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Parliament overhauls Credit Institutions Act

18.04.2002

On December 13 2001 the Estonian Parliament passed an act introducing significant changes to the Credit Institutions Act 1999. Most of the changes took effect on January 1 2002 whereas others will enter into force upon Estonia's accession to the European Union.

Many of the changes regulate standard practices and approximate the act with other Estonian and EU legislation. Other changes concern the supervision and reporting of banks with the aim of ensuring the reliability of credit institutions.

Several changes are based on the following:

• EU directives (eg, Directive 2000/12/EC replacing a number of previous directives);
• documentation of the Basel Committee on Banking Supervision; and
• recommendations of the International Monetary Fund and World Bank.

The act amends the provisions regarding international cooperation in financial supervision. The provisions regarding the foundation of credit institutions and qualifying holdings therein will enter into force upon Estonia's accession to the European Union, in order to distinguish the founders and investors of EU origin from those of other origins.

On the basis of the Basel Committee's findings, the procedure for internal control within credit institutions and the competence of the Financial Supervisory Authority are further established. Previously, the Financial Supervisory Authority could receive information and documentation concerning credit institutions and their consolidated group companies from the institutions or their affiliates, their qualifying shareholders and public authorities. Now, independent third parties must also provide this information. Any necessary clarification can be demanded from a credit institution's executives and employees during site inspections.

The amending act defines or re-defines the following terms:

• 'subordinated loan';
• 'capital adequacy';
• 'loans granted by credit institutions'; and
• 'large exposures' (the list of asset items constituting such exposures has been modified).

The act also regulates the auditing of credit institutions. Among other things, auditors must inform the Financial Supervisory Authority of any emergence of close links between a credit institution and an individual that is discovered in the course of auditing the institution.

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