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Estonia's accession to the European Union and its impact on cross-border banking

10.05.2004

Estonia acceded to the European Union on 1 May 2004. On that date, regulations on free movement of services between the Member States, including the right of Estonian credit institutions to establish branches in the other Member States, took effect.

Due to an inadequate deposit insurance cover, a transitional period was prescribed for Estonia. Namely, the other Member States may prohibit activity of the branches of Estonian credit institutions in their territory until the branch has become affiliated with the deposit-guarantee schemes in the territory of the relevant Member State to cover the gap between the Estonian deposit insurance cover (at the moment EUR 6,391) and the minimum coverage stipulated in the EU Directive 94/19/EC art 7(1) (EUR 20,000). The Accession Treaty ratified by Estonia and the European Union prescribes that Estonia establish the minimum coverage stipulated in the EU Directive not later than by 31 December 2007.

On 1 May 2004, amendments to the Estonian Credit Institutions Act of 1999 regulating the opening of foreign branches by the Estonian credit or financing institutions or supply of cross-border services, as well as the establishment of subsidiaries or branches of foreign credit institutions in Estonia or supply of cross-border services in Estonia, also took effect. The Act discriminates the credit institutions of EU Member States from the credit institutions of other countries. In the case of establishments in Estonia and other EU Member States or supply of cross-border services the procedure only provides for a notification obligation. Activity licences are no longer required. The amendments also provide a basis for cooperation between the financial supervision authorities of different states."

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