ECB published an opinion on the liability and audit of the national supervisory authority, the establishment of small credit institutions, and requirements on key function holders of credit institutions in Estonia. ECB published its opinion in response to a request from the Ministry of Finance of the Republic of Estonia for an opinion on a draft law amending the Laws on banking, Financial Supervisory Authority, financial crisis prevention and resolution, and the National Audit Office (draft law). The primary purpose of the draft law is to transpose into Estonian law amendments to the Union banking legislation, including provisions of the revised Capital Requirements Directive (CRD5), Capital Requirements Regulation (CRR2), Bank Recovery and Resolution Directive (BRRD2), and Single Resolution Mechanism Regulation (SRMR2).
In its opinion, ECB acknowledged that the provisions of the draft law enabling credit institutions to be established with an initial capital between EUR 1 million and EUR 5 million arise out of the discretion granted to member states under Article 12(4) of CRD4 (2013/36/EU). Thus, when exercising the discretion provided for in Article 12(4), member states must establish a special category of credit institutions to which the reduced initial capital requirement applies. ECB welcomed the specification that, under the draft law, such credit institutions may not provide investment services and that the Estonian Financial Supervisory Authority (Estonian FSA) has the power to determine that such credit institutions may not provide financial services in other countries either via a branch or through the provision of cross-border services.
In addition, ECB welcomed the extension of the requirements applicable to managers of credit institutions to key function holders of credit institutions, as this contributes to the sound and prudent management of credit institutions. However, neither the existing provisions of the Estonian law, nor the draft law, establish deadlines for the Estonian FSA or ECB to carry out the assessment of the suitability of the members of the management body and key function holders. In that regard, consideration could be given to introducing a possible maximum assessment period. Other key points highlighted in the ECB opinion include the following:
- Financial independence of Bank of Estonia—ECB welcomed the clarifications introduced by the draft law, specifying that the liability of Estonian FSA for a violation of rights and damage caused in conducting financial supervision and performing resolution functions must be determined on the basis of, and pursuant to, the procedure provided for in the Law on state liability. ECB would welcome further clarification in the draft law that in relation to such damage Bank of Estonia is not liable under the Law on state liability, or that the State has sole liability. Under the draft law, it is not expressly clear that Bank of Estonia is excluded from such liability.
- Auditing of the Estonian FSA—ECB notes that, under the draft law, the audit by the National Audit Office of the Estonian FSA’s management is limited to the performance of management in relation to the credit institutions and investment firms under its supervision. Regarding the disclosure to the National Audit Office of confidential data originating from ECB, other resolution or competent authorities or from SRB, ECB notes that, under the draft law, such disclosure is permitted only with the consent of the relevant institution and for the purposes specified by such institution. ECB welcomed these conditions in relation to the data originating from ECB.
Related Link: Opinion (PDF)
Keywords: Europe, EU, Estonia, Banking, CRR2, CRD5, BRRD2, SRMR2, Basel, Regulatory Capital, Investment Firms, Opinion, Estonian FSA, Resolution Framework, ECB
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