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Independent Financial Supervision Authority takes control

11.10.2001

On May 9 2001 the Parliament (Riigikogu) passed the Financial Supervision Authority Act, according to which the independent Financial Supervision Authority will be responsible for state financial supervision. The Financial Supervision Authority Act entered into force on June 1 2001 and the inspectorate will commence its activities on January 1 2002.

Financial Supervision Authority Act

The Financial Supervision Authority Act explains the purpose of state financial supervision and the legal status of the authority, as well as the bases of its activities and financing.

Financial supervision is performed with the aims of:

• increasing the stability, reliability, transparency and efficiency of the financial sector;
• reducing systemic risks;
• helping to combat criminal activity;
• protecting the interests of clients and investors; and
• supporting the stability of the Estonian monetary system.

For the purposes of the act, 'state financial supervision' means supervision of the subjects of state financial supervision and the activities carried out under:

• the Credit Institutions Act;
• the Insurance Activities Act;
• the Insurance Act;
• the Investment Funds Act;
• the Pension Funds Act;
• the Securities Market Act; and
• the Estonian Central Register of Securities Act.

Management of the Authority

The authority has two management levels. The highest level will devise the authority's overall supervision strategy and exercise control over the management board. The directing bodies of the authority are the supervisory board and the management board.

Supervisory board

The supervisory board consists of six members, of whom two are members by virtue of office (ie, the minister of financial affairs and the president of the Bank of Estonia) and four are appointed.

One-half of the appointed members of the supervisory board is appointed and removed by the minister of financial affairs, the other half by the president of the Bank of Estonia.

The make-up of the supervisory board is intended to ensure the exchange of information and coordination among all of the institutions responsible for the operation of the Estonian financial sector.

Appointed members of the supervisory board must be Estonian citizens with recognized academic qualifications. In addition, they must have impeccable professional and business reputations, and the skills necessary for the management of such an institution.

An appointed member need not be an employee of the institution that has appointed him or her.

The term of appointment is three years.

Pursuant to the act, the minister of financial affairs is the chairman of the supervisory board. His tasks include:

• organizing the board's activities and procedures;
• calling and chairing the board's meetings;
• organizing the recording of minutes of meetings and announcing the board's resolutions; and
• entering into, amending, suspending and terminating (on the basis of the board's resolutions) service agreements with the chairman and members of the management board.

Meetings of the supervisory board are closed unless it decides otherwise. However, the members of the management board may participate in its meetings unless the chairman of the supervisory board decides otherwise.

Management board

The management board organizes the authority's daily activities. The management board is empowered to make resolutions relating to the fulfilment of the authority's obligations, and to exercise certain rights that are outside the supervisory board's remit.

The management board consists of five members who are appointed and removed by the supervisory board.

The criteria for membership of the management board are similar to those for the supervisory board. The following persons cannot be appointed as members of the management board:

• members of the supervisory board;
• members of the Council of the Bank of Estonia;
• members of the management board of the Bank of Estonia; and
• the auditor of the Bank of Estonia.

Members of the management board are appointed for three years. The chairman is appointed for four years. The chairman is elected by the supervisory board from the management board. The law prescribes joint liability for the members of the management board for any damage caused by their unlawful behaviour.

Authority employees

Employees of the authority are subject to certain restrictions, in order to prevent conflicts of interest. For example, an employee cannot be a shareholder or partner in any field of financial supervision, nor have substantial influence over its management. Moreover, an employee cannot participate in supervisory proceedings (nor in the preparation of resolutions of the management board) if he or she has a direct or indirect interest in the outcome. Employees must regard all information pertaining to the authority as being strictly confidential.

Financing

The establishment of the authority as a uniform supervisory institution has brought about changes in the financing of financial supervision. The expenses of the authority are covered by supervision fees imposed on the companies that are subject to supervision. The supervisory fee consists of capital and volume parts. The capital part depends on the amount of a company's minimum equity capital. The volume part is based on the amounts that best characterize a company's activities (eg, the aggregate assets of commercial banks, and the aggregate assets and amount of managed portfolios of securities brokers and investment associations).

Cooperation

Cooperation by the authority is performed at three different levels:

• cooperation with international organizations;
• cooperation with financial supervisory institutions of foreign countries and other competent institutions or individuals of foreign countries; and
• cooperation with the Bank of Estonia, the Ministry of Financial Affairs and other state agencies involved in legislative activities.

Disclosure

The Financial Supervision Authority Act contains an exhaustive list of the various institutions to which supervisory intelligence may be revealed.

Liability

Complaints about the resolutions or financial supervisory measures of the management board may be filed with the administrative court pursuant to the terms specified in law.

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