does not
meet the requirements provided for in subsection 29 (2)
of this section, or
4) the Banking Supervision is of the opinion that the
financial situation of the applicant is not sufficiently
sound or that the financial statements of the applicant
do not allow for a correct assessment of the financial
situation of the applicant, or
5) the applicant has failed to submit on time or has
refused to submit the data, documents or information
prescribed by this Act or required by the Banking
Supervision to the Banking Supervision.
(2) The Banking Supervision shall notify the applicant of
a decision on the grant of or refusal to grant authorisation
not later than within two months after receipt of all the
documents specified in this Act, or after receipt of
additional documents and information required in order to
specify or verify such documents.
(3) The Banking Supervision shall notify the registrar of
the share register of a credit institution of the number and
date of issue of authorisation for the acquisition of a
qualifying holding or of a decision on refusal to grant
authorisation.
(4) If a transaction by which a qualifying holding is
acquired or increased is concluded without the authorisation
of the Banking Supervision, the person who concluded the
transaction shall not acquire the voting rights determined by
the acquired shares and the shares shall not be included in
the quorum of the general meeting. If the data specified in
subsection 28 (6) of this Act has not been entered in the
share register, authorisation shall be presumed not to have
been granted unless proved otherwise by documents.
(5) If voting rights representing a qualifying holding
acquired or increased by a transaction concluded without the
authorisation of the Banking Supervision are included in the
quorum of the general meeting and influence the adoption of a
resolution of the general meeting, a court may, on the basis
of a petition of the Bank of Estonia, declare the resolution
of the general meeting invalid if the petition is submitted
within three months as of the adoption of the resolution of
the general meeting.
§ 32. Withdrawal of authorisation for acquisition of
qualifying holding
(1) The Banking Supervision may withdraw authorisation for
the acquisition of a qualifying holding if:
1) the applicant has submitted misleading or
inaccurate data or falsified documents;
2) the activities of the shareholder who has a
qualifying holding or the representative thereof cause a
significant risk to the sound and prudent management of
the credit institution.
(2) The provisions of subsections 31 (3) and (4) of this
Act apply to the withdrawal of authorisation for the
acquisition of a qualifying holding.
(3) The Banking Supervision shall promptly notify the
registrar of the share register of the credit institution of
the withdrawal of authorisation for the acquisition of a
qualifying holding.
§ 33. Transfer of qualifying holdings
A person who intends to transfer shares in the amount by
which the person loses a qualifying holding in a bank or to
reduce the holding of the person such that it falls below one
of the thresholds specified in subsection 30 (1) of this Act
is required, before transferring the shares, to inform the
Banking Supervision of the size of the holding to be
transferred, regardless of whether the bank ceases thereby to
be a subsidiary or affiliated undertaking of another company.
§ 34. Prohibition on taking as collateral of own shares
and grant of loans for purchase thereof
The grant of a loan for the purchase of own shares and the
taking as collateral of own shares for a loan is prohibited.
§ 35. Share capital of bank
(1) The paid-in share capital of a bank upon the
foundation thereof shall be equivalent to at least 5 million
euros on the basis of the exchange rate of the Bank of
Estonia.
(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).
(2) Upon a resolution of the general meeting, shares can
be paid for by a non-monetary contribution upon an increase
of the share capital of the bank if:
1) the share capital is increased by the settlement of
a financial claim arising out of a subordinated debt
agreement and the issue price of the shares;
2) the share capital is increased by the conversion of
convertible bonds to shares;
3) the share capital is increased in the course of a
merger of banks.
(3) Authorisation from the Banking Supervision is required
to increase the share capital of a bank by the method
specified in clause (2) 1) of this section.
(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 Banking Supervision
of the conditions of an intended increase in share capital at
least seven days before the adoption of the corresponding
resolution.
§ 37. Reduction of share capital
(1) Share capital may only 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
75 (4) of this Act.
(2) A bank is required to obtain the consent of the
Banking Supervision to the conditions of an intended
reduction of share capital before adoption of the
corresponding resolution.
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) By the date on which the foundation meeting of an
association bank is called, at least fifty persons must have
submitted an application specified in subsection 18 (1) of
the Savings and Loan Association Act (RT I 1999, 24, 357) to
the founders and paid the membership fee.
(2) The provisions of § 25 of this Act apply to the
foundation of association banks.
(3) The provisions of § 5 and subsection 18 (2) of the
Savings and Loan Associations Act do not apply to the
foundation of association banks.
§ 40. Competence of foundation meeting of association bank
(1) In addition to that provided for in the Savings and
Loan Associations Act, the foundation meeting of an
association bank shall:
1) elect the members of the supervisory board of the
association bank;
2) elect the members of the credit committee pursuant
to the procedure prescribed in the articles of
association of the association bank;
3) establish the work procedure of the audit
committee.
(2) A foundation meeting may deviate from the provisions
of the memorandum of association only with the consent of all
persons who have paid the membership fee.
§ 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
stringency of prudential rules of the association bank being
founded meet the requirements of this Act and legislation
issued on the basis thereof.
§ 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
granting loans to the members of the association bank;
4) the reporting principles.
(2) The articles of association shall be signed by all
members who participate in the foundation meeting and vote in
favour of the adoption of the articles of association.
(3) The provisions of subsection (2) of this section also
apply to the amendment of articles of association.
(4) The provisions of § 27 of this Act apply to
association banks.
§ 43. Proprietary liability of members of association banks
(1) The liability of a member of an association bank for
the obligations of the association bank is limited by the
contribution of the member. If a member of an association
bank has not paid a contribution in full, the member shall
also be liable for the obligations of the association bank to
the extent of the unpaid contribution.
(2) The provisions of subsections 21 (2) and (3) of the
Savings and Loan Associations Act do not apply to members of
association banks.
§ 44. Share capital of association banks
(1) The paid-in share capital of an association bank upon
the foundation thereof shall be equivalent to at least 5
million euros on the basis of the exchange rate of the Bank
of Estonia.
(2) Only amounts actually paid in may be indicated as the
share capital of an association bank.
§ 45. Reserve capital of association bank
(1) In order to guarantee the obligations of an
association bank, reserve capital 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 reserve capital. If the
reserve capital reaches the amount prescribed in the articles
of association, the increase of reserve capital 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.
(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 Banking
Supervision of the intention to elect or appoint the managers
of the credit institution or of the resignation or initiation
of removal of the managers before the expiry of their term of
office, and to submit the documents specified in subsection
(7) of this section to the Banking Supervision 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.
(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 supervisory board of another
company unless the company belongs to the same
consolidation group as the credit institution;
2) a member of the management board or audit
committee, or an auditor or procurator 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.
§ 50. Removal of manager of credit institution
(1) The Banking Supervision 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 Banking
Supervision, 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 Bank of Estonia 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 Banking Supervision
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.
§ 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 75 (4) 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 Banking Supervision;
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 Banking Supervision 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 Banking Supervision pursuant to the
same procedure as to the shareholders or members of the
credit institution.
§ 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 manager and
deputy manager of the internal audit unit of the credit
institution;
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.
§ 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 of the
internal audit unit, 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 supervisory board 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.
§ 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;
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 and the statutes of branches;
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) ensure monitoring of the compliance of the
activities of the credit institution and the employees
thereof with legislation and the documents approved by
the directing bodies of the credit institution;
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.
(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 rules.
§ 56. Members of management board
(1) The management board shall have 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
of the internal audit unit, members of the audit committee
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.
§ 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.
§ 59. Internal audit unit
(1) A credit institution shall form an independent
internal audit unit which shall monitor the activities of the
whole credit institution and the compliance thereof with law,
legislation passed by the Bank of Estonia, the principles of
sound banking management and precepts issued by the Banking
Supervision.
(2) The internal audit unit shall assess the suitability
and sufficiency of the internal rules and rules of procedure
of the credit institution for the activities of the credit
institution and regularly monitor compliance with the
requirements, rules of procedure, limitations and other rules
established by the supervisory board or the management board.
(3) 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.
(4) In an association bank, the duties provided for in
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 management 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 Banking
Supervision 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.
§ 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
Banking Supervision.
§ 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.
(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.
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 requirements provided for in
subsections 400 (2) and (3) of the Commercial Code do not
apply to the merger of credit institutions.
(5) An action may be filed with a court for contestation
of a merger resolution only until corresponding authorisation
for merger or activities is granted pursuant to the procedure
prescribed in this Act.
§ 65. Methods of merger of credit institutions
(1) Only authorised credit institutions are permitted to
merge.
(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 Banking Supervision, 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 rules of a credit
institution being founded or an acquiring credit institution
shall comply with the requirements of this Act.
§ 66. Merger agreement and merger report
(1) A merger agreement 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 Banking Supervision.
(2) Within three days after entry into a merger agreement,
the management boards of the merging credit institutions
shall notify the Banking Supervision 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 requirements 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.
§ 67. Appointment of auditor and auditor's report
(1) Upon the merger of credit institutions, the Banking
Supervision 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 agreement 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 rules of the acquiring credit
institution and the credit institution being founded complies
with the requirements of this Act.
§ 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 Banking Supervision:
1) the merger agreement or a notarised 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 internal accounting rules 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 requirements of this Act;
9) written confirmation from the members of the
management board certifying the correctness of the data
in the documents submitted pursuant to this section.
(2) The Banking Supervision may demand 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 Banking Supervision may exercise on-the-spot
supervision over acts related to a merger.
§ 69. Authorisation for merger
(1) The Banking Supervision may refuse to grant
authorisation for the merger of credit institutions if:
1) according to the opinion of the Banking
Supervision, the merging credit institutions do not have
sufficient management 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 Banking
Supervision;
4) the merger may damage the interests of the
depositors, clients or other creditors of the merging
credit institutions.
(2) The Banking Supervision 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.
§ 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 one local newspaper of the seat of the
credit institution.
(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.
Chapter 7
GUARANTEE OF FINANCIAL SOUNDNESS OF CREDIT INSTITUTIONS AND
PROTECTION OF INTERESTS OF CLIENTS
§ 71. Prudential rules
(1) In order to guarantee the financial soundness of a
credit institution, the credit institution shall at all times
observe the prudential rules which set out:
1) the minimum amount of net own funds;
2) capital adequacy;
3) liquidity;
4) limitations on concentration of exposures;
5) limitations on investments.
(2) If a credit institution belongs to a consolidation
group, the minimum amount of net own funds, capital adequacy,
limitations on concentration of exposures and limitations on
investments shall be complied with and observed both
separately with regard to each credit institution and on a
consolidated basis.
(3) The prudential rules, the instructions for assessment
thereof and the procedure for reporting shall be established
by the Bank of Estonia pursuant to this Act.
(4) The management board of a credit institution is
required to notify the Banking Supervision promptly of any
deviations from prudential rules.
(5) Under the circumstances specified in subsection 103
(1) of this Act and on the proposal of the Banking
Supervision, the Bank of Estonia has the right to establish a
higher rate of capital adequacy or net own funds for a credit
institution or the consolidation group thereof than that
established pursuant to subsection (3) of this section.
(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 size of the reserves and the procedure for
the formation, maintenance and use of the reserves shall be
established by the Bank of Estonia.
§ 72. Own funds of credit institutions
The own funds of a credit institution are:
1) original own funds;
2) additional own funds;
3) own funds used for covering the market risk of the
trading portfolio.
§ 73. Original own funds
(1) Original own funds consist of:
1) paid-in share capital, except for amounts paid for
cumulative preferred shares;
2) share premium accounts;
3) the general banking reserve;
4) reserves and reserve capital prescribed by law and
the articles of association;
5) retained profits or losses from previous years;
6) profits for the accounting period, approved by an
auditor;
7) other financial instruments which are similar to
those specified in clauses 1)-5) of this subsection,
are of capital nature and are accepted as original own
funds by the Bank of Estonia.
(2) The following shall be deducted from original own
funds:
1) own shares;
2) intangible assets;
3) losses in the current accounting period.
(3) The original own funds specified in subsection (1) of
this section shall be available to the credit institution for
immediate and unrestricted use to cover losses or risks.
(4) The general banking reserve is a risk reserve formed
to cover losses which may arise from general risks involved
with the principal activities of a credit institution. The
procedure for the formation and use of the general banking
reserve shall be established by the Bank of Estonia.
§ 74. Additional own funds
(1) Additional own funds consist of subordinated debts and
other similar commitments which meet the following
requirements:
1) the term or period of repayment of a debt taken
under a debt agreement shall be at least five years. If
the term of repayment of a debt is not fixed, the debt
agreement shall provide that the debt is repayable only
subject to at least five years' notice;
2) the debt agreement shall not prescribe a condition
that the debt will become repayable before the agreed due
date, except in the case of dissolution of the credit
institution;
3) the credit institution may repay a debt before the
agreed due date only with the consent of the Banking
Supervision;
4) in the case of bankruptcy of the credit
institution, the debt shall be repaid pursuant to the
provisions of § 131 of this Act.
(2) Only amounts of debt actually received shall be taken
into account as additional own funds.
(3) During the five years before the date of expiry or
termination of a debt agreement, the amount of debt included
in additional own funds shall be reduced each year by 20 per
cent of the original amount of debt.
(4) Subordinated debts which are to be repaid in less than
one year shall not be included in additional own funds.
(5) Other funds which are of capital nature and similar to
financial instruments specified in subsection (1) of this
section, including preferred shares, may be included in the
additional own funds of a credit institution only with the
specific prior consent of the Banking Supervision.
§ 75. Gross and net own funds
(1) Original and additional own funds together form gross
own funds.
(2) In order to calculate net own funds, the following
shall be deducted from gross own funds pursuant to the
procedure established by the Bank of Estonia:
1) holdings in other credit or financial institutions;
2) subordinated claims and other claims of capital
nature which are similar thereto and held in respect of
credit or financial institutions.
(3) Amounts which exceed the limitations on investments
and concentration of exposures shall be deducted from net own
funds pursuant to the procedure established by the Bank of
Estonia.
(4) Credit institutions shall have net own funds in an
amount equivalent to at least 5 million euros on the basis of
the exchange rate of the Bank of Estonia, unless the Bank of
Estonia establishes a higher requirement for the minimum
amount of net own funds.
§ 76. Trading portfolio and banking portfolio
(1) The trading portfolio of a credit institution consists
of the following instruments:
1) securities and derivative instruments which have
been acquired with a view to earning profits on
differences between the actual and expected purchase and
selling prices or on other fluctuations in prices or
interest rates during short periods;
2) commitments made and instruments acquired in order
to cover 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) The banking portfolio consists of securities,
derivative instruments, and commitments made and instruments
acquired in order to cover risks related to such instruments
which are not included in the trading portfolio.
§ 77. Own funds used for covering market risk of trading
portfolio
(1) Own funds used for covering the market risk of a
trading portfolio include subordinated debts and other
similar commitments which meet all of the following
requirements:
1) the term or period of repayment provided for in the
debt agreement shall be at least two years. If the term
of repayment of a debt is not fixed, the debt may be
included in additional own funds if the debt agreement
provides that the debt is repayable only subject to at
least two years' notice;
2) the debt agreement shall not prescribe a condition
that the debt will become repayable before the agreed due
date, except in the case of dissolution of the credit
institution;
3) the amount of debt to be repaid shall not be
reduced during the two years before the date of expiry or
termination of the debt agreement;
4) in the case of bankruptcy of the credit
institution, the debt shall be repaid pursuant to the
provisions of § 131 of this Act;
5) the credit institution may repay the debt before
the agreed due date only with the consent of the Banking
Supervision.
(2) Only amounts of debt actually received shall be taken
into account as own funds used for covering the market risk
of the trading portfolio.
(3) Subordinated debts and other similar commitments which
meet the requirements provided for in subsection (1) of this
section may be included in the own funds of a credit
institution only with the specific prior consent of the
Banking Supervision.
§ 78. Limitations on own funds
(1) The total amount of subordinated debts and other
similar commitments included in additional own funds
specified in § 74 of this Act shall not exceed 50 per cent
of original own funds from which the items specified in
subsection 73 (2) of this Act have been deducted.
(2) Additional own funds used for covering the risks of
the banking portfolio shall not exceed 100 per cent of the
original own funds which are used for the same purpose and
from which the items specified in subsection 73 (2) of this
Act have been deducted.
(3) The total amount of additional own funds and own funds
used to cover the market risk of the trading portfolio shall
not exceed 100 per cent of the original own funds of the
credit institution from which the items listed in subsection
73 (2) of this Act have been deducted.
(4) The total amount of additional own funds used to cover
the risks of the trading portfolio and own funds used to
cover the market risk of the trading portfolio shall not
exceed 250 per cent of the original own funds used to cover
the risks of the trading portfolio from which the items
specified in subsection 73 (2) of this Act have been
deducted.
§ 79. Capital adequacy
In order to cover possible losses arising from credit and
market risks, a credit institution shall monitor its ratio of
own funds and risk weighted assets to off-balance-sheet
items, i.e. its capital adequacy. The capital adequacy of a
credit institution shall be at least 8 per cent unless the
Bank of Estonia establishes a higher requirement.
§ 80. Liquidity
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