Finantskriisi ennetamise ja lahendamise seadus (FELS)

§ 1. Scope

(1) This Act regulates the application of crisis prevention measures and resolution tools and powers to credit institutions, investment firms and central counterparties if there is a risk that their financial situation may rapidly deteriorate or if it is probable that they are failing or likely to fail in the future.

(2) The resolution proceedings shall be commenced in the public interest if the winding up and liquidation of a credit institution or investment firm under bankruptcy proceedings does not prevent damage to financial stability and does not avoid contagion to the financial system or real economy.

(3) The provisions of the Administrative Procedure Act apply to administrative proceedings prescribed in this Act without prejudice to the rules specific to this Act and the Financial Supervision Authority Act.

§ 2. Scope of application

(1) This Act applies to:

1) credit institutions established in Estonia;

2) investment firms established in Estonia to which the share capital or initial capital requirement provided in clause 1 of subsection 1 of § 93 of the Securities Market Act applies;

3) financial holding companies, mixed financial holding companies and mixed-activity holding companies established in Estonia that are part of the same consolidation group as the credit institution or the investment firm specified in clause 1 or 2 of this subsection;

4) subsidiaries of credit institutions, investment firms, financial holding companies, mixed financial holding companies and mixed-activity holding companies specified in clauses 1–3 of this subsection that are financial institutions established in Estonia provided that they are subject to supervision on a consolidated basis pursuant to Articles 6–17 of Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1–337);

5) branches established in Estonia by credit institutions or investment firms of third countries;

6) central counterparties established in Estonia and authorised in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1–59) to the extent provided in this Act.

(3) For the purposes of this Act, a credit institution shall also be deemed to be an investment firm and it is subject to any and all provisions applied to credit institutions, unless otherwise provided in this Act.

(3¹) For the purposes of §§ 43, 44 and 46–50 of this Act, an entity specified in clauses 3–5 of subsection 1 of this section is also deemed to be a credit institution.

(3²) A financial institution, financial holding company, mixed financial holding company and mixed-activity holding company specified in clauses 3 and 4 of subsection 1 of this section are also deemed to be a credit institution specified in subsection 5 of § 11, subsections 7¹, 7² and 13 of § 17, clause 2 of subsection 2 of § 17², § 17³, subsections 6 and 6¹ of § 18, subsections 2¹–2³ of § 22, § 22¹, subsections 1–3³, 4¹, 4³, 5 and 6 of § 34, subsections 1 and 2 of § 44, subsection 5 of § 52, subsections 2 and 7 of § 55, subsection 1⁴ of § 56 and subsection 2 of § 96¹ of this Act and in § 73¹³ of the Guarantee Fund Act.

(4) Regulation (EU) 2021/23 of the European Parliament and of the Council on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132 (OJ L 22, 22.1.2021, p. 1–102) applies to the crisis prevention measures and resolution tools for central counterparties, taking account of the specifications provided in Chapter 9¹ of this Act.

§ 3. Financial Supervision Authority as authority exercising supervisory and resolution functions

(1) For the purposes of this Act, the Financial Supervision Authority is deemed a resolution authority, except for the purposes of Subchapters 1 and 3 of Chapter 2, Subchapter 3 of Chapter 3 and §§ 90¹ and 90² of this Act where the Financial Supervision Authority is deemed a supervisory authority.

(2) The Financial Supervision Authority as a resolution authority shall conduct resolution proceedings with regard to entities specified in § 2 of this Act pursuant to the provisions of this Act and other legislation.

(3) The Financial Supervision Authority shall be a resolution authority of a consolidation group if the parent undertaking of the consolidation group is registered in Estonia and the Financial Supervision Authority exercises financial supervision on a consolidated basis over the consolidation group. A resolution authority of the consolidation group (hereinafter resolution authority of the consolidation group) is competent to conduct resolution proceedings of the consolidation group.

(4) If a consolidation group entity has been registered in Estonia but it is not a parent undertaking of the consolidation group and if the entity is subject to financial supervision by the Financial Supervision Authority, the Financial Supervision Authority is competent to conduct resolution proceedings of the entity and, in such a case, the Financial Supervision Authority shall be the resolution authority of the consolidation group entity (hereinafter resolution authority of the subsidiary).

§ 4. General resolution objectives and adherence thereto

(1) The resolution objectives are:

1) to ensure the continuity of critical functions of a credit institution;

2) to prevent damage to financial stability to a significant extent and, in particular to avoid contagion to the whole financial system and payment and settlement systems;

3) to avoid or minimise the need to use extraordinary public financial support or other public funds;

4) to ensure sufficient protection of funds of depositors, investors and other clients.

(2) When applying the resolution tools and powers, the Financial Supervision Authority shall pursue the objectives specified in subsection 1 of this section and choose the resolution tool or power that best contributes to the achievement of the objectives specified in subsection 1 of this section with the lowest cost, considering the conditions of the specific crisis situation.

(3) All the objectives specified in subsection 1 of this section are of equal significance and, when applying a resolution tool and power, the Financial Supervision Authority shall find an optimum balance between the achievement of those objectives in a specific situation.

§ 5. Systemic crisis and critical functions

(1) For the purposes of this Act, a systemic crisis means a disruption in the financial system with the potential to have serious negative consequences for the internal market and the real economy and with the potential involvement of all types of financial intermediaries, markets and infrastructure.

(2) For the purposes of this Act, critical functions mean payment and settlement services provided by credit institutions and other services or operations the discontinuance or significant disruption in the continuous operation of which damages or may damage the functioning of the financial market, financial stability or the real economy or may have a negative effect on other participants in the financial system.

§ 6. Crisis prevention measures and resolution tools

(1) For the purposes of this Act, a crisis prevention measure means the power of the Financial Supervision Authority to:

1) require the removal of deficiencies or impediments in a recovery plan;

2) apply measures to remove impediments to resolvability;

3) apply an early intervention measure, including appoint a temporary administrator;

4) exercise the power to write down or convert capital instruments and eligible liabilities.

(2) For the purposes of this Act, a resolution tool means the power of the Financial Supervision Authority to appoint a special manager or exercise other powers provided in Chapters 4–7 of this Act.

(3) For the purposes of this Act, an early intervention measure means a supervisory measure that the Financial Supervision Authority may apply if the financial position of a credit institution is deteriorating and due to this the credit institution infringes or may infringe legislation, administrative acts applicable to the credit institution or internal rules of the credit institution.

§ 7. Resolution fund

For the purposes of this Act, a resolution fund means the Resolution Sectoral Fund provided in the Guarantee Fund Act and the resolution financing arrangement of other states that are contracting parties to the EEA agreement (hereinafter EEA country) in accordance with Article 100 of Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190–348).

§ 8. Extraordinary public financial support and emergency liquidity loan

(1) For the purposes of this Act, extraordinary public financial support means State aid to a solvent credit institution or an entity that is part of the same consolidation group as the credit institution in accordance with Article 107(1) TFEU, or any other form of financial assistance provided on account of the state budget funds in order to preserve or restore the viability, solvency or liquidity of a credit institution or an entity that is part of the same consolidation group as the credit institution.

(2) For the purposes of this Act, emergency liquidity loan means the provision of money of Eesti Pank to a solvent credit institution or an entity that is part of the same consolidation group as the credit institution that is facing temporary liquidity problems, without such an operation being part of monetary policy.

§ 8¹. Resolution entity, resolution consolidation group and liquidation entity

(1) A resolution entity means:

1) a legal person established in the European Union, which, in accordance with § 28 of this Act, is identified by the Financial Supervision Authority as an entity in respect of which the resolution plan provides for a resolution tool; or

2) a credit institution established in the European Union that is not part of a consolidation group that is subject to consolidated supervision pursuant to subsection 2 of § 97 of the Credit Institutions Act, in respect of which the resolution plan drawn up pursuant to § 28 of this Act provides for a resolution tool.

(2) For the purposes of this Act, a resolution consolidation group means a resolution entity and its subsidiaries that are not:

1) resolution entities themselves;

2) subsidiaries of other resolution entities;

3) entities established in a third country that are not included in the resolution consolidation group in accordance with the resolution plan and their subsidiaries.

(3) A central body together with credit institutions permanently affiliated to it and their subsidiaries is also deemed to be a resolution consolidation group specified in subsection 2 of this section if at least one of these credit institutions is a resolution entity.

(4) A financial institution, financial holding company, mixed financial holding company or mixed-activity holding company specified in clauses 3 and 4 of subsection 1 of § 2 of this Act is also deemed to be a resolution entity specified in subsections 4 and 5 of § 17² of this Act.

(5) For the purposes of this Act, a subsidiary established in the European Union and a parent undertaking operating in the European Union are also a subsidiary established in an EEA country and a parent undertaking operating in an EEA country.

(6) A liquidation entity is a legal person established in the European Union in respect of whom the consolidation group resolution plan or, in the case of a person not belonging to a consolidation group, the resolution plan provides that the entity is to be wound up under normal insolvency proceedings or a person who is part of the resolution consolidation group but who itself is not a resolution entity and in respect of whom the consolidation group resolution plan does not prescribe the application of the write down and conversion powers.

§ 8². Subsidiary

A subsidiary means a subsidiary as defined in point (16) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council. For the purpose of applying the requirements provided in §§ 13, 17–21, 30, 34, 35, 70–77, 84 and 85 of this Act to resolution consolidation groups specified in clause 3 of subsection 2 of § 8¹, a subsidiary includes, where and as appropriate, credit institutions that are permanently affiliated to a central body, the central body itself, and their respective subsidiaries, depending on the way in which such resolution consolidation groups comply with the requirement provided in subsection 2² of § 18.

§ 8³. Terms related to resolution of central counterparties

Terms not defined in Chapter 9¹ of this Act are used within the meaning of Regulation (EU) 2021/23 of the European Parliament and of the Council.

§ 9. Other definitions

Terms not defined in this Act shall be used within the meaning of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

§ 10. Preparation and submission of recovery plan of credit institution

(1) A credit institution shall prepare and submit to the Financial Supervision Authority a recovery plan providing for measures to be taken by the credit institution to restore its financial position following a significant deterioration thereof.

(2) An Estonian parent credit institution, parent financial holding company or parent mixed financial holding company of a consolidation group (hereinafter in this Chapter parent undertaking) is required to prepare and submit to the Financial Supervision Authority a recovery plan of the consolidation group headed by the parent undertaking as a whole.

(3) If a credit institution established in Estonia is a subsidiary of the consolidation group and the parent undertaking of the consolidation group has been established in the other EEA country, a separate recovery plan for a subsidiary need not be prepared, unless:

1) the credit institution is subject to direct supervision by the European Central Bank pursuant to Article 6(4) of Council Regulation (EU) No 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63–89);

2) the value of assets of the credit institution exceeds 30 billion euros;

3) the ratio of assets of the credit institution over the gross domestic product of Estonia exceeds 20 per cent, unless the value of the assets is below 5 billion euros.

(4) If a parent undertaking has been established in the other EEA country, the Financial Supervision Authority may require a subsidiary that is a credit institution established in Estonia and that is part of a consolidation group to prepare a recovery plan.

(5) A recovery plan shall be submitted to the Financial Supervision Authority for review. Prior to the submission of the plan to the Financial Supervision Authority, it shall be approved by the management board and confirmed by the supervisory board of the credit institution or parent undertaking. The credit institution or parent undertaking shall be capable of demonstrating to the satisfaction of the Financial Supervision Authority that the recovery plan meets all the requirements provided in this Act.

(6) A credit institution or parent undertaking shall review the recovery plan at least annually or after any changes to the legal status or organisational structure of the credit institution or consolidation group or an event or incident related to its business or its financial situation, which could have a material effect on the plan or necessitates a change in the plan. The Financial Supervision Authority may require that the plan be updated more frequently. The updated plan shall be submitted to the Financial Supervision Authority.

(7) The Financial Supervision Authority shall establish a term for preparing the first recovery plan.

(8) Where a credit institution or parent undertaking fails to prepare the recovery plan within the term specified in subsection 7 of this section, the Financial Supervision Authority may issue a precept requiring the credit institution to submit the recovery plan within the earliest reasonable term.

§ 11. Requirements for recovery plan

(1) A recovery plan shall include:

1) a summary of the key elements of the plan and a summary of overall recovery capacity;

2) a summary of the material changes to the credit institution since the most recently filed recovery plan;

3) a communication and information disclosure plan outlining, inter alia, how the credit institution intends to manage any potentially negative market reactions;

4) actions regarding the options for obtaining additional capital and liquidity to ensure the viability of the credit institution and the maintenance and restoration of the financial position;

5) an estimation of the timeframe for executing each material aspect of the plan;

6) a detailed description of any material impediment to the effective and timely execution of the plan, including consideration of impact on clients and counterparties and other entities of the same consolidation group;

7) specification of critical functions;

8) a detailed description of the processes for determining the value and marketability of the core business lines and assets of the credit institution;

9) a detailed description of how recovery planning is linked to the corporate governance structure of the credit institution as well as the policies and procedures governing the approval of the plan and identification of the persons in the organisation responsible for preparing and implementing the plan;

10) arrangements and measures to conserve or restore the credit institution’s own funds;

11) arrangements and measures to ensure that the credit institution has adequate access to contingency funding sources, including potential liquidity sources, an assessment of available collateral and, where applicable, an assessment of the possibility to transfer liquidity across consolidation group entities or business lines, to ensure that the credit institution can continue to carry out its operations and meet its obligations as they fall due;

12) arrangements and measures to reduce risk and leverage;

13) arrangements and measures to restructure liabilities;

14) arrangements and measures to restructure business lines;

15) arrangements and measures necessary to maintain continuous access to financial markets infrastructures;

16) arrangements and measures necessary to maintain the continuous functioning of the credit institution's operational processes, including the network and information systems established and managed in accordance with Regulation (EU) 2022/2554 of the European Parliament and of the Council on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011 (OJ L 333, 27.12.2022, p. 1–79);

17) preliminary arrangements to facilitate the sale of assets or business lines in a timeframe appropriate for the restoration of financial soundness;

18) other management actions or strategies to restore financial soundness and the anticipated financial effect of those actions or strategies;

19) preparatory measures that the credit institution has taken or plans to take in order to facilitate the implementation of the recovery plan, including those necessary to enable the timely recapitalisation of the credit institution;

20) appropriate conditions and procedures to ensure the continuous monitoring of the financial position and timely implementation of recovery actions, including a framework of indicators established by the credit institution which identifies criteria for which appropriate actions referred to in the recovery plan may be taken; the indicators may be of a qualitative or quantitative nature relating to the credit institution’s financial position and shall be capable of being monitored easily;

21) a range of scenarios of different degree of seriousness analysed with macroeconomic and financial stress relevant to the credit institution’s specific conditions and prescribing, inter alia, system-wide events and stress specific to the credit institution and, where the credit institution is part of a consolidation group, to the consolidation group;

22) a wide range of recovery options and actions, considering the analysed scenarios specified in clause 21 of this subsection;

23) measures which could be taken by the credit institution where the conditions for early intervention provided in § 36 of this Act are met;

24) an analysis of the options for applying for facilities of Eesti Pank, including the emergency liquidity loan, and identification of those assets which would be expected to qualify as collateral; the plan shall include conditions of how and when the credit institution can apply for such facilities.

(2) A consolidation group recovery plan shall include:

1) information on the consolidation group specified in subsection 1 of this section;

2) measures that may be required to be implemented with regard to a parent undertaking operating in the European Economic Area and each individual subsidiary and that aim to achieve the stabilisation of the consolidation group as a whole, or any credit institution of the consolidation group;

3) an analysis of the scenario provided in clause 21 of subsection 1 of this section identifying whether there are obstacles to the implementation of recovery measures within the consolidation group, including at the level of individual entities covered by the plan, and whether there are substantial practical or legal impediments to the prompt transfer of own funds or the repayment of liabilities or assets within the consolidation group;

4) arrangements for intra-group financial support if the consolidation group has entered into an agreement for intra-group financial support in accordance with Subchapter 3 of this Chapter;

5) arrangements to ensure the coordination and consistency of measures to be taken at the level of the parent undertaking and subsidiaries and, where applicable, at the level of significant branches, financial holding companies, mixed financial holding companies and mixed-activity holding companies.

(2¹) A recovery plan of a credit institution must allow for its practical implementation and ensure the viable functioning of the credit institution.

(3) The recovery plan shall not prescribe the use of extraordinary public financial support to maintain or restore the financial position.

(4) The specific conditions for the contents and preparation of the recovery plan may be established by the minister in charge of the policy sector by a regulation.

(5) The Financial Supervision Authority may require a credit institution to maintain detailed records of financial contracts to which the credit institution is a party. A credit institution shall submit such information at the request of the Financial Supervision Authority.

(6) The management board of a credit institution shall immediately notify the Financial Supervision Authority if the level of indicators specified in clause 20 of subsection 1 of this section has been met or exceeded.

(7) If the management board of a credit institution considers that it is reasonable in a specific situation and such a decision has been notified to the Financial Supervision Authority without a delay, a credit institution may:

1) take appropriate actions under the recovery plan even if the indicators specified in clause 20 of subsection 1 of this section have not been exceeded or met;

2) refrain from taking actions under the recovery plan.

§ 12. Assessment of and procedure for recovery plan

(1) The Financial Supervision Authority shall assess within six months of the submission of the full recovery plan the compliance thereof with the requirements provided in this Act and with the following criteria:

1) the extent to which it is likely that the implementation of the arrangements proposed in the plan maintains or restores the viability of the functioning and financial position of the credit institution, taking into account the preparatory measures that the credit institution has taken or has planned to take;

2) the extent to which it is likely that the recovery plan and specific options within the plan can be implemented quickly and effectively in situations of economic or financial stress and avoiding to the maximum extent possible any significant negative effect on the financial system, including in scenarios which would lead other credit institutions and investment firms to implement recovery plans within the same period.

(2) When providing the assessment provided in subsection 1 of this section, the Financial Supervision Authority shall take into consideration the appropriateness of the credit institution’s capital and funding structure to the level of complexity of the organisational structure and the risk profile of the credit institution.

(3) When providing the assessment provided in subsection 1 of this section, the Financial Supervision Authority shall, if necessary, consult financial supervision authorities of the EEA countries where significant branches of the credit institution are located.

§ 13. Assessment of and procedure for recovery plan of consolidation group and subsidiary that is part of consolidation group

(1) If the Financial Supervision Authority exercises supervision on a consolidated basis, it shall transmit the consolidation group recovery plan submitted to it:

1) to financial supervision authorities of the EEA country that exercises supervision over the subsidiary of the consolidation group, and to the resolution authority of that country;

2) where necessary, to financial supervision authorities of the EEA country where a significant branch of the consolidation group is located;

3) where necessary, to financial supervision authorities of the third country where the subsidiary of the consolidation group has been established if the country applies confidentiality requirements equivalent to those provided in § 51 of this Act.

(2) If the Financial Supervision Authority exercises supervision on a consolidated basis, it shall do everything within its power to reach a joint decision within four months of the date of transmission of the consolidation group recovery plan specified in subsection 1 of this section with a financial supervision authority of the other EEA country exercising supervision over the subsidiary of the consolidation group on the following matters:

1) whether the consolidation group recovery plan complies with the requirements provided in this Act, including the extent to which it is likely that the implementation of the arrangements proposed in the plan maintains or restores the viability and financial position of the consolidation group, taking into account the preparatory measures that the consolidation group has taken or has planned to take, or the extent to which it is likely that the plan and specific options within the plan can be implemented quickly and effectively in situations of financial stress and avoiding to the maximum extent possible any significant negative effect on the financial system, including in scenarios which would lead other credit institutions and investment firms to implement recovery plans within the same period;

2) which measures provided in § 14 of this Act shall be applied at the consolidation group level if there are material deficiencies in the consolidation group recovery plan;

3) whether a recovery plan on an individual basis is to be drawn up for credit institutions that are subsidiaries of the consolidation group.

(3) When providing the assessment specified in subsection 1 of § 12 of this Act, the Financial Supervision Authority shall take into consideration the appropriateness of the consolidation group’s capital and funding structure to the organisational structure and the risk profile of the consolidation group.

(4) If the Financial Supervision Authority exercises supervision on a consolidated basis and in the absence of the joint decision within the term specified in subsection 2 of this section, the Financial Supervision Authority shall, within six months of the date of submission of the full recovery plan, make its decision on the consolidation group recovery plan provided in clause 1 of subsection 2 of this section and on measures specified in clause 2 of the same subsection that should be implemented at the level of the parent undertaking, taking into account the views and reservations of financial supervision authority of the other relevant EEA country where possible. The decision of the Financial Supervision Authority does not include measures that should be implemented at the level of the subsidiary in accordance with clause 2 of subsection 2 of this section. The Financial Supervision Authority shall notify the decision to the parent undertaking and other relevant financial supervision authorities. The provisions of the first sentence of this subsection do not preclude the adoption of a joint decision on the consolidation group recovery plan with the financial supervision authorities with which the Financial Supervision Authority has no disagreements.

(5) If the Financial Supervision Authority exercises supervision over a subsidiary that is part of a consolidation group and assesses that the subsidiary should draw up a recovery plan on an individual basis, the Financial Supervision Authority shall notify the financial supervision authority exercising supervision on a consolidated basis thereof and endeavour to reach a joint decision with it. In the absence of a joint decision within four months of the date of transmission of the recovery plan, the Financial Supervision Authority shall make a decision on whether a recovery plan on an individual basis is to be drawn up for the subsidiary or whether the measures to address the material deficiencies pursuant to clause 2 of subsection 2 of this section are to be applied at subsidiary level.

(6) The Financial Supervision Authority may address the European Banking Authority and request its assistance to the financial supervision authorities in reaching a joint decision in accordance with Article 31(c) of Regulation (EU) No 1093/2010 of the European Parliament and of the Council establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12–47). In the absence of a joint decision, the Financial Supervision Authority may, prior to the end of the four-month period, also address the European Banking Authority in the case of disagreements in accordance with Article 19 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council. The European Banking Authority shall not be addressed after the end of the four-month period or after a joint decision has been reached.

(7) If the financial supervision authority of the other EEA country has notified the European Banking Authority of disagreements on the achievement of a joint decision within the period specified in subsection 2 of this section, the Financial Supervision Authority shall defer its decision and await the decision of the European Banking Authority and shall take its decision in accordance with the decision of the European Banking Authority. In the absence of the decision of the European Banking Authority within one month of the date of notification of the financial supervision authority of the other EEA country, the Financial Supervision Authority shall take its decision.

(8) If the Financial Supervision Authority exercises supervision on a consolidated basis, in taking a joint decision provided in subsection 2 of this section it shall consult, where necessary, the financial supervision authority of the EEA country where a significant branch is located and the financial supervision authority of a third country where the subsidiary of the consolidation group has been established if the country applies confidentiality requirements equivalent to those provided in § 51 of this Act.

(9) The joint decision provided in this section or the decisions taken by the Financial Supervision Authority in the absence of a joint decision shall be recognised as conclusive with regard to resolution authorities of other EEA countries.

(10) If the Financial Supervision Authority reaches a joint decision with a financial supervision authority of the other EEA country with regard to the matters specified in subsection 2 of this section, it shall not prevent the Financial Supervision Authority to require a subsidiary credit institution established in Estonia that is part of a consolidation group to draw up a separate recovery plan.

(11) If the Financial Supervision Authority exercises supervision on a consolidated basis, it shall transmit the final consolidation group recovery plan to financial supervision authorities specified in subsection 1 of this section.

§ 14. Removal of deficiencies in recovery plan

(1) Where the Financial Supervision Authority identifies material deficiencies in the recovery plan or material impediments to its implementation, the Financial Supervision Authority shall notify the credit institution or the parent undertaking that those deficiencies or impediments must be remedied within two months of the date of receipt of the notification.

(2) On application by the credit institution or parent undertaking, the Financial Supervision Authority may extend the term provided in subsection 1 of this section by one month.

(3) If the credit institution or parent undertaking fails to submit a revised recovery plan within the term prescribed in subsection 1 or 2 of this section or if the Financial Supervision Authority determines that the revised plan does not remedy the deficiencies or impediments identified, the Financial Supervision Authority may provide a reasonable term during which the credit institution or parent undertaking shall remedy the deficiencies in the plan or potential impediments to its implementation.

(4) If the credit institution or parent undertaking fails to comply with the requirements of the Financial Supervision Authority within the terms provided in this section or if the Financial Supervision Authority assesses that the actions proposed would not adequately address the deficiencies or impediments, the Financial Supervision Authority may issue a precept requiring the credit institution or parent undertaking to:

1) reduce its risks, including liquidity risk;

2) enable timely recapitalisation measures;

3) review its strategy and structure;

4) make changes to the funding strategy so as to improve the resilience of the core business lines and critical functions;

5) make changes to its governance structure.

§ 15. Preparation of recovery plan in simplified form

(1) A credit institution or parent undertaking may submit to the Financial Supervision Authority an application (hereinafter in this section application) for the preparation and submission of a simplified recovery plan. The credit institution or parent undertaking (hereinafter in this section applicant) may apply for:

1) a reduction in the contents of the recovery plan or consolidation group recovery plan required under this Act;

2) a reduction in the frequency for updating the recovery plan provided in this Act.

(2) A credit institution specified in subsection 3 of § 10 of this Act cannot apply for the preparation of a simplified recovery plan.

(3) The application specified in subsection 1 of this section shall contain the reasoned assessment of the applicant on the impact that the insolvency of the credit institution or consolidation group and subsequent winding up and liquidation thereof under bankruptcy proceedings could have on financial markets, on other credit institutions, on funding conditions, or on the wider economy.

(4) The assessment of the applicant provided in subsection 3 of this section shall take account of the nature of the business of the credit institution or consolidation group, its shareholding structure, its legal form, its risk profile, the size and legal status of the credit institution or consolidation group, interconnectedness of the credit institution to other credit institutions or investment firms or to the financial system in general, the scope and the complexity of its activities, its membership of a credit institutional protection scheme or the cooperative mutual solidarity system as referred to in Article 113(7) of Regulation (EU) No 575/2013 of the European Parliament and of the Council (hereinafter credit institutional protection scheme)and whether the credit institution provides any investment services.

(5) If, during the processing of the application, any changes are made in the documents and assessment specified in subsections 1 and 3 of this section, the applicant shall submit the updated documents or assessment to the Financial Supervision Authority immediately after making or becoming aware of the changes.

(6) If the applicant has failed to submit all the specified documents or the documents are incomplete or have not been prepared in accordance with the requirements or if the specified assessment is incomplete, the Financial Supervision Authority has the power to require the applicant to remove the deficiencies. The Financial Supervision Authority may refuse to review the application if the applicant has failed to remove the deficiencies within the prescribed term or has not submitted the documents required by the Financial Supervision Authority or the updated assessment by the end of the term. Upon refusal to review an application, the Financial Supervision Authority shall return the submitted documents.

(7) If the impact that the insolvency of a credit institution and subsequent winding up and liquidation thereof could have on financial markets, on other credit institutions, on funding conditions, or on the wider economy cannot be adequately assessed on the basis of the documents or assessment submitted, the Financial Supervision Authority may require the submission of additional information and documents.

(8) The Financial Supervision Authority shall assess the documents and assessment submitted by the applicant and the impact that the insolvency of the credit institution and subsequent winding up and liquidation thereof could have on financial markets, on other credit institutions, on funding conditions, or on the wider economy, and decide within two months of the submission of the application whether to grant an authorisation to draw up a simplified recovery plan. The Financial Supervision Authority shall determine in its decision to which extent the simplified requirements are to be applied to the credit institution or consolidation group. The Financial Supervision Authority may in its decision also change the term of drawing up the first recovery plan provided in subsection 7 of § 10 of this Act. In its assessment the Financial Supervision Authority shall take into account the nature of the sources of funding of the credit institution or consolidation group, including mutually guaranteed funding or liabilities, and the degree to which consolidation group support would be credibly available.

(9) The Financial Supervision Authority does not grant an authorisation to draw up a simplified recovery plan to the credit institution or consolidation group whose insolvency and subsequent winding up and liquidation could have a significant impact on financial markets, on other credit institutions, on funding conditions, or on the wider economy.

(10) If the Financial Supervision Authority assesses that the authorisation to draw up a simplified recovery plan is no longer justified, the Financial Supervision Authority may withdraw the authorisation at any time and require the preparation of a full recovery plan. The Financial Supervision Authority shall provide a reasonable term for the preparation of a new recovery plan.

(11) The authorisation specified in subsection 8 of this section shall not affect the powers of the Financial Supervision Authority to take a crisis prevention measure or resolution tool.

(12) Where appropriate, the Financial Supervision Authority shall consult Eesti Pank before taking a decision specified in subsection 8 of this section.

(13) The Financial Supervision Authority shall notify the European Banking Authority of the grant of the authorisation to draw up a simplified recovery plan.

§ 16. Non-application of requirement for preparation of recovery plan

(1) A credit institution may submit to the Financial Supervision Authority an application for not preparing a recovery plan if:

1) the credit institution is directly affiliated to the parent undertaking of a consolidation group or an entity organising central financing in the consolidation group that is wholly or partially exempted from prudential requirements in accordance with Article 10 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, or

2) the credit institution is a member of a credit institutional protection scheme.

(2) A credit institution shall demonstrate the satisfaction of the conditions provided in subsection 1 of this section.

(3) If, during the processing of an application, the situation of the credit institution changes with regard to the conditions provided in subsection 1 or 2 of this section, the credit institution shall immediately inform the Financial Supervision Authority thereof.

(4) The Financial Supervision Authority shall assess the satisfaction of the conditions specified in subsection 1 of this section and shall decide within two months of the date of submission of the application whether to grant an authorisation to the credit institution to not prepare a recovery plan.

(5) If the Financial Supervision Authority grants the authorisation specified in subsection 4 of this section:

1) the recovery plan shall be prepared on a consolidated basis with regard to the entity organising central financing specified in clause 1 of subsection 1 of this section and the credit institutions affiliated to it within the meaning of Article 10 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, or

2) the credit institutional protection scheme shall fulfil the requirements for the recovery plan in cooperation with each of its members who do not prepare the recovery plan.

(6) The Financial Supervision Authority shall notify the European Banking Authority of the authorisation granted under subsection 4 of this section.

§ 17. Requirement for minimum level of own funds and eligible liabilities

(1) A credit institution shall meet at all times a requirement for a minimum level of own funds and eligible liabilities (hereinafter in this Subchapter minimum requirement).

(2) The minimum requirement shall be calculated as the amount of own funds and eligible liabilities and expressed as percentages of:

1) the total risk exposure amount calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) the total exposure measure calculated in accordance with Articles 429 and 429a of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2¹) Liabilities shall be included in own funds and eligible liabilities of resolution entities only where they satisfy the conditions provided in Article 72a, Article 72b, with the exception of point (d) of paragraph 2, and Article 72c of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2²) By way of derogation from subsection 2¹ of this section, for the purpose of this Act, eligible liabilities shall also consist of liabilities meeting the requirements specified in Article 92a or Article 92b of Regulation (EU) No 575/2013 of the European Parliament and of the Council, which are defined in Article 72k of that Regulation and determined in accordance with Chapter 5a of Title I of Part Two of that Regulation.

(2³) In case of investment firms, references in relation to individually applied own funds requirements in this Act are treated as follows:

1) references in relation to the total capital ratio requirement contained in this Act must be treated in accordance with Article 92(1)(c) of Regulation (EU) No 575/2013 of the European Parliament and of the Council as references to Article 11(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council on the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014 (OJ L 314, 5.12.2019, p. 1–63);

2) references to Article 92(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council in relation to the total risk exposure amount contained in this Act are references to the requirement applied on the basis of Article 11(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council multiplied by 12.5.

(3) The Financial Supervision Authority shall exempt credit institutions engaged in mortgage credit that finance themselves through the issue of covered bonds and that have no right to receive deposits from the obligation to meet a minimum requirement, as:

1) such credit institutions are subject to normal insolvency proceedings or the sale of shares and assets tool, the bridge institution tool or the asset separation tool provided in this Act;

2) according to the proceedings specified in clause 1 of this subsection creditors of those credit institutions, including holders of covered bonds, will bear losses to meet the resolution objectives.

(3¹) Liabilities that arise from debt instruments with embedded derivatives, including structured notes, that meet the conditions specified in subsection 2¹ of this section, except for point (l) of Article 72a(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, shall be included in the amount of own funds and eligible liabilities only where one of the following conditions is met:

1) the principal amount of the liability arising from the debt instrument is known at the time of issue, is fixed or increasing, and is not affected by an embedded derivative feature, and the total amount of the liability arising from the debt instrument, including the embedded derivative, can be valued on a daily basis in accordance with Articles 104 and 105 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, by reference to an active and liquid two-way market for an equivalent instrument without credit risk;

2) the debt instrument includes a contractual term that specifies that the value of the claim in cases of the insolvency of the issuer and of the resolution of the issuer is fixed or increasing, and does not exceed the initially paid-up amount of the liability.

(3²) Debt instruments specified in subsection 3¹ of this section, including their embedded derivatives, shall not be subject to any netting agreement and the valuation of such instruments shall not be subject to the provisions of subsection 3 of § 76 of this Act.

(3³) The liabilities specified in subsection 3¹ of this section shall only be included in the amount of own funds and eligible liabilities with respect to the part of the liability that corresponds to the principal amount specified in clause 1 of that subsection or to the fixed or increasing amount specified in clause 2 of that subsection.

(4) Liabilities, including subordinated liabilities, that are not included in the Additional Tier 1 and Tier 2 capital, are considered eligible and they are included in the amount of own funds and eligible liabilities if all of the following conditions have been satisfied:

1) the liability expressed in a security or any other debt instrument is issued and fully paid up;

2) the debt instrument does not belong to the credit institution and the credit institution has not secured or guaranteed the debt instrument;

3) the purchase of the debt instrument was not funded directly or indirectly by the credit institution;

4) the liability has a remaining maturity of at least one year;

5) the liability does not arise from a derivative;

6) the liability does not arise from a deposit which is paid out in the first priority ranking in the bankruptcy proceedings in accordance with subsection 1 of § 131 of the Credit Institutions Act.

(4¹) Bail-inable liabilities mean the liabilities and capital instruments that do not qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments or Tier 2 instruments and that are not excluded from the scope of the bail-in tool pursuant to subsection 1 of § 71 of this Act.

(4²) Eligible liabilities mean bail-inable liabilities that meet the conditions provided in subsection 4 of this section or clause 1 of subsection 8 of § 19 of this Act, whichever is applicable, and the conditions for Tier 2 instruments provided in point (b) of Article 72a(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council. Subordinated eligible instruments mean instruments that meet all of the conditions specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council, except in the cases provided in paragraphs (3) to (5) of Article 72b of that Regulation.

(4³) Where liabilities are issued by a subsidiary credit institution established in the European Union to an existing shareholder that is not part of the same resolution consolidation group, but that subsidiary itself is part of the same resolution consolidation group as the resolution entity, those liabilities are included in the amount of own funds and eligible liabilities of that resolution entity, provided that all of the following conditions are met:

1) the liabilities are issued in accordance with clause 1 of subsection 8 of § 19 of this Act;

2) the exercise of the write down or conversion power in relation to those liabilities in accordance with §§ 56 and 58 of this Act does not affect the control of the subsidiary by the resolution entity;

3) the amount of such liabilities does not exceed the rate obtained by subtracting from the values set out in subsections 2 and 4–6 of § 19 of this Act such amount of liabilities which is obtained as a result of the aggregation of the liabilities issued to and bought by the resolution entity either directly or indirectly through other entities belonging to the same resolution consolidation group and the amount of own funds issued in accordance with clause 2 of subsection 8 of § 19 of this Act.

(5) Where the liability specified in clause 4 of subsection 4 of this section confers upon its owner a right to early reimbursement, the maturity of that liability shall be the first date where such a right arises.

(6) Where a liability is governed by the law of a third country, the Financial Supervision Authority may require the credit institution to confirm that any decision of the Financial Supervision Authority to write down or convert that liability would be applicable under the law of that third country, having regard to the terms of the contract governing the liability, international agreements and other relevant matters related to the implementation of the resolution tools. If the Financial Supervision Authority assesses that the law of a third country limits the possible application of writing down or converting the liability, the liability shall not be counted towards the minimum requirement.

(7) The Financial Supervision Authority shall determine the minimum requirement of each credit institution. In establishing the minimum requirement, the Financial Supervision Authority shall take into account the following:

1) the need that the credit institution can be rehabilitated by the application of the resolution tools, including the bail-in tool, in a way that meets the resolution objectives;

2) the need that the credit institution has sufficient eligible liabilities to apply the bail-in tool in a way that enables the losses to be absorbed and the required amount of the Common Equity Tier 1 capital of the credit institution to be restored in compliance with the requirements provided in the Credit Institutions Act that have served as a basis for the grant of the authorisation to ensure the continuity of the activities of the credit institution and sufficient public confidence in the credit institution;

3) the need to ensure that, if the resolution plan prescribes the exclusion of certain eligible liabilities from bail-in under § 72 of this Act or if certain eligible liabilities may be transferred to a holder in full, the credit institution must have sufficient other eligible liabilities to ensure that losses could be absorbed and the required amount of the Common Equity Tier 1 capital of the credit institution could be restored in compliance with the requirements provided in the Credit Institutions Act that have served as a basis for the grant of the authorisation to ensure the continuity of the activities of the credit institution;

4) the size, the business and funding model and the risk profile of the credit institution;

5) the potential extent to which the funds of the Deposit Guarantee Sectoral Fund of the Guarantee Fund can be used according to § 41¹ of the Guarantee Fund Act;

6) the potential effect of the insolvency of the credit institution on financial stability, including the interconnectedness with other participants in the financial system.

(7²) Liabilities for which the credit institution fails to include in the contractual provisions the term specified in clause 1 or 2 of subsection 1 of § 22 of this Act or for which those terms do not apply shall not be counted towards the minimum requirement.

(8) The more detailed bases for calculation of the minimum requirement for own funds and eligible liabilities may be established by the minister in charge of the policy sector by a regulation.

(9) The Financial Supervision Authority notifies the European Banking Authority of each minimum requirement established for entities located in Estonia pursuant to Subchapter 2 of Chapter 2 of this Act, including of the application of § 19¹ concerning the entities concerned.

(9¹) The Financial Supervision Authority shall submit the reasons for the decision to impose a minimum requirement for own funds and eligible liabilities along with relevant assessments to the credit institution. Upon a change in the level of the requirement for additional own funds specified in subsection 1 of § 104² of the Credit Institutions Act, the decision on the minimum requirement for own funds and eligible liabilities shall be reviewed by the Financial Supervision Authority without undue delay.

(9²) In case of investment firms, references to § 104² of the Credit Institutions Act in relation to the requirements for additional own funds contained in this Act are treated as references to clause 9 of § 235 of the Securities Market Act.

(10) For the purposes of this Act, a netting arrangement means an arrangement under which a number of claims or obligations can be converted into a single net claim, including close-out netting arrangements under which, on the occurrence of an enforcement event, the obligations of the parties are accelerated so as to become immediately due or are terminated, and in either case are converted into or replaced by a single net claim. A netting arrangement also includes close-out netting within the meaning of § 229² of the Securities Market Act and netting provided in the Payment and Settlement Systems Act.

(11) For the purposes of this Act, a mutual set-off arrangement means an arrangement under which two or more claims or obligations owed between the credit institution under resolution proceedings and a counterparty can be set off against each other.

(12) Upon failure to comply with the minimum requirement for own funds and eligible liabilities, the Financial Supervision Authority takes at least one of the following measures:

1) powers to address or remove impediments to resolvability in accordance with § 34 or 35 of this Act;

2) the provisions concerning the limitations on distribution of instruments in the composition of the Common Equity Tier 1 instruments specified in § 86⁵⁰ of the Credit Institutions Act;

3) powers to issue a precept on the basis of § 104 of the Credit Institutions Act;

4) early intervention measures provided in § 36 of this Act.

(12¹) The financial crisis resolution function of the Financial Supervision Authority consults the financial supervision function of the Financial Supervision Authority before exercising the powers provided in subsection 12 of this section.

(13) Upon failure to comply with the minimum requirement for own funds and eligible liabilities, the Financial Supervision Authority may, in accordance with § 39 or 39¹ of this Act, also carry out an assessment of whether the credit institution is failing or is likely to fail.

(14) The Financial Supervision Authority shall consult Eesti Pank when it exercises the respective powers specified in subsection 12 or 13 of this section.

§ 17¹. Specifications for eligible liabilities

(1) For resolution entities that are neither global systemically important institutions nor resolution entities that are subject to subsection 1 or 3 of § 18¹ of this Act, the Financial Supervision Authority may decide that a part of the requirement specified in § 18 shall be met using own funds and subordinated eligible liabilities, or liabilities specified in subsection 4 of § 17. This specification can be applied to up to the greater of eight per cent of the total liabilities, including own funds, of the entity and the formula specified in subsection 7 of § 17⁴ of this Act, provided that the following conditions are met:

1) non-subordinated liabilities specified in subsections 2¹, 2² and 3¹–3³ of § 17 of this Act have the same priority ranking of claims in the order of priority of claims specified in § 131 of the Credit Institutions Act as certain liabilities that are excluded from the application of write down and conversion powers in accordance with §§ 71 and 72 of this Act;

2) there is a risk that, as a result of a planned application of write down and conversion powers to non-subordinated liabilities that are not excluded from the application of write down and conversion powers in accordance with § 71 or 72 of this Act, creditors whose claims arise from those liabilities incur greater losses than they would incur in a winding up under normal insolvency proceedings;

3) the amount of own funds and other subordinated liabilities does not exceed the amount necessary to ensure that the creditors specified in clause 2 of this subsection do not incur losses above the level of losses that they would have incurred in the winding-up under normal insolvency proceedings.

(2) Where the Financial Supervision Authority determines that, within a class of liabilities which includes eligible liabilities, the amount of the liabilities that are excluded or reasonably likely to be excluded from the application of write down and conversion powers in accordance with §§ 71 and 72 of this Act totals more than ten per cent, the Financial Supervision Authority shall assess the risk specified in clause 2 of subsection 1 of this section.

(3) For the purposes of subsection 1 of this section and subsections 6 and 7 of § 17⁴ of this Act, derivative liabilities shall be included in total liabilities on the basis that full recognition is given to counterparty netting rights.

(4) The own funds of a credit institution that are used to comply with the combined buffer requirement specified in subsection 2 of § 86⁴⁴ of the Credit Institutions Act shall be eligible to comply with the requirements specified in subsection 1 of this section and subsections 6 and 7 of § 17⁴ of this Act.

(5) The Financial Supervision Authority may exercise the power specified in subsection 7 of § 17⁴ of this Act with respect to resolution entities that are global systemically important institutions or that are subject to subsection 1 or 3 of § 18¹, and that meet one of the conditions set out in subsection 6 of this section. The Financial Supervision Authority may exercise the power up to a limit of 30% of the resolution entities that are global systemically important institutions or that are subject to subsection 1 or 3 of § 18¹ of this Act for which the Financial Supervision Authority determines the requirement provided in § 18.

(6) Upon determining the minimum requirement, the Financial Supervision Authority considers the following circumstances:

1) substantive impediments to resolvability have been identified in the preceding resolvability assessment and following the application of the measures specified in subsection 4, 4¹ or 4² of § 34 of this Act the credit institution has not notified, in the timeline required by the Financial Supervision Authority, of any remedial action taken or the substantive impediments identified that cannot be addressed using any of the measures, and the exercise of the power specified in subsection 7 of § 17⁴ would partially or fully compensate for the negative impact of the substantive impediments on resolvability;

2) the Financial Supervision Authority considers that the feasibility and credibility of the resolution entity's preferred resolution strategy is limited, taking into account the entity’s size, its interconnectedness, the nature, scope, risk and complexity of its activities, its legal status and its shareholding structure; or

3) the requirement specified in § 104² of the Credit Institutions Act reflects the fact that the resolution entity that is a global systemically important institution or that is subject to subsection 1 or 3 of § 18¹ of this Act is, in terms of riskiness, among the top 20 per cent of credit institutions for which the Financial Supervision Authority determines the minimum requirement.

(7) For the purposes of the percentages specified in subsections 5 and 6 of this section, the Financial Supervision Authority shall round the number resulting from the calculation up to the closest whole number.

(8) The financial crisis resolution function of the Financial Supervision Authority shall only take the decisions specified in subsection 1 of this section or subsection 7 of § 17⁴ of this Act after consulting the financial supervision function.

(9) When taking decisions on eligible liabilities, the Financial Supervision Authority takes into account:

1) the depth of the market for the resolution entity’s own funds instruments and subordinated eligible liabilities, the requirements of such instruments for pricing, where they exist, and the time needed to execute any transactions necessary for the purpose of complying with the decision;

2) the amount of eligible liabilities instruments meeting all of the conditions specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council that have a residual maturity of less than one year as of the date of taking the decision, taking into account the quantitative adjustment of the requirements specified in subsection 1 of this section and subsection 7 of § 174 of this Act;

3) the availability and the amount of instruments that meet all of the conditions specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council, other than point (d) of Article 72b(2) of that Regulation;

4) whether the amount of liabilities that are excluded from the application of write down and conversion powers in accordance with § 71 or 72 of this Act and that, in normal insolvency proceedings, rank equally with or below the highest ranking eligible liabilities is significant in comparison to the own funds and eligible liabilities of the resolution entity;

5) the resolution entity’s business model, risk profile of the funding model as well as its stability and ability to contribute to the economy;

6) the impact of possible restructuring costs on the resolution entity’s recapitalisation.

(10) For the purposes of clause 4 of subsection 9 of this section, the excluded amount shall be considered as not being significant where the amount of excluded liabilities does not exceed five per cent of the amount of the own funds and eligible liabilities of the resolution entity. Where the amount of excluded liabilities exceeds the threshold specified in the first sentence, the significance of the excluded liabilities shall be assessed by the Financial Supervision Authority.

§ 17². Determination of minimum requirement

(1) The financial crisis resolution function of the Financial Supervision Authority shall determine the minimum requirement after consulting the financial supervision function, taking account of the following criteria:

1) the need to ensure that the resolution consolidation group can be resolved by the application of the resolution tools and powers to the resolution entity, including, where appropriate, the bail-in tool, in a way that meets the resolution objectives;

2) the need to ensure, where appropriate, that the resolution entity and its subsidiaries that are credit institutions or other consolidation group entities that are not resolution entities have sufficient own funds and eligible liabilities to ensure that, if the bail-in tool or write down and conversion powers, respectively, were to be applied to them, losses could be absorbed and that it is possible to restore the total capital ratio and, as applicable, the leverage ratio, of the relevant entities to a level necessary to enable them to continue to comply with the conditions for authorisation and to carry on the activities for which they are authorised;

3) the need to ensure, if the resolution plan anticipates the possibility for certain classes of eligible liabilities to be excluded from bail-in pursuant to § 71 or 72 of this Act or to be transferred in full to a recipient under a partial transfer, that the resolution entity has sufficient own funds and other eligible liabilities to absorb losses and to restore its total capital ratio and, as applicable, its leverage ratio, to the level necessary to enable it to continue to comply with the conditions for authorisation and to carry on the activities for which it is authorised;

4) the size, the business model, the funding model and the risk profile of the credit institution;

5) the extent to which the insolvency of the credit institution would have an adverse effect on financial stability, including through contagion to other credit institutions, due to the interconnectedness of the entity with other credit institutions or with the rest of the financial system.

(2) Where the resolution plan provides that a resolution tool is to be taken or that the power to write down and convert relevant capital instruments and eligible liabilities in accordance with § 56 of this Act is to be exercised in accordance with the relevant scenario specified in subsection 5 of § 29, the minimum requirement shall equal an amount sufficient to ensure that:

1) the losses that are expected to be incurred are fully absorbed;

2) the resolution entity and its subsidiaries that are credit institutions or other entities belonging to the consolidation group but that are not resolution entities are recapitalised to a level necessary to enable them to continue to comply with the conditions for authorisation, and to carry on the activities for which they are authorised for at least one year.

(3) For resolution entities, the amount of the minimum requirement specified in subsection 2 of this section is calculated in accordance with clause 1 of subsection 2 of § 17 of this Act by adding the following:

1) the amount of the losses to be absorbed in resolution that corresponds to the requirements specified in point (c) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and § 104² of the Credit Institutions Act of the resolution entity at the consolidated resolution consolidation group level; and

2) a recapitalisation amount that allows the resolution consolidation group resulting from resolution to restore compliance with its total capital ratio requirement specified in point (c) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and its requirement specified in § 104² of the Credit Institutions Act at the resolution consolidation group level after the implementation of the preferred resolution strategy.

(4) For resolution entities that are credit institutions, the amount of the minimum requirement specified in subsection 2 of this section is calculated in accordance with clause 2 of subsection 2 of § 17 of this Act by adding the following:

1) the amount of the losses to be absorbed in resolution that corresponds to the resolution entity’s leverage ratio requirement specified in point (d) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council at the consolidated resolution consolidation group level; and

2) a recapitalisation amount that allows the resolution consolidation group resulting from resolution to restore compliance with the leverage ratio requirement specified in point (d) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council at the resolution consolidation group level after the implementation of the preferred resolution strategy.

(4¹) When setting the requirement to be complied with on an individual basis provided in subsection 4 of this section, the Financial Supervision Authority takes into account the provisions of subsection 8 of § 55 and subsections 3 and 6 of § 78 of this Act.

(5) When setting the recapitalisation amounts for resolution entities that are credit institutions, the Financial Supervision Authority uses the most recently reported values for the relevant total risk exposure amount or total exposure measure, adjusted for any changes resulting from tools set out in the resolution plan and, after consulting the financial supervision function, adjusts the amount corresponding to the additional own funds requirement pursuant to subsection 1 of § 104² of the Credit Institutions Act downwards or upwards to determine the requirement that is to apply to the resolution entity after the implementation of the preferred resolution strategy.

(6) The Financial Supervision Authority may increase the requirement provided in clause 2 of subsection 3 of this section by an appropriate amount necessary to ensure that, following resolution, the entity is able to sustain sufficient market confidence for an appropriate period, which shall not exceed one year.

(7) Where subsection 6 of this section applies, the amount specified in that subsection shall be equal to the combined buffer requirement specified in subsection 2 of § 86⁴⁴ of the Credit Institutions Act that is to apply after the application of the resolution tools and powers, less the amount specified in subsection 1 of § 86⁴⁶.

(8) The amount specified in subsection 6 of this section is adjusted downwards if, after consulting the financial supervision function, the financial crisis resolution function of the Financial Supervision Authority determines that a lower amount is sufficient to sustain market confidence after implementation of the resolution strategy and to ensure both the continued provision of critical economic functions by the credit institution or the entity specified in clauses 3 and 4 of subsection 1 of § 2 of this Act and its access to funding without recourse to extraordinary public financial support other than contributions from the Resolution Sectoral Fund, in accordance with subsections 3 and 6 of § 78 of this Act and subsection 3 of § 73¹³ of the Guarantee Fund Act.

(9) The amount specified in subsection 6 of this section is adjusted upwards if, after consulting the financial supervision function, the financial crisis resolution function of the Financial Supervision Authority determines that a higher amount is necessary to sustain sufficient market confidence for an appropriate period which does not exceed one year and to ensure both the continued provision of critical economic functions by the credit institution or the entity specified in clauses 3 and 4 of subsection 1 of § 2 of this Act and its access to funding without recourse to extraordinary public financial support other than contributions from the Resolution Sectoral Fund, in accordance with subsections 3 and 6 of § 78 of this Act and subsection 3 of § 73¹³ of the Guarantee Fund Act.

(10) Where the Financial Supervision Authority expects that certain classes of eligible liabilities are reasonably likely to be fully or partially excluded from bail-in pursuant to § 72 of this Act or might be transferred in full to a recipient under a partial transfer, the minimum requirement shall be met using own funds or other eligible liabilities that are sufficient to:

1) cover the amount of excluded liabilities identified in accordance with § 72 of this Act;

2) ensure that the conditions specified in subsection 2 of this section are fulfilled.

§ 17³. Determination of minimum requirement for entities that are not resolution entities

(1) Where the minimum requirement is calculated in accordance with clause 1 of subsection 2 of § 17 of this Act for credit institutions that are not themselves resolution entities, the following amounts must be added:

1) the amount of the losses to be absorbed that corresponds to the requirement specified in point (c) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and subsection 1 of § 104² of the Credit Institutions Act of the credit institution; and

2) a recapitalisation amount that allows the credit institution to restore compliance with its total capital ratio requirement specified in point (c) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and its requirement specified in § 104² of the Credit Institutions Act after the exercise of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with § 56 of this Act or after the resolution of the resolution consolidation group.

(2) Where the minimum requirement is calculated in accordance with clause 2 of subsection 2 of § 17 of this Act for credit institutions that are not themselves resolution entities, the following amounts must be added:

1) the amount of the losses to be absorbed that corresponds to the credit institution’s leverage ratio requirement specified in point (d) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council; and

2) a recapitalisation amount that allows the credit institution to restore compliance with its leverage ratio requirement specified in point (d) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council after the exercise of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with § 56 of this Act or after the resolution of the resolution consolidation group.

(3) When setting the requirement provided in subsection 2 of this section on an individual basis, the Financial Supervision Authority shall take into account the conditions specified in subsection 8 of § 55 and subsections 3 and 6 of § 78 of this Act.

(4) When setting the recapitalisation amounts specified in § 17² of this Act and this section, the financial crisis resolution function of the Financial Supervision Authority shall:

1) use the most recently reported values for the relevant total risk exposure amount or total exposure measure, adjusted for any changes resulting from tools set out in the resolution plan; and

2) after consulting the financial supervision function or after the application of a resolution tool to a resolution consolidation group, adjust the amount corresponding to the current requirement specified in subsection 1 of § 104² of the Credit Institutions Act downwards or upwards to determine the requirement that is to apply to the relevant credit institution or resolution consolidation group after the exercise of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with § 56 of this Act.

(5) Following the exercise of the power to write down or convert relevant capital instruments and eligible liabilities in accordance with § 56 of this Act, the Financial Supervision Authority may increase the requirement provided in clause 2 of subsection 1 of this section by an appropriate amount necessary to ensure that the entity is able to sustain sufficient market confidence for an appropriate period which shall not exceed one year. The amount specified above shall be equal to the combined buffer requirement specified in subsection 2 of § 86⁴⁴ of the Credit Institutions Act after the exercise of the power specified in § 56 of this Act or after the application of a resolution tool to a resolution consolidation group, less the amount specified in subsection 1 of § 86⁴⁶.

(6) The amount specified in subsection 5 of this section is adjusted downwards if, after consulting the financial supervision function, the financial crisis resolution function of the Financial Supervision Authority determines that a lower amount is sufficient to ensure overall market confidence of the resolution consolidation group and to ensure both the continued provision of critical functions by the group entity and its access to funding without recourse to extraordinary public financial support other than contributions from the Resolution Sectoral Fund, in accordance with subsections 3 and 6 of § 78 of this Act and subsection 3 of § 73¹³ of the Guarantee Fund Act.

(7) The amount specified in subsection 5 of this section shall be adjusted upwards if, after consulting the financial supervision function, the financial crisis resolution function of the Financial Supervision Authority determines that a higher amount is necessary to sustain sufficient market confidence and to ensure both the continued provision of critical functions by the credit institution or group entity and its access to funding without recourse to extraordinary public financial support other than contributions from the Resolution Sectoral Fund, in accordance with subsections 3 and 6 of § 78 of this Act and subsection 3 of § 73¹³ of the Guarantee Fund Act, for an appropriate period which shall not exceed one year.

(8) Credit institutions that are subsidiaries of a resolution entity or of a third-country entity, but are not themselves resolution entities, shall comply with the minimum requirement on an individual basis.

(9) The financial crisis resolution function of the Financial Supervision Authority, after consulting the financial supervision function, may decide to apply the requirement provided in this section to a consolidation group entity that is a subsidiary of a resolution entity but is not itself a resolution entity.

(10) By way of derogation from subsection 2 of this section, European Union parent undertakings that are not themselves resolution entities, but are subsidiaries of third-country entities, shall comply with the minimum requirement on a consolidated basis.

(11) For resolution consolidation groups identified in accordance with subsection 3 of § 8¹ of this Act, those credit institutions which are permanently affiliated to a central body, but are not themselves resolution entities, a central body which is not itself a resolution entity, and any resolution entities that are not subject to a requirement under subsection 2² of § 18, shall comply with the minimum requirement on an individual basis.

(12) The minimum requirement shall be met using one or more of the following instruments:

1) liabilities that are issued to and bought by the resolution entity, either directly or indirectly for other entities in the same resolution consolidation group that bought the liabilities from the credit institution that is subject to this section, or are issued to and bought by an existing shareholder that is not part of the same resolution consolidation group as long as the exercise of write down or conversion powers does not affect the control of the subsidiary by the resolution entity;

2) liabilities that fulfil the eligibility criteria specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council, unless points (b), (c), (k), (l) and (m) of Article 72b(2) and Article 72b(3) to (5) of that Regulation apply;

3) liabilities that rank, in normal insolvency proceedings, below liabilities that do not meet the condition specified in clause 1 of this subsection and that are not eligible for own funds requirements;

4) liabilities that are subject to write down or conversion powers in a manner that is consistent with the resolution strategy of the resolution consolidation group, in particular by not affecting the control of the subsidiary by the resolution entity;

5) liabilities the acquisition of ownership of which is not funded directly or indirectly by the credit institution that is subject to this section;

6) liabilities the provisions governing which do not indicate explicitly or implicitly that the liabilities would be called, redeemed, repaid or repurchased early, as applicable, by the entity that is subject to this section, other than in the case of the insolvency or liquidation of that credit institution, and that credit institution does not otherwise provide such an indication;

7) instruments for which the holder thereof is not given the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the entity that is subject to this section;

8) instruments the level of interest or dividend payments, as applicable, due thereon is not amended on the basis of the credit standing of the entity that is subject to this section or its parent undertaking;

9) Common Equity Tier 1 capital;

10) other own funds that are issued to and bought by entities that are included in the same resolution consolidation group, or are issued to and bought by entities that are not included in the same resolution consolidation group as long as the exercise of write down or conversion powers in accordance with §§ 56–58 of this Act does not affect the control of the subsidiary by the resolution entity.

§ 17⁴. Determination of minimum requirement for global systemically important resolution entities and European Union material subsidiaries of non-EU global systemically important institutions

(1) Where the Financial Supervision Authority is the resolution authority of a global systemically important resolution entity, the Financial Supervision Authority establishes the minimum requirement specified in subsection 1 of § 17 of this Act for it, which consists of the following requirements:

1) the requirements specified in Articles 92a and 494 of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) an additional requirement for own funds and eligible liabilities that has been determined by the Financial Supervision Authority in accordance with subsection 3 of this section.

(2) Where the Financial Supervision Authority is the resolution authority of a European Union material subsidiary of a non-EU global systemically important credit institution, the Financial Supervision Authority establishes the minimum requirement specified in subsection 1 of § 17 of this Act for it, which consists of the following requirements:

1) the requirements specified in Articles 92b and 494 of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) an additional requirement for own funds and eligible liabilities that has been determined by the Financial Supervision Authority in accordance with subsection 3 of this section, which is to be met using own funds and liabilities that meet the conditions provided in § 19 and subsection 4 of § 81¹ of this Act.

(3) The Financial Supervision Authority establishes an additional requirement for own funds and eligible liabilities specified in clause 2 of subsection 1 and clause 2 of subsection 2 of this section where the requirement specified in clause 1 of subsection 1 or clause 1 of subsection 2 of this section is not sufficient to fulfil the conditions provided for the minimum requirement set out in this Act or to ensure compliance with the conditions provided in § 17² of this Act.

(4) For the purposes of subsection 4¹ of § 18 of this Act, where more than one entity belonging to the same global systemically important institution is a resolution entity or a third-country entity that would be a resolution entity if it were established in the European Union, the Financial Supervision Authority shall calculate the amount of the requirements specified in subsection 3 of this section:

1) individually for each resolution entity and third-country entity that would be a resolution entity if it were established in the European Union;

2) for the European Union parent entity as if it was the only resolution entity of the global systemically important institution.

(5) Any decision by the Financial Supervision Authority to impose an additional requirement for own funds and eligible liabilities under clause 2 of subsection 1 or clause 2 of subsection 2 of this section shall contain the reasons for that decision, including a full assessment of the elements specified in subsection 3 of this section, and shall be reviewed by the Financial Supervision Authority without undue delay to reflect any changes in the level of the requirement specified in subsection 1 of § 104² of the Credit Institutions Act that applies to the resolution consolidation group or the European Union material subsidiary of a non-EU global systemically important institution.

(6) Without prejudice to the minimum requirement provided in clause 1 or 3 of § 18¹ of this Act or in clause 1 of subsection 1 of this section, the Financial Supervision Authority ensures that a part of the requirement specified in § 18 equal to eight per cent of the total liabilities, including own funds, is met by resolution entities that are global systemically important institutions or resolution entities that are subject to subsection 1 or 3 of § 18¹ of this Act, using own funds and subordinated eligible liabilities or liabilities specified in subsection 4 of § 17. By way of derogation from the first sentence of this subsection, the Financial Supervision Authority may permit that a part that is less than eight per cent of the total liabilities is met by resolution entities that are global systemically important institutions or resolution entities that are subject to subsection 1 or 3 of § 18¹ of this Act.

(7) By derogation from the provisions of subsection 6 of this section, the Financial Supervision Authority may decide that the requirement specified in § 18 of this Act shall be met by resolution entities that are global systemically important institutions or resolution entities that are subject to the requirements provided in subsection 1 or 3 of § 18¹. This requirement may be met by using own funds, subordinated eligible liabilities, or liabilities specified in subsection 3 of this section, taking into account the obligation of the resolution entity to comply with the combined buffer requirement specified in subsection 2 of § 86⁴⁴ of the Credit Institutions Act and the requirements provided in Article 92a of Regulation (EU) No 575/2013 of the European Parliament and of the Council and in subsection 1 or 3 of § 18¹ and § 18 of this Act, applying the regulation specified in subsection 8 of § 17. The sum of those own funds and liabilities may not exceed the greater of:

1) eight per cent of total liabilities, including own funds, of the entity;

2) the amount calculated by adding twice the requirement specified in point (c) of Article 92(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, twice the requirement provided in subsection 1 of § 104² of the Credit Institutions Act and the combined buffer requirement specified in subsection 2 of § 86⁴⁴.

(8) The Financial Supervision Authority may apply the part of the requirement specified in subsection 1 of this section which is to be met using own funds, subordinated eligible liabilities, or liabilities specified in subsection 3, to resolution entities that are subject to subsection 1 or 2 of § 181 of this Act up to the amount equal to 27 per cent of the total risk exposure amount of the resolution entities. The Financial Supervision Authority limits the requirement if it takes the position that:

1) access to the resolution fund is not considered to be an option for resolving in the resolution plan of the resolution entity; or

2) the requirement specified in § 18 of this Act allows that resolution entity to meet the requirements specified in subsections 3 and 6 of § 78.

(9) When forming the position specified in subsection 8 of this section, the Financial Supervision Authority also takes into account the risk of disproportionate impact on the business model of the resolution entity concerned.

(10) For resolution entities that are subject to subsection 3 of § 18¹ of this Act, subsection 7 of this section does not apply.

(11) The requirements provided in this section shall not apply within the three-year period following the date on which the resolution entity or the consolidation group of which the resolution entity is part has been identified as a global systematically important institution.

§ 17⁵. Application of minimum requirement to liquidation entities

(1) The Financial Supervision Authority does not determine a minimum requirement specified in subsection 1 of § 17 of this Act for a liquidation entity unless otherwise provided in this section. The Financial Supervision Authority may assess whether it is justified to determine a minimum requirement for a liquidation entity pursuant to subsection 2 of § 17 of this Act on an individual basis in an amount exceeding what is necessary to absorb losses pursuant to clause 1 of subsection 2 of § 17² of this Act. In its assessment, the Financial Supervision Authority takes into account, in particular, the potential impact on financial stability and the risk of contagion in the financial system, including as regards ensuring sufficient financing of the Guarantee Fund or deposit guarantee schemes of other EEA countries.

(2) Where the Financial Supervision Authority determines a minimum requirement for a liquidation entity, the liquidation entity meets the requirement with at least one of the following instruments:

1) own funds;

2) liabilities that fulfil the eligibility criteria specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council, except for points (b) and (d) of Article 72b(2) of that Regulation;

3) liabilities specified in subsections 3¹–3³ of § 17 of this Act.

(3) Where the Financial Supervision Authority has not determined a minimum requirement for a liquidation entity:

1) Article 77(2) and Article 78a of Regulation (EU) No 575/2013 of the European Parliament and of the Council do not apply to it;

2) holdings in own funds instruments and eligible liabilities instruments issued by a subsidiary credit institution which is a liquidation entity pursuant to Article 72e(5) of Regulation (EU) No 575/2013 of the European Parliament and of the Council are not deducted.

(4) By way of derogation from the provisions of clause 2 of subsection 3 of this section, a credit institution or an entity specified in clause 3 or 4 of subsection 1 of § 2 of this Act which is not itself a resolution entity but a subsidiary of a resolution entity or of a third country entity which would be a resolution entity if it were established in an EEA country may deduct its holding in own funds instruments in subsidiary credit institutions.

(5) The holdings specified in subsection 4 of this section are deducted by a credit institution from subsidiary credit institutions which belong to the same resolution consolidation group and are liquidation entities for whom the Financial Supervision Authority has not determined a minimum requirement if the total sum of these holdings is at least seven per cent of the total amount of the own funds and liabilities that comply with the conditions provided in subsections 8 and 8¹ of § 19 of this Act, calculated annually as at 31 December as an average over the previous 12 months.

§ 18. Application of minimum requirement to consolidation groups

(1) The Financial Supervision Authority may decide to apply the minimum requirement to another entity established in Estonia that is part of the same consolidation group as credit institutions.

(1¹) Resolution entities shall comply with the minimum requirement specified in subsection 2 of this section on a consolidated basis at the level of the resolution consolidation group.

(2) Where the Financial Supervision Authority is the resolution authority of the consolidation group, it determines the minimum requirement for the resolution entity or for the consolidation group as a whole, taking into account the provisions of §§ 17, 17¹ and 17⁴ of this Act and the matter whether subsidiaries of the consolidation group established in third countries are to be resolved separately under the resolution plan.

(2¹) Credit institutions engaged in mortgage credit that are exempted from the obligation to meet the minimum requirement under subsection 3 of § 17 of this Act are not included in the consolidation group upon determination of the minimum requirement for own funds and eligible liabilities of the consolidated consolidation group.

(2²) For resolution consolidation groups specified in subsection 3 of § 8¹ of this Act, the Financial Supervision Authority shall decide, depending on the credit institutional protection scheme and the preferred resolution strategy, which entities in the resolution consolidation group are to comply with the minimum requirements, in order to ensure that the resolution consolidation group as a whole complies with the minimum requirement specified in subsection 2 of this section. The Financial Supervision Authority shall explain how such consolidation group entities are to comply with the minimum requirements in conformity with the resolution plan.

(3) The Financial Supervision Authority shall do everything within its power to reach a joint decision in cooperation with the resolution authority of the other EEA country on the amount of the requirement applied:

1) at the consolidated resolution consolidation group level for each resolution entity;

2) on an individual basis to each entity of a resolution consolidation group which is not a resolution entity.

(3¹) The joint decision specified in this section shall comply with this section and § 19 of this Act, it shall be fully reasoned and provided by the Financial Supervision Authority if it is the resolution authority:

1) to the resolution entity;

2) to the credit institution of a resolution consolidation group which is not a resolution entity;

3) the European Union parent undertaking of the consolidation group which is not itself a resolution entity from the same resolution consolidation group.

(3²) Where consistent with the resolution strategy and sufficient instruments complying with subsections 8 and 8¹ of § 19 of this Act have not been bought directly or indirectly by the resolution entity, the joint decision specified in this section may provide that the requirement specified in subsection 1 of § 17³ of this Act is to be partially met with the instruments of the subsidiary which comply with the requirements provided in subsections 8 and 8¹ of § 19 and which are issued to and bought by entities not belonging to the resolution consolidation group.

(4) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall propose the joint decision to the resolution authority of the other relevant EEA country.

(4¹) Where more than one global systemically important credit institution belonging to the same global systemically important institution is a resolution entity or a third-country entity that would be a resolution entity if it were established in the European Union, the Financial Supervision Authority discusses with the resolution authority of the resolution entity, the consolidation group level resolution authority if different from the resolution authority of the resolution entity, or the resolution authority responsible for the subsidiaries of the resolution consolidation group, the application of Article 72e of Regulation (EU) No 575/2013 of the European Parliament and of the Council and any adjustment thereto and, where appropriate and consistent with the global systemically important institution’s resolution strategy, they agree on the total sum of the relevant requirements.

(4²) The specification referred to in subsection 4¹ of this section may be applied subject to the following:

1) it is applied in respect of differences in the calculation of the total risk exposure amounts between the relevant EEA countries or third countries by adjusting the level of the requirement;

2) it is not applied to eliminate differences resulting from exposures between resolution consolidation groups;

3) the total sum of the amounts specified in clause 1 of subsection 4 of § 17⁴ of this Act and point (a) of Article 12a of Regulation (EU) No 575/2013 of the European Parliament and of the Council for individual resolution entities and third-country entities that would be resolution entities if they were established in the European Union shall not be lower than the total sum of the amounts specified in clause 2 of subsection 4 of § 17⁴ of this Act and point (b) of Article 12a of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(5) The Financial Supervision Authority shall reach a joint decision with the resolution authority of the other relevant EEA country on the determination of the minimum requirement of the consolidation group within four months of the date of submission or receipt of the proposal specified in subsection 4 of this section.

(6) Where the Financial Supervision Authority is the resolution authority of the resolution entity and it does not reach a joint decision on the determination of the minimum requirement for the consolidation group with resolution authorities of other EEA countries within four months, the Financial Supervision Authority takes its own decision on the determination of the minimum requirement for the resolution entity, taking into account the assessments prepared by the relevant resolution authorities concerning the resolution consolidation group credit institution that is not a resolution entity and the opinion of the consolidation group level resolution authority, if different from the resolution authority of the resolution entity.

(6¹) Where the Financial Supervision Authority, which is the resolution authority of a subsidiary credit institution established in Estonia, and the resolution authority of another EEA country fail to reach a joint decision within four months because of a disagreement concerning the level of the requirement specified in § 19 of this Act to be applied to the resolution consolidation group credit institution on an individual basis, the Financial Supervision Authority takes a decision on the subsidiary credit institution if both of the following conditions are met:

1) the views and reservations expressed in writing by the resolution authority of the resolution entity have been duly taken into account;

2) where the consolidation group level resolution authority is different from the resolution authority of the resolution entity, the views and reservations expressed in writing by the consolidation group level resolution authority have been duly taken into account.

(6²) Where, at the end of the four-month period, the resolution authority of the resolution entity or the consolidation group level resolution authority has referred the matter to the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council, the Financial Supervision Authority shall defer its decision specified in subsection 6¹ of this section and await any decision that the European Banking Authority may take.

(6³) Where a joint decision is not taken within four months because of a disagreement concerning the level of the consolidated resolution consolidation group requirement and the level of the requirement to be applied to the resolution consolidation group’s entities on an individual basis, the decision shall be taken:

1) on the level of the requirement to be applied to the resolution consolidation group’s subsidiaries on an individual basis in accordance with subsection 6¹ of this section where the Financial Supervision Authority is the resolution authority of a subsidiary credit institution;

2) on the level of the consolidated resolution consolidation group requirement in accordance with subsection 6 of this section where the Financial Supervision Authority is the resolution authority of the consolidation group.

(7) If the resolution authority of the other EEA country has notified the European Banking Authority of disagreements on the achievement of a joint decision within the period specified in subsection 6 of this section, the Financial Supervision Authority shall defer its decision and await the decision of the European Banking Authority and shall take its decision in accordance with the decision of the European Banking Authority on the determination of the minimum requirement. In the absence of the decision of the European Banking Authority within one month of the date of notification of the resolution authority of the other EEA country, the Financial Supervision Authority shall take its decision.

(8) The Financial Supervision Authority has the right to file a complaint with the European Banking Authority concerning the determination of the minimum requirement by the resolution authority of the consolidation group or by the resolution authority of the credit institution which is part of the resolution consolidation group on an individual basis and falls within the scope of the minimum requirement under the conditions provided in subsections 2 and 4–8 of § 19 of this Act within the four months specified in subsections 6 and 6¹ of this section or before reaching a joint decision.

(8¹) If the Financial Supervision Authority is a resolution authority of the resolution entity or the consolidation group level resolution authority, the power specified in subsection 8 of this section to refer the matter to the European Banking Authority for binding mediation does not apply where the level set by the resolution authority of the subsidiary is within two per cent of the requirement specified in subsection 1, which is calculated on the total risk exposure amount in accordance with Article 92(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and which complies with subsection 1 of § 17³ of this Act.

(8²) In the absence of a decision of the European Banking Authority within one month after the application of the power specified in subsection 6² of this section, the Financial Supervision Authority applies the decision taken on the basis of subsection 6¹ to the subsidiary that is a credit institution.

(8³) The financial crisis resolution function of the Financial Supervision Authority shall coordinate, in cooperation with the financial supervision function, the compliance with the minimum requirements by the credit institutions and shall take any decision pursuant to this section in parallel with the development and the maintenance of resolution plans.

(9) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall submit the joint decision or the decision provided in subsection 6 of this section along with the required reasons to the parent undertaking of the consolidation group.

(9¹) The joint decision specified in this section or a decision taken by the relevant resolution authority in the absence of the joint decision shall be binding on the Financial Supervision Authority.

(10) The joint decision specified in this section or a decision taken by the Financial Supervision Authority in the absence of the joint decision shall be reviewed on a regular basis and where relevant updated.

§ 18¹. Specification for resolution entities that are part of consolidation group

(1) Resolution entities that are not subject to Article 92a of Regulation (EU) No 575/2013 of the European Parliament and of the Council and that are part of a resolution consolidation group the total assets of which exceed 100 billion euros meet the requirement specified in subsection 3 of § 17² of this Act on the level that is at least equal to 13.5 per cent when calculated in accordance with clause 1 of subsection 2 of § 17 and five per cent when calculated in accordance with clause 2 of subsection 2 of § 17.

(2) The resolution entities specified in subsection 1 of this section shall meet the minimum requirement on the level that is equal to 13.5 per cent when calculated in accordance with clause 1 of subsection 2 of § 17 of this Act and to five per cent when calculated in accordance with clause 2 of subsection 2 of § 17 using own funds, subordinated eligible liabilities, or liabilities specified in subsection 4 of § 17.

(3) The financial crisis resolution function of the Financial Supervision Authority may, after consulting the financial supervision function, decide to apply the requirements provided in subsections 1 and 2 of this section to a resolution entity which is not subject to Article 92a of Regulation (EU) No 575/2013 of the European Parliament and of the Council, but which is part of a resolution consolidation group the total assets of which are less than 100 billion euros and which the Financial Supervision Authority has assessed as reasonably likely to cause a systemic risk in the event of its insolvency.

(4) When taking a decision specified in subsection 3 of this section, the Financial Supervision Authority shall take into account:

1) the prevalence of deposits, and the absence of debt instruments, in the funding model;

2) the extent to which access to the capital markets for eligible liabilities is limited;

3) the extent to which the resolution entity relies on Common Equity Tier 1 capital to meet the requirement specified in § 18 of this Act.

(5) The absence of a decision specified in subsection 3 of this section is without prejudice to any decision under subsections 1 and 2 of § 17¹ of this Act.

(6) The minimum levels of the requirements specified in subsections 1 and 3 of this section shall not apply within the two-year period following the date:

1) on which the Financial Supervision Authority has applied the bail-in tool;

2) on which the resolution entity has taken a private sector measure specified in clause 2 of subsection 1 of § 39 of this Act in the course of resolution, by which capital instruments and other liabilities have been written down or converted into Common Equity Tier 1 instruments;

3) on which the powers of write down or conversion of liabilities have been exercised in respect of that resolution entity, in order to recapitalise the resolution entity without the application of resolution tools.

(7) The minimum requirements specified in subsection 2 of this section and subsections 6 and 7 of § 17⁴ of this Act do not apply within three years after the date on which the resolution entity or the consolidation group to which the resolution entity belongs has been assessed as meeting the conditions provided in those subsections.

§ 19. Application of minimum requirement to subsidiary credit institution of consolidation group

(1) The Financial Supervision Authority determines the minimum requirement for a subsidiary credit institution of a consolidation group if the credit institution has been established in Estonia. Upon determination of the minimum requirement, the criteria provided in subsection 7 of § 17 of this Act are taken into account, in particular the size, business and funding model and risk profile of the credit institution.

(2) Credit institutions that are subsidiaries of a resolution entity or of a third-country entity, but are not themselves resolution entities, shall comply with the minimum requirement on an individual basis.

(3) A credit institution engaged in mortgage credit specified in subsection 3 of § 17 of this Act which is exempt from compliance with the individual minimum requirement is not included in the composition of the resolution consolidation group upon determination of the minimum requirement for own funds and eligible liabilities on a consolidated basis.

(4) The financial crisis resolution function of the Financial Supervision Authority, after consulting the financial supervision function, may decide to apply the requirement provided in this section to a consolidation group entity that is a subsidiary of a resolution entity but is not itself a resolution entity.

(5) By way of derogation from subsection 2 of this section, European Union parent undertakings that are not themselves resolution entities, but are subsidiaries of third-country entities, shall comply with the minimum requirements on a consolidated basis.

(6) For resolution consolidation groups identified in accordance with subsection 3 of § 8¹ of this Act, those credit institutions which are permanently affiliated to a central body, but are not themselves resolution entities, a central body which is not itself a resolution entity, and any resolution entities that are not subject to a requirement under subsection 2² of § 18, shall comply with the requirement specified in subsections 1 and 2 of § 17³ on an individual basis.

(7) The minimum requirement applicable to the credit institution specified in this section is determined pursuant to this section and, if applicable, also pursuant to § 81¹ of this Act, and on the basis of the corresponding minimum requirements provided.

(8) An entity specified in subsections 1, 2, 5 and 6 of this section meets the minimum requirement with one or more of the following liabilities:

1) liabilities that are issued to and bought by the resolution entity, either directly or indirectly through other entities in the same resolution consolidation group that bought the liabilities from the entity that is subject to this section, or are issued to and bought by an existing shareholder that is not part of the same resolution consolidation group as long as the exercise of write down or conversion powers in accordance with §§ 56–58 of this Act does not affect the control of the subsidiary by the resolution entity;

2) liabilities that fulfil the eligibility criteria specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council, except for points (b), (c), (k), (l) and (m) of Article 72b(2) and Article 72b(3) to (5) of that Regulation;

3) liabilities that rank, in normal insolvency proceedings, below liabilities that do not meet the condition specified in clause 1 of this subsection and that are not eligible for own funds requirements;

4) liabilities that are subject to write down or conversion powers in accordance with §§ 56–58 of this Act in a manner that is consistent with the resolution strategy of the resolution consolidation group, in particular by not affecting the control of the subsidiary by the resolution entity;

5) liabilities the acquisition of ownership of which is not funded directly or indirectly by the entity that is subject to this section;

6) liabilities the provisions governing which do not indicate explicitly or implicitly that the liabilities would be called, redeemed, repaid or repurchased early, as applicable, by the entity that is subject to this section, other than in the case of the insolvency or liquidation of that entity, and that entity does not otherwise provide such an indication;

7) liabilities the provisions governing which do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the entity that is subject to this section;

8) liabilities the level of interest or dividend payments, as applicable, due thereon is not amended on the basis of the credit standing of the entity that is subject to this section.

(8¹) In addition to the liabilities provided in subsection 8 of this section, the entity specified in subsections 1, 2, 5 and 6 of this section meets the minimum requirement with one or more of the following own funds:

1) Common Equity Tier 1 capital;

2) other own funds that are issued to and bought by entities belonging to the same resolution consolidation group;

3) other own funds that are issued to and bought by entities not belonging to the same resolution consolidation group provided that the exercise of the write down or conversion powers pursuant to §§ 56–58 of this Act does not affect the control of the subsidiary by the resolution entity.

(8²) Where an entity specified in subsections 2 and 4–7 of this section and in § 19¹ meets the minimum requirement on a consolidated basis, the total own funds and eligible liabilities of that entity include the following liabilities issued pursuant to subsection 8 by a subsidiary established in the European Union which belongs to the consolidation group of the respective entity:

1) liabilities issued to and bought by the resolution entity directly or indirectly through entities belonging to the same resolution consolidation group other than those included in the consolidation perimeter of the entity complying with the minimum requirement provided in subsection 1 of § 17 of this Act;

2) liabilities issued to an existing shareholder who does not belong to the same resolution consolidation group.

(8³) The liabilities specified in subsection 8² of this section may not exceed the amount determined by subtracting the sum of all the following elements from the minimum requirement determined pursuant to subsection 1 of § 17 of this Act and applicable to the subsidiary being consolidated:

1) liabilities issued to an entity which complies with the requirement provided in subsection 1 of § 17 of this Act on a consolidated basis and which it has bought either directly or indirectly through other entities that are part of the same resolution consolidation group and that belong to the consolidation perimeter of the corresponding entity;

2) total own funds issued pursuant to subsection 8¹ of this section.

(9) If both the subsidiary and the resolution entity are established in Estonia and are part of the same resolution consolidation group, the Financial Supervision Authority may waive the application of the minimum requirement to that subsidiary that is not a resolution entity where all of the following conditions are met:

1) the resolution entity complies with the minimum requirement specified in subsection 2 of § 18 of this Act on a consolidated basis;

2) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities by the resolution entity to the subsidiary in respect of which a determination has been made in accordance with subsection 1 of § 56 of this Act, in particular where a resolution tool is taken in respect of the resolution entity;

3) the resolution entity proves to the satisfaction of the Financial Supervision Authority that the management of the subsidiary complies with prudential requirements and has declared, with the consent of the financial supervision function of the Financial Supervision Authority, that it guarantees the commitments entered into by the subsidiary, or the risks related to the subsidiary are not significant;

4) the risk evaluation, measurement and control procedures of the resolution entity cover the subsidiary;

5) the resolution entity holds more than 50 per cent of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary.

(10) If both the subsidiary and its parent undertaking are established in Estonia and are part of the same resolution consolidation group, the Financial Supervision Authority may waive the application of the minimum requirement to that subsidiary that is not a resolution entity where all of the following conditions are met:

1) the parent undertaking complies on a consolidated basis with the minimum requirement specified in this Act in the EEA country of the location of the parent undertaking;

2) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities by the parent undertaking to the subsidiary in respect of which a determination that the bases for write down or conversion exist has been made in accordance with subsection 1 of § 56 of this Act, in particular where a resolution tool or powers specified in subsection 1 of § 56 arising from such bases are taken in respect of the parent undertaking;

3) the parent undertaking satisfies the Financial Supervision Authority regarding the prudent management of the subsidiary and has declared, with the consent of the supervisory authority, that it guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of no significance;

4) the risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary;

5) the parent undertaking holds more than 50 per cent of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary.

(11) If both the subsidiary and the resolution entity have been established in Estonia and belong to the same consolidation group and the condition provided in clause 1 of subsection 9 of this section is met, the Financial Supervision Authority may permit the minimum requirement specified in this Act to be met by the subsidiary in full or in part with a guarantee provided by the resolution entity which fulfils the following conditions:

1) the guarantee is provided for an amount that is at least equivalent to the amount of the requirement for which it substitutes;

2) the guarantee is triggered when the subsidiary is unable to pay its debts or other liabilities within a respective term, or a determination that the bases for write down or conversion exist has been made in accordance with subsection 1 of § 56 of this Act in respect of the subsidiary, whichever is the earliest;

3) the guarantee is secured by a financial collateral arrangement within the meaning of Article 2(1)(a) of Directive 2002/47/EC of the European Parliament and of the Council on financial collateral arrangements (OJ L 168, 27.6.2002, p. 43–50) to the extent of at least 50 per cent of its amount;

4) the collateral backing the guarantee fulfils the requirements provided in Article 197 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, which, following appropriately conservative haircuts, is sufficient to cover the amount collateralised as specified in clause 3 of this subsection;

5) the collateral backing the guarantee is unencumbered and is not used as collateral to back any other guarantee;

6) the collateral has an effective maturity that fulfils the maturity conditions specified in Article 72c(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

7) there are no legal, regulatory or operational barriers to the transfer of the collateral from the resolution entity to the relevant subsidiary, including where a resolution tool is taken in respect of the resolution entity.

(12) For the purposes of clause 7 of subsection 11 of this section, at the request of the Financial Supervision Authority, the resolution entity shall provide an independent written and reasoned legal opinion or shall otherwise satisfactorily demonstrate that there are no legal, regulatory or operational barriers to the transfer of collateral from the resolution entity to the relevant subsidiary.

§ 19¹. Specification for subsidiary that is part of consolidation group

(1) By way of derogation from the provisions of subsections 2 and 4 of § 19 of this Act, the Financial Supervision Authority may determine compliance with the requirement provided in § 17² for a subsidiary on a consolidated basis.

(2) In order to apply the derogation specified in subsection 1 of this section, all of the following conditions must be met:

1) the resolution entity has direct or indirect control over the subsidiary or is subject to the requirement for additional own funds specified in § 104² of the Credit Institutions Act only on a consolidated basis and the determination of the minimum requirement provided in § 17² of this Act on a consolidated basis does not lead to overstating the need for recapitalisation of the subgroup consisting of the entities in the consolidation perimeter concerned when applying clause 2 of subsection 1 of § 17² of this Act, in particular if there are many liquidation entities within the same consolidation perimeter;

2) compliance with the requirement provided in § 17² of this Act on a consolidated basis instead of compliance with the relevant requirement on an individual basis does not materially impair the credibility and feasibility of the group resolution strategy or ability of the subsidiary to meet the own funds requirement after the exercise of the write-down and conversion powers and the appropriateness of the internal loss transfer and recapitalisation mechanism, including the write down or conversion of relevant capital instruments and eligible liabilities of the subsidiary concerned or other entities belonging to the resolution consolidation group, is in compliance with § 56 of this Act.

(3) In order to apply the derogation specified in clause 1 of subsection 2 of this section, all of the following conditions must be met:

1) the resolution entity is a financial holding company operating in the European union as a parent undertaking or a parent mixed financial holding company operating in the European Union as a parent undertaking;

2) both the subsidiary and the resolution entity are established in the same EEA country and belong to the same resolution consolidation group;

3) the resolution entity has no direct or indirect control over any subsidiary credit institution or any subsidiary entity specified in clauses 3 and 4 of subsection 1 of § 2 of this Act where that subsidiary is subject to the requirements provided in § 19 or the minimum requirement specified in § 17²;

4) the subsidiary would be disproportionately affected by the deductions required pursuant to Article 72e(5) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

§ 20. Specifications for application of minimum requirement

(1) If the Financial Supervision Authority is the resolution authority of the consolidation group, it has the power not to apply the minimum requirement to a parent undertaking of the consolidation group of the credit institution in the following cases:

1) a parent credit institution of the European Union meets the minimum requirement specified in subsection 2 of § 18 of this Act on a consolidated basis;

2) a parent credit institution of the European Union is not subject to prudential requirements on an individual basis under Article 7(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2) If the Financial Supervision Authority is the resolution authority of the subsidiary of the consolidation group, it has the power not to apply the minimum requirement to the credit institution in the following cases:

1) both the parent undertaking and the subsidiary of the consolidation group have obtained an authorisation in Estonia and both are subject to the supervision by the Financial Supervision Authority;

2) the subsidiary of the consolidation group is included in the supervision by the Financial Supervision Authority exercised over the same consolidation group;

3) the parent undertaking of the subsidiary of the consolidation group which is not the parent undertaking of the whole consolidation group meets the minimum requirement on a consolidated basis;

4) there is no current or foreseen practical or legal impediment to the transfer of capital instruments or repayment of liabilities to the subsidiary by its parent undertaking;

5) either the parent undertaking satisfies the Financial Supervision Authority as the financial supervision authority regarding the prudent management of the subsidiary and guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of no significance;

6) the risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary;

7) the parent undertaking holds more than 50 per cent of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary;

8) a subsidiary that is a credit institution established in Estonia is not subject to prudential requirements on an individual basis under Article 7(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(3) The Financial Supervision Authority may partially or fully waive the application of the minimum requirement in respect of a central body or of a credit institution which is permanently affiliated to a central body, where the following conditions are met:

1) the credit institution and the central body are established in Estonia and both of them are subject to supervision by the Financial Supervision Authority;

2) the credit institution and the central body are part of the same resolution consolidation group;

3) the central body and its permanently affiliated credit institutions are jointly and severally liable for commitments, or the commitments of its permanently affiliated credit institutions are entirely guaranteed by the central body;

4) the minimum requirement for own funds and eligible liabilities, and the solvency and liquidity of the central body and of all of the permanently affiliated credit institutions, are monitored as a whole on the basis of the consolidated accounts of those credit institutions;

5) in the case of a waiver for a credit institution which is permanently affiliated to a central body, the management of the central body is empowered to issue instructions to the management of the credit institutions permanently affiliated to the central body;

6) the relevant resolution consolidation group complies with the requirement specified in subsection 2² of § 18 of this Act;

7) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between the central body and the permanently affiliated credit institutions in the event of resolution.

§ 22. Provision of bail-in power in agreements

(1) A credit institution or entity that is part of the same consolidation group as the credit institution is required to agree in the agreement creating a liability which is governed by the law of a third country that the creditor, party to the agreement creating the liability or acquirer of the debt instrument recognises that:

1) the liability arising from the agreement may be subject to the write-down and conversion powers;

2) it agrees to be bound by any reduction, conversion or cancellation of the principal or outstanding amount due of the liability in resolution proceedings.

(1¹) The Financial Supervision Authority may allow that the requirements specified in subsection 1 of this section be not met if the minimum requirement equals the loss-absorption amount of the credit institution and the contractual terms specified in the same subsection are not counted towards that minimum requirement.

(2) The Financial Supervision Authority may require the credit institution or entity that is part of the same consolidation group as the credit institution to provide an independent legal opinion relating to the enforceability and validity of the agreement including a term concerning the write down and conversion powers.

(2¹) Where a credit institution has assessed that it is legally or otherwise impracticable to apply the requirements specified in subsection 1 of this section to the liability, the credit institution notifies the Financial Supervision Authority of reaching such conclusion, including the class of the liability and the reasons for the conclusion. The liabilities do not include Additional Tier 1 instruments, Tier 2 instruments and bonds or other types of transferable debt instruments or instruments creating or acknowledging a debt, where those instruments are unsecured liabilities and senior to the liabilities specified in clause 5¹ of subsection 1 of § 131 of the Credit Institutions Act.

(2²) Where the Financial Supervision Authority has received from a credit institution a notification specified in subsection 2¹ of this section, the obligation to include in the contractual provisions a term provided in subsection 1 is automatically suspended.

(2³) In the event that the Financial Supervision Authority, taking into account the need to ensure the resolvability of the credit institution, concludes that it is legally or otherwise practicable to include in the contractual provisions a term provided in subsection 1 of this section, it shall require, within a reasonable timeframe after the notification specified in subsection 2¹, the inclusion of such contractual term. The Financial Supervision Authority may, in addition, require the credit institution to amend its practices concerning the application of the exemption from contractual recognition of bail-in.

(2⁴) The Financial Supervision Authority may specify the categories of liabilities for which a credit institution or other consolidation group entity reaches the determination that it is legally or otherwise impracticable to include the contractual term specified in subsection 1 of this section.

(3) The provisions of subsection 1 of this section shall not apply:

1) to deposits that are satisfied as claims in the first priority ranking in the bankruptcy proceedings in accordance with subsection 1 of § 131 of the Credit Institutions Act;

2) if the write down and conversion powers have been provided pursuant to the law of the third country or to an international agreement entered into with that third country;

3) to liabilities provided in subsection 1 of § 71 of this Act.

(4) If a credit institution or entity that is part of the same consolidation group as the credit institution fails to meet the requirements provided in this section, that failure shall not prevent the Financial Supervision Authority from applying the bail-in tool in relation to those liabilities.

§ 22¹. Submission of reports on minimum requirement

(1) A credit institution submits to the Financial Supervision Authority a report on meeting the minimum requirement containing the following information:

1) the amount of own funds specified in subsection 8¹ of § 19 of this Act, where applicable, and the amount of eligible liabilities as well as the amount of own funds and eligible liabilities pursuant to subsections 2–9 of § 17², subsections 1–6 of § 17³ and subsections 1 and 2 of § 18¹ of this Act after making any relevant deductions pursuant to Articles 72e-72j of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) the amount of bail-inable liabilities;

3) the structure and term profile of the amounts specified in clauses 1 and 2 of this subsection and the ranking of claims arising from them in normal insolvency proceedings;

4) where the amounts specified in clauses 1 and 2 of this subsection are regulated by the law of a third country, an explanation thereof together with the name of the relevant country and whether the regulation of the amounts by the law of the third country consists in the establishment of the contractual terms referred to in subsections 1, 1¹ and 3 of § 22 of this Act and in points (p) and (q) of Article 52(1) and points (n) and (o) of Article 63 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(1¹) The information specified in clause 2 of subsection 1 of this section concerning the amount of bail-inable liabilities need not be submitted by a credit institution who hold amounts of own funds and eligible liabilities, calculated in accordance with clause 1 of subsection 1 at the date of submission of the respective information, of at least 150 per cent of the minimum requirement established with regard to the credit institution.

(2) The information specified in clause 1 of subsection 1 of this section is submitted to the Financial Supervision Authority at least once every six months and the information specified in clauses 2 and 3 is submitted at least once every year, unless the Financial Supervision Authority requires the submission of the information specified in subsection 1 more frequently than once every six months or once every year. Where necessary, the Financial Supervision Authority may request the reports specified in subsection 1 of this section for shorter periods than those provided in the legislation established on the basis of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.

(4) A credit institution must publish the following information on its website in an accessible format at least once a year:

1) the amount of own funds pursuant to subsection 8¹ of § 19 of this Act, where applicable, and the amount of eligible liabilities;

2) the structure and term profile of the items specified in clause 1 of this subsection and the ranking of claims arising from them in normal insolvency proceedings;

3) information concerning the application of the minimum requirement specified in subsections 1, 2¹ and 2² of § 18 or subsections 2 and 4–8 of § 19 of this Act, which has been formalised in accordance with subsection 2 of § 17.

(5) The provisions of subsections 1, 1¹ and 4 of this section do not apply to a liquidation entity unless the Financial Supervision Authority has determined the requirement specified in subsection 2 of § 17 of this Act in accordance with § 17⁵ in the case of such an entity. In such case, the corresponding reporting and disclosure obligation is limited to compliance with the minimum requirement provided in § 175 of this Act and the Financial Supervision Authority determines the content and frequency of the reporting and disclosure obligation for the specified entity pursuant to Commission Implementing Regulation (EU) 2021/763 laying down implementing technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and of the Council and Directive 2014/59/EU of the European Parliament and of the Council with regard to the supervisory reporting and disclosure of the minimum requirement for own funds and eligible liabilities (OJ L 168, 12.5.2021, p. 1–83). The Financial Supervision Authority provides instructions to the liquidation entity concerned on how to comply with the reporting and disclosure obligation.

§ 22². Contractual recognition of resolution stay powers

(1) A credit institution or an entity belonging to the same consolidation group as the credit institution is required to agree in each financial contract entered into to which the law of a third country applies that the creditor or the other party to the contract agrees that the Financial Supervision Authority may exercise the right arising from subsection 2 of § 43 of this Act to suspend performance of the obligation or restrict the rights with regard to the financial contract, taking into account the conditions for suspension of certain obligations provided in § 40¹, and to recognise that it is bound by the requirements of Article 68 of Directive 2014/59/EU of the European Parliament and of the Council. For the purposes of this Act, a financial contract is deemed to be a financial contract within the meaning of Article 2(100) of Directive 2014/59/EU of the European Parliament and of the Council.

(2) The parent undertaking of a credit institution operating in the European Union must ensure that its third-country subsidiary adds the conditions specified in subsection 1 of this section to a financial contract in order to preclude the possibility to terminate or suspend such contracts prematurely, amend such contracts, set-off, exercise the right of set-off or exercise security interests in a situation where the Financial Supervision Authority exercises the right to suspend or restrict the rights and obligations of the parent undertaking operating in an EEA country in accordance with subsection 1.

(3) The Financial Supervision Authority may apply the requirement provided in subsection 2 of this section in respect of third-country subsidiaries:

1) which are credit institutions;

2) which are investment firms or which would be investment firms if they had a head office in the EEA country; or

3) which are financial institutions.

(4) This section shall apply to any financial contract which:

1) creates a new obligation, or materially amends an existing obligation;

2) provides for the suspension of the performance of an obligation arising from a contract entered into under Estonian law or termination of the contract on one or more grounds or exercise of rights to enforce security interests under §§ 40¹, 43 or 44 of this Act.

(5) Where a credit institution or entity that is part of the same consolidation group as the credit institution does not meet the requirements provided in this section, the Financial Supervision Authority may nevertheless apply the powers to suspend the obligation.

§ 23. Consolidation group financial support agreement

(1) A consolidation group entity established in Estonia has the right to enter into a financial support agreement (hereinafter consolidation group financial support agreement) to provide financial support to any other consolidation group entity that meets the conditions for early intervention provided in § 36 of this Act.

(2) The provisions of this Subchapter do not apply to intra-group financial arrangements, including the operation of resolution funds and centralised funding arrangements provided that none of the parties to such funds or arrangements meets the conditions for early intervention.

(3) A consolidation group financial support agreement shall not be treated as a prerequisite to provide consolidation group financial support to any consolidation group entity that experiences financial difficulties if the credit institution or investment firm decides to do so, on a case-by-case basis, according to the consolidation group policies and if it does not represent a risk for the whole consolidation group.

(4) Any right, claim or action arising from the consolidation group financial support agreement may be exercised only by the parties to the agreement, but not by any third parties.

§ 24. Requirements for consolidation group financial support agreement

(1) The consolidation group financial support agreement may only be entered into if, at the time the agreement is entered into, in the opinion of the Financial Supervision Authority and financial supervision authorities of other relevant EEA countries, none of the parties to the proposed agreement meets the conditions for early intervention provided in § 36 of this Act.

(2) The consolidation group financial support agreement may:

1) cover one or more subsidiaries of the consolidation group, and provide for financial support from the parent undertaking to subsidiaries, from subsidiaries to the parent undertaking, between subsidiaries of the consolidation group that are party to the agreement, or any combination of those entities;

2) provide for financial support in the form of a loan, the provision of guarantees, the provision of assets for use as collateral, or any combination of those forms of financial support, in one or more transactions, including between the beneficiary of the support and a third party.

(3) Where, in accordance with the terms of the consolidation group financial support agreement, a consolidation group entity agrees to provide financial support to another consolidation group entity, the agreement may include a reciprocal agreement by the consolidation group entity receiving the support to provide financial support to the entity providing the support.

(4) The consolidation group financial support agreement shall specify the principles for the calculation of the consideration or other compensation for any transaction made under it. Those principles shall include a requirement that the respective compensation shall be set at the time of the provision of financial support. The terms of the agreement, including the calculation of the compensation for the provision of financial support, shall comply with the following requirements:

1) a party must be acting freely in entering into the agreement;

2) in entering into the agreement and in determining the compensation for the agreement for the provision of financial support, each party must be acting in its own interests which may take account of any direct or any indirect benefit that may accrue to a party as a result of provision of the financial support;

3) each party providing financial support must have full disclosure of relevant information on any party receiving financial support prior to determination of the compensation for the agreement for the provision of financial support and prior to any decision to provide financial support;

4) the compensation for the agreement for the provision of financial support may take account of information in the possession of the party providing financial support based on it being in the same consolidation group as the party receiving financial support and which is not available to the market; and

5) the principles for the calculation of the compensation for the agreement for the provision of financial support are not obliged to take account of any anticipated temporary impact on market prices arising from events external to the consolidation group.

(5) Consolidation group entities established in Estonia shall make public whether or not they have entered into a consolidation group financial support agreement and make public a description of the general terms of any such agreement and the names of other consolidation group entities that are party to it and update that information at least annually. The publication is subject to Articles 431 to 434 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

§ 25. Procedure for authorisation of consolidation group financial support agreement

(1) The parent undertaking of the consolidation group shall submit to the Financial Supervision Authority as the authority exercising supervision on a consolidated basis an application for authorisation of any consolidation group financial support agreement proposed pursuant to § 24 of this Act. The application shall contain the text of the proposed agreement and identify the consolidation group entities that propose to be parties.

(2) The Financial Supervision Authority shall forward without delay the application submitted on the basis provided in subsection 1 of this section to the financial supervision authority of the other EEA country where each subsidiary of a consolidation group that proposes to be a party to the agreement is located, with a view to reaching a joint decision on the authorisation of the agreement.

(3) Within four months of the date of receipt of the application specified in subsection 1 of this section, the Financial Supervision Authority shall do everything within its power to reach a joint decision with the financial supervision authorities specified in subsection 2 of this section on whether the terms of the proposed agreement are consistent with the conditions for financial support provided in § 24 and subsection 3 of § 27 of this Act, taking into account the potential impact, including any fiscal consequences, of the execution of the agreement in all the EEA countries where the consolidation group operates. The Financial Supervision Authority shall forward the fully reasoned joint decision to the parent undertaking of the consolidation group.

(4) In making a decision under subsection 3 of this section, the Financial Supervision Authority may request assistance from the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.

(5) In the absence of a joint decision within the term provided in subsection 3 of this section, the Financial Supervision Authority shall make its own decision. The decision of the Financial Supervision Authority shall be fully reasoned and shall take into account the views and reservations of the financial supervision authorities of other relevant EEA countries. The Financial Supervision Authority shall submit its decision to the parent undertaking of the consolidation group and the financial supervision authorities of other EEA countries.

(6) If the financial supervision authority of the other EEA country has notified the European Banking Authority of disagreements on the achievement of a joint decision within the period specified in subsection 3 of this section, the Financial Supervision Authority shall defer its decision and await the decision of the European Banking Authority and shall take its decision in accordance with the decision of the European Banking Authority. In the absence of the decision of the European Banking Authority within one month of the date of submission of the notification, the Financial Supervision Authority shall take its decision.

(7) The Financial Supervision Authority shall, in accordance with the procedure specified in subsection 3, 5 or 6 of this section, grant the authorisation if the terms of the proposed agreement are consistent with the conditions for financial support provided in § 24 of this Act, and prohibit the entry into the proposed agreement if it is inconsistent with the conditions for financial support provided in § 24 of this Act.

§ 26. Approval of proposed agreement by shareholders

(1) When the Financial Supervision Authority has authorised the consolidation group financial support agreement, the parent undertaking of the consolidation group shall submit the proposed agreement for approval to the shareholders of every consolidation group entity that proposes to enter into the agreement.

(2) A consolidation group financial support agreement shall be valid in respect of a consolidation group entity only if its shareholders have authorised the management board or supervisory board of that consolidation group entity to make a decision that the consolidation group entity shall provide or receive financial support in accordance with the terms of the agreement and in accordance with the conditions provided in this Subchapter and that shareholder authorisation has not been revoked.

(3) The management board of the consolidation group entity that is party to an agreement shall report each year to the shareholders on the performance of the agreement, and on the implementation of any decision taken pursuant to the agreement.

§ 27. Conditions for consolidation group financial support

(1) The decision to provide consolidation group financial support in accordance with the agreement shall be taken by the management board of the consolidation group entity providing financial support. That decision shall be reasoned and shall indicate the objective of the proposed financial support and the compliance of the provision of the financial support with the conditions provided in subsection 3 of this section.

(2) The decision to accept consolidation group financial support in accordance with the agreement shall be taken by the management board of the consolidation group entity receiving financial support.

(3) Financial support by a consolidation group entity established in Estonia that is party to the consolidation group financial support agreement authorised by the Financial Supervision Authority may only be provided if all the following conditions are met:

1) there is a reasonable prospect that the support provided significantly redresses the financial difficulties of the consolidation group entity receiving the support;

2) the provision of financial support has the objective of preserving or restoring the financial stability of the consolidation group as a whole or any of the entities of the consolidation group and is in the interests of the consolidation group entity providing the support;

3) the financial support is provided on terms of the financial support agreement and compensation for the agreement and in accordance with subsection 4 of § 24 of this Act;

4) there is a reasonable prospect, on the basis of the information available to the management board of the consolidation group entity providing financial support at the time when the decision to grant financial support is taken, that the consideration or any other form of compensation for the support will be paid and, if the support is given in the form of a loan, that the loan will be reimbursed by the consolidation group entity receiving the support;

5) the provision of the financial support does not jeopardise the liquidity or solvency of the consolidation group entity providing the support;

6) the provision of the financial support does not create a threat to financial stability, in particular in Estonia;

7) the consolidation group entity providing the support complies at the time the support is provided with the requirements of the Credit Institutions Act and other legislation relating to capital or liquidity, including with the additional capital and liquidity requirements established by the Financial Supervision Authority under subsections 2 and 4 of § 104 of the Credit Institutions Act, and the provision of the financial support shall not cause the consolidation group entity to infringe those requirements, unless authorised by the Financial Supervision Authority;

8) the consolidation group entity providing the support complies at the time when the support is provided with the requirements for concentration of exposures provided in §§ 82, 82² and 84 of the Credit Institutions Act and with limits to large exposures provided in Regulation (EU) No 575/2013 of the European Parliament and of the Council, and the provision of the financial support shall not cause the consolidation group entity to infringe those requirements, unless authorised by the Financial Supervision Authority;

9) the provision of the financial support does not undermine the resolvability of the consolidation group entity providing the support.

(4) Before providing support and after the decision made pursuant to subsection 1 of this section, the management board of a consolidation group entity that has been established in Estonia and that intends to provide financial support shall notify:

1) the Financial Supervision Authority;

2) the financial supervision authority exercising supervision on a consolidated basis, unless this is the Financial Supervision Authority;

3) the financial supervision authority exercising supervision over the consolidation group entity receiving the financial support, unless this is the financial supervision authority specified in clause 2 of this subsection;

4) the European Banking Authority.

(5) The notification forwarded in accordance with subsection 4 of this section shall include the reasoned decision of the management board provided in subsection 1 of this section and details of the proposed financial support, including a copy of the consolidation group financial support agreement.

(6) If the support is given in the form of a guarantee or any form of security, the condition provided in clause 4 of subsection 3 of this section shall apply to the liability arising for the recipient of the support if the guarantee or the security is enforced.

(7) Within five business days from the date of receipt of a notification and complete information specified in subsections 4 and 5 of this section, the Financial Supervision Authority shall take a decision under which it agrees with the provision of financial support, or prohibits or restricts it if it assesses that the conditions for consolidation group financial support provided in subsection 3 of this section have not been met.

(8) If the Financial Supervision Authority does not prohibit or restrict the financial support within the period indicated in subsection 7 of this section, or has agreed before the end of that period to that support, financial support may be provided in accordance with the terms submitted by the Financial Supervision Authority.

(9) The Financial Supervision Authority shall immediately inform the authorities specified in subsection 4 of the decision provided in subsection 7 of this section, and, if the Financial Supervision Authority exercises supervision on a consolidated basis, it shall also inform the members of the supervisory college and of the resolution college.

(10) Where the Financial Supervision Authority exercises supervision on a consolidated basis or is responsible for the supervision of the consolidation group entity receiving support, it may within two days of the date of receipt of a notification on the decision to prohibit or restrict the financial support from the financial supervision authority of the other EEA country refer the matter to the European Banking Authority in accordance with Article 31 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.

(11) If the financial supervision authority of the other EEA country restricts or prohibits financial support to the consolidation group entity established in Estonia and if pursuant to the provisions of clause 4 of subsection 2 of § 11 of this Act the consolidation group recovery plan prescribes intra-group financial support as a measure to be taken, the Financial Supervision Authority may request the financial supervision authority responsible for the supervision on a consolidated basis to initiate a reassessment of the consolidation group recovery plan pursuant to § 13 of this Act or, where a recovery plan is drawn up for the consolidation group entity on an individual basis, request the entity to submit a revised recovery plan.

§ 28. Preparation of resolution plan

(1) The Financial Supervision Authority shall prepare a resolution plan for each credit institution which shall provide for the options to apply the resolution tools or powers where the credit institution meets the conditions for the commencement of the resolution proceedings.

(1¹) Where the Financial Supervision Authority is the resolution authority of a consolidation group that is composed of more than one resolution sub-consolidation group, the Financial Supervision Authority shall include the planned resolution tools specified in subsection 1 of § 55 of this Act in a joint decision specified in subsection 5 of § 30.

(2) Where necessary, the Financial Supervision Authority shall consult the financial supervision authorities of other EEA countries prior to the preparation of the resolution plan if significant branches of the credit institution are located in such EEA countries.

(3) Where the Financial Supervision Authority is the resolution authority of the consolidation group and the parent undertaking of the consolidation group is established in Estonia, the Financial Supervision Authority must, together with the resolution authorities of subsidiaries that are part of the consolidation group and after consulting the resolution authorities of systemically important branches that are part of the consolidation group, draw up and also maintain a resolution plan of the consolidation group. A consolidation group resolution plan includes a plan for resolution proceedings of the consolidation group as a whole, either through resolution of the parent undertaking of the consolidation group or through break up of the consolidation group and resolution of the subsidiaries.

(3¹) The consolidation group resolution plan specified in subsection 3 of this section covers all of the resolution entities that are part of the consolidation group and resolution sub-consolidation groups.

(4) Where a credit institution established in Estonia is a subsidiary of the consolidation group and the parent undertaking of the consolidation group is established in another Member State, a separate resolution plan for a subsidiary need not be prepared, unless:

1) the credit institution is subject to direct supervision by the European Central Bank pursuant to Article 6(4) of Council Regulation (EU) No 1024/2013;

2) the value of assets of the credit institution exceeds 30 billion euros;

3) the ratio of assets of the credit institution over the gross domestic product of Estonia exceeds 20 per cent, unless the value of the assets is below 5 billion euros.

(5) A credit institution or an entity that is part of the same consolidation group as the credit institution shall assist the Financial Supervision Authority, at the request of the latter, in preparing and updating the resolution plan and provide the Financial Supervision Authority with information necessary to prepare and implement the resolution plan. The Financial Supervision Authority may, inter alia, request the provision for the purposes of drawing up resolution plans the following information:

1) a detailed description of the credit institution’s organisational structure including a list of all legal persons that are part of the consolidation group;

2) identification of the direct holders and the percentage of rights, incl. rights related to voting rights, of each legal person;

3) the location, existence of authorisation, information on members of management associated with each legal person that is part of a consolidation group and jurisdiction applied to them;

4) a mapping of the credit institution’s critical functions and core business lines, including material asset holdings and liabilities relating to such functions and business lines, by reference to legal persons;

5) amounts of liabilities of the credit institution and entities that are part of the same consolidation group as the credit institution mapped by terms, securities and subordination, including a separate description of at least the amount of short-term and long-term, secured, unsecured and subordinated liabilities;

6) details of bail-inable liabilities of the credit institution;

7) information on the collateral pledged by the credit institution, the pledgee and the location of the collateral;

8) a description of the off balance sheet commitments of the credit institution;

9) the material hedges of the credit institution, including a mapping to legal persons;

10) identification of the major or most critical counterparties of the credit institution as well as an analysis of the impact of the insolvency of such counterparties in the credit institution’s financial situation;

11) each system on which the credit institution conducts a material number or value amount of trades, including a mapping to the credit institution’s legal persons, critical functions and core business lines;

12) each payment, clearing or settlement system of which the credit institution is directly or indirectly a member, including a mapping to the credit institution’s legal persons, critical functions and core business lines;

13) a detailed inventory and description of the key management information systems, including risk management, accounting and financial and reporting information systems used by the credit institution, and a mapping to the credit institution and legal persons that are part of the same consolidation group, critical functions and core business lines;

14) an identification of the owners of the systems specified in clause 13 of this subsection, service level agreements related thereto, and any software and systems or licenses, including a mapping to the credit institution or legal persons affiliated to the credit institution, critical functions and core business lines;

14¹) identification of any critical ICT third-party service provider specified in Article 3, point (23), of Regulation (EU) 2022/2554 of the European Parliament and of the Council;

14²) the results of the digital operational resilience testing in accordance with Chapter IV of Regulation (EU) 2022/2554 of the European Parliament and of the Council;

15) an identification of the legal persons that are part of the same consolidation group as the credit institution and other legal persons affiliated to the credit institution and the interconnections and interdependencies among those legal persons, including common or shared personnel, facilities and systems, capital, funding or liquidity arrangements, existing or contingent credit exposures, cross guarantee agreements, cross-collateral arrangements, cross-default provisions and cross-affiliate netting arrangements, risks transfers and back-to-back trading arrangements and service level agreements;

16) the financial supervision authority and resolution authority for each legal person specified in clause 15 of this subsection;

17) the member of the management board responsible for providing the information necessary to prepare the resolution plan of the credit institution as well as those responsible, if different, for critical functions and core business lines;

18) a description of the arrangements that the credit institution has in place to ensure that, in the event of resolution, the Financial Supervision Authority will have all the necessary information for applying the resolution tools and powers;

19) all the agreements entered into by the credit institution and legal persons affiliated to the credit institution with third parties the termination of which may be triggered by a decision to apply a resolution tool or power and an analysis whether the consequences of termination may affect the application of the resolution tool or power;

20) a description of possible liquidity sources for supporting resolution;

21) information on asset encumbrance, liquid assets, off-balance sheet activities, hedging strategies and booking practices.

(6) The Financial Supervision Authority reviews, and where appropriate updates, a resolution plan or a consolidation group resolution plan at least annually or after any changes to the legal status or organisational structure of the credit institution or consolidation group, including of other legal persons that are part of the consolidation group, or after any event or incident related to its business or its financial position that could have a material impact on the effective application of the plan. The resolution plan is reviewed after the application of the crisis prevention measures specified in § 56 of this Act.

(6¹) The Financial Supervision Authority shall update the resolution plan or consolidation group resolution plan after the application of resolution tools or powers.

(7) A credit institution or parent undertaking of the consolidation group shall promptly notify the Financial Supervision Authority of any change referred to in subsection 6 of this section that may necessitate a revision or update of a resolution plan or consolidation group resolution plan.

(8) The obligation to draw up resolution plans or consolidation group resolution plans provided in this section and the procedure for reaching a joint decision provided in § 30 of this Act shall be suspended until the impediments to resolvability have been removed according to the assessment of the Financial Supervision Authority pursuant to the provisions of Subchapter 2 of this Chapter or measures to remove them have been accepted by the Financial Supervision Authority.

§ 29. Requirements for resolution plan

(1) The resolution plan shall include the following information, quantified whenever appropriate and possible:

1) a summary of the key elements of the plan;

2) a summary of the material changes to the credit institution that have occurred after the latest resolution information was filed;

3) a detailed description of the different resolution strategies that could be applied according to the different possible scenarios and the applicable timescales;

4) a description of the processes for determining the value and marketability of the critical functions, core business lines and assets of the credit institution;

5) the possibilities of separating critical functions and core business lines legally and economically from other functions so as to ensure, upon the insolvency of the credit institution, the resumption of its activities and digital operational resilience;

6) an estimation of the timeframe for executing each material aspect of the plan;

7) a description of interdependencies of consolidation group entities;

8) a description of the essential operations and systems for maintaining the viability of the credit institution, including a description of the network and information systems provided for in clause 1 of § 2 of the Cybersecurity Act;

9) an explanation of options for financing the resolution, taking into account the provisions of subsection 3 of this section;

10) a detailed description of the assessment of resolvability carried out in accordance with Subchapter 2 of this Chapter and a description of measures to remove impediments to resolvability identified as a result of the assessment;

11) a detailed description of the arrangements for ensuring that the information submitted by the credit institution at the request of the Financial Supervision Authority is up to date and at the disposal of the Financial Supervision Authority to perform the resolution functions;

12) a description of options for preserving access to payment and settlement services and other infrastructures, and an assessment of the portability of client claims or liabilities;

13) an analysis of the impact of the plan on the employees of the credit institution, including an assessment of any associated costs, and a description of envisaged procedures to consult staff during the resolution process, prescribing consultation with employees’ representative of the credit institution, where applicable;

14) a plan for communicating with the media and the public;

15) the minimum requirement for own funds and eligible liabilities required pursuant to Subchapter 2 of Chapter 2 of this Act and a deadline to meet the minimum requirement if it is applied;

16) where applicable, the minimum requirement met by own funds and entry into bail-in agreements pursuant to Subchapter 2 of Chapter 2 of this Act, and a deadline to meet the requirement, where applicable;

17) where available, an opinion expressed by the credit institution in relation to the resolution plan;

18) an analysis of how and when a credit institution may apply, in the conditions addressed by the plan, for the facilities of Eesti Pank, except facilities provided in subsection 3 of this section, and identify those assets which would be expected to qualify as collateral.

(1¹) Having regard to the provisions of the second sentence of subsection 6 of § 28 of this Act, the Financial Supervision Authority, when determining the deadlines specified in clauses 15 and 16 of subsection 1 of this section, takes into account the term prescribed for compliance with the additional own funds requirement provided in § 104³ of the Credit Institutions Act.

(1²) Following the application of resolution tools and powers, including the bail-in, an appropriate transitional period shall be applied to the compliance with the minimum requirement, which is taken into account when setting the deadlines to meet the minimum requirement specified in clauses 15 and 16 of subsection 1 of this section.

(2) The consolidation group resolution plan shall:

1) provide the information provided in subsection 1 of this section on the consolidation group and, where applicable, on subsidiaries of the consolidation group;

2) set out the resolution tools and powers to implement scenarios specified in subsection 5 of this section, including in respect of entities established in third countries if the requirements provided in Subchapter 2 of Chapter 9 of this Act have been met and the requirement can be applied to any resolution entities that are part of the consolidation group;

2¹) set out the implications of the resolution tools and powers specified in clause 2 of this subsection in respect of other consolidation group entities;

3) analyse the extent to which the resolution tools and powers, including tools and powers to facilitate the sale to a third party of the consolidation group as a whole, or separate activities that are delivered by different consolidation group entities or particular consolidation group entities, could be applied in a coordinated way to consolidation group entities located in the European Union;

4) identify any potential impediments to a coordinated resolution, and where a consolidation group includes entities incorporated in third countries, identify arrangements for cooperation and coordination with the relevant authorities of those third countries and the implications for resolution proceedings within the European Union;

5) specify measures to facilitate consolidation group resolution proceedings, including the legal and economic separation of particular functions or activities of the consolidation group;

6) identify how the consolidation group resolution tools or powers could be financed, taking into account the provisions of subsection 3 of this section, and, where the funds of the Guarantee Fund or of the resolution fund of the other EEA country would be required, set out principles for sharing responsibility for that financing between EEA countries;

7) set out any additional actions, including those that the Financial Supervision Authority intends to take for the resolution of the consolidation group in relation to each entity within the consolidation group and each sub-consolidation group;

7¹) set out the resolution tools and assess the implications of those tools in respect of the resolution entities of each resolution consolidation group and other consolidation group entities where a consolidation group comprises more than one resolution consolidation group;

8) describe in detail any material impediments to resolvability and, where necessary and proportionate, outline relevant actions for how those impediments could be addressed according to the provisions of § 34 of this Act.

(3) The principles for sharing responsibility for financing specified in clause 6 of subsection 2 of this section shall be set out on the basis of balanced and equitable criteria, taking into account, in particular the provisions of § 73²¹ of the Guarantee Fund Act and the impact on financial stability in all EEA countries concerned.

(3¹) The consolidation group resolution plan shall identify for each consolidation group the resolution entities and the resolution consolidation groups.

(4) The resolution plan or consolidation group resolution plan shall not assume the use of any emergency liquidity assistance of Eesti Pank or such liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms, or the use of any extraordinary public financial support, except the use of facilities of the resolution fund.

(5) In preparing the resolution plan or consolidation group resolution plan relevant scenarios, including that the event of insolvency may be idiosyncratic to a credit institution or consolidation group or may involve broader financial instability or system wide events, are taken into consideration.

(6) Information specified in clause 1 of subsection 1 of this section shall be disclosed to the credit institution or parent undertaking of the consolidation group.

(7) The Financial Supervision Authority shall transmit the consolidation group resolution plan and any changes thereto to the resolution authorities of other relevant EEA countries.

(8) The consolidation group resolution plan shall not have a disproportionate impact on any EEA country.

§ 30. Procedure for preparation of consolidation group resolution plan

(1) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall, together with the resolution authorities of such EEA countries where the subsidiaries of the consolidation group are located and after consulting the financial supervision authorities and resolution authorities of other EEA countries insofar as significant branches of the consolidation group are located in such EEA countries and as is relevant to the significant branches, prepare the consolidation group resolution plan. Where necessary, the Financial Supervision Authority may involve in the preparation of the consolidation group resolution plan resolution authorities of the third countries in which any consolidation group entities or significant branches are located, taking into account the confidentiality requirements provided in § 51 of this Act.

(2) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall, together with the resolution authorities of such EEA countries where the subsidiaries of the consolidation group are located, assess the resolvability of the consolidation group in accordance with the provisions of subsection 1 of this section, and consult the supervisory college of the consolidation group and the resolution authority of such other EEA country in which significant branches are located insofar as is relevant to the branches.

(2¹) The assessment of resolvability of the consolidation group shall be adopted as a part of the procedure of the resolution college provided in Chapter 9 of this Act in relation to each resolution entity and each subsidiary that is part of the consolidation group and that is an entity specified in subsection 1 of § 2.

(3) The Financial Supervision Authority shall provide the European Banking Authority with information that is relevant to the role of the European Banking Authority in relation to the planning of the resolution proceedings of the consolidation group.

(4) The Financial Supervision Authority shall not be obliged to transmit information relating to subsidiaries located in a third country without the consent of the relevant third-country financial supervision authority or resolution authority.

(5) The Financial Supervision Authority shall do everything within its power to reach a joint decision with resolution authorities of other relevant EEA countries on the consolidation group resolution plan within four months of the date of the transmission of the information specified in the subsection 2 of this section or of the date of the receipt of the corresponding information from the resolution authority of the consolidation group.

(6) The Financial Supervision Authority may address the European Banking Authority and request its assistance to the resolution authorities in reaching a joint decision in accordance with Article 31(c) of Regulation (EU) No 1093/2010 of the European Parliament and of the Council. In the absence of a joint decision prior to the end of the four-month period, the Financial Supervision Authority may also address the European Banking Authority in the case of disagreements in accordance with Article 19 of the same Regulation. The European Banking Authority shall not be addressed after the end of the period provided in subsection 5 of this section or after a joint decision has been reached.

(7) If the Financial Supervision Authority is the resolution authority of the consolidation group and in the absence of a joint decision within the period specified in subsection 5 of this section, the Financial Supervision Authority shall make its own decision on the consolidation group resolution plan, taking into account the views and reservations of the resolution authorities of other relevant EEA countries.

(7¹) In its decision on the proposed consolidation group resolution plan, the Financial Supervision Authority shall submit the reasons for the decision and notify the decision to the parent undertaking and resolution authorities of other relevant EEA countries.

(7²) The provisions of subsection 7 of this section do not preclude the adoption of a joint decision on the consolidation group resolution plan with the resolution authorities with which the Financial Supervision Authority has no disagreements.

(7³) If the Financial Supervision Authority is the resolution authority of the resolution entity and in the absence of a joint decision within the period specified in subsection 5 of this section, the Financial Supervision Authority shall make its own decision on the consolidation group resolution plan, taking into account the views and reservations of the financial supervision authorities of other relevant EEA countries. In its decision, the Financial Supervision Authority shall submit the reasons for the disagreement with the proposed consolidation group resolution plan and for the decision made, and notify its decision to the parent undertaking and resolution authorities of other relevant EEA countries.

(8) If the subsidiary that is part of a consolidation group has been established in Estonia, the joint decision is not taken within the period specified in subsection 5 of this section and the resolution authorities of other relevant EEA countries disagree with the consolidation group resolution plan, the Financial Supervision Authority shall make the decision under which a separate resolution plan of the subsidiary or of the resolution sub-consolidation group within the remit of the Financial Supervision Authority is drawn up and maintained. The Financial Supervision Authority shall take into account the views and reservations of the resolution authorities of other relevant EEA countries and set out the reasons for disagreement with the proposed consolidation group resolution plan and for the decision made. The Financial Supervision Authority shall notify its decision to the other members of the resolution college.

(9) If the resolution authority of the other EEA country has notified the European Banking Authority of disagreements on the achievement of a joint decision within the period specified in subsection 5 of this section, the Financial Supervision Authority shall defer its decision and await the decision of the European Banking Authority and shall take its decision in accordance with the decision of the European Banking Authority, unless the resolution authority of the other relevant EEA country assesses that the subject matter under disagreement may have an impact on the state budget of the country or lead to budget commitments. In the absence of the decision of the European Banking Authority within one month of the date of notification of the resolution authority of the other EEA country, the Financial Supervision Authority shall take its decision.

(10) The joint decision provided in this section or the decisions taken by the Financial Supervision Authority in the absence of a joint decision shall be recognised as conclusive with regard to resolution authorities of other EEA countries.

(11) Where a resolution authority of the other EEA country notifies the Financial Supervision Authority that the joint decision taken pursuant to subsections 7 and 9 of this section has an impact on the state budget of the country or may lead to budget commitments, the Financial Supervision Authority as the resolution authority of the consolidation group shall initiate a reassessment of the consolidation group resolution plan, including, inter alia, the minimum requirement for own funds and eligible liabilities.

§ 31. Preparation of resolution plan in simplified form

(1) The Financial Supervision Authority may take a decision to prepare the resolution plan in a simplified form (hereinafter simplified resolution plan), taking into account the impact that the insolvency of a credit institution or consolidation group and subsequent winding up and liquidation thereof under bankruptcy proceedings could have on financial markets, on other credit institutions and investment firms, on funding conditions, or on the wider economy.

(2) In taking the decision specified in subsection 1 of this section, the Financial Supervision Authority shall take account of the nature of business of the credit institution or consolidation group, its shareholding structure, its legal form, its risk profile, size and legal status, interconnectedness of the credit institution to other credit institutions or investment firms or to the financial system in general, the scope and the complexity of its activities, its membership of a credit institutional protection scheme and whether the credit institution provides any investment services.

(3) In preparing the simplified resolution plan:

1) the requirements for the contents of a resolution plan specified in § 29 of this Act may be reduced or partially not applied;

2) the requirement for updating the resolution plan provided in subsection 6 of § 28 of this Act may be partially not applied;

3) the level of detail for the assessment of resolvability specified in Subchapter 2 of this Chapter may be lowered.

(4) The Financial Supervision Authority may at any time prepare the full resolution plan.

(5) The preparation of the simplified resolution plan shall not affect the powers of the Financial Supervision Authority to take a crisis prevention measure or a crisis management measure.

(6) If necessary, the Financial Supervision Authority shall consult Eesti Pank and the Ministry of Finance before taking a decision specified in subsection 1 of this section.

(7) The Financial Supervision Authority shall notify the European Banking Authority of the decision specified in subsection 1 of this section.

(8) A simplified resolution plan may not be prepared for credit institutions specified in subsection 4 of § 28 of this Act.

§ 32. Failure to prepare resolution plan

(1) The Financial Supervision Authority may take a decision to not prepare the resolution plan if the credit institution is directly affiliated to the parent undertaking of a consolidation group or an entity organising central financing in the consolidation group and it is wholly or partially exempted from prudential requirements in accordance with Article 10 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2) If the Financial Supervision Authority does not prepare the resolution plan pursuant to the provisions of subsection 1 of this section, it shall prepare the resolution plan on a consolidated basis with regard to the central entity specified in subsection 1 of this section and credit institutions affiliated to it within the meaning of Article 10 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(3) The Financial Supervision Authority shall notify the European Banking Authority of the decision specified in subsection 1 of this section.

§ 33. Assessment of resolvability for credit institutions and consolidation groups

(1) If the credit institution is not part of a consolidation group, where necessary, the Financial Supervision Authority, after it has consulted the resolution authorities of the EEA countries in which significant branches are located, assesses the extent to which a credit institution is resolvable without the assumption of the receipt of any emergency liquidity assistance of Eesti Pank or such liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms, or the receipt of any extraordinary public support, except the receipt of facilities of the resolution fund, in the resolution proceedings.

(2) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall, together with the resolution authorities of such EEA countries where the subsidiaries of the consolidation group are located, assess the resolvability of the consolidation group in accordance with the provisions of subsection 1 of this section, and consult the resolution authorities of other EEA countries in which significant branches are located insofar as is relevant to the branches, and the financial supervision authorities of such EEA countries. The assessment of resolvability of the consolidation group shall be adopted as a part of the procedure of the resolution college provided in Chapter 9 of this Act.

(2¹) Where a resolution consolidation group is composed of more than one resolution consolidation group, the resolvability specified in subsection 2 of this section must be assessed separately for each sub-consolidation group in accordance with Subchapter 1 of this Chapter, in addition to the assessment of the resolvability of the whole consolidation group.

(2²) For the purposes of this Act, the assessment of the resolvability of a consolidation group consists in the assessment of the resolvability of all credit institutions or entities specified in clause 3 of subsection 1 of § 2 of this Act that are part of the consolidation group.

(3) The financial crisis resolution function of the Financial Supervision Authority shall assess resolvability at the same time as preparing and updating the resolution plan of a credit institution or consolidation group.

(4) In drawing up the assessment of resolvability of a credit institution or consolidation group, as a minimum, the following matters shall be considered;

1) the ability of the credit institution to map core business lines and critical functions to legal persons;

2) the alignment of legal and organisational structures of the credit institution or consolidation group with core business lines and critical functions;

3) the existence of valid arrangements to provide for essential staff, functioning of infrastructure, funding, liquidity and capital in the credit institution or consolidation group to support and maintain the core business lines and the critical functions;

4) robustness and full enforceability of the credit institution’s contracts for services, including contracts for ICT services, in the event of resolution proceedings of the credit institution;

4¹) the digital operational resilience of the network and information systems supporting critical functions and core business lines, taking into account the reporting of major ICT-related incidents provided in Article 19 of Regulation (EU) 2022/2554 of the European Parliament and of the Council, where applicable, and the results of the digital operational resilience testing in accordance with Chapter IV of that Regulation;

5) the adequacy of the governance structure of the credit institution for managing and ensuring compliance with the credit institution’s internal policies with respect to its service agreements;

6) the existence of the process in the credit institution for transitioning the services provided under service agreements to third parties in the event of the separation of critical functions or of core business lines;

7) effective contingency plans and measures to ensure continuity in access to payment and settlement systems;

8) the adequacy of the management information systems to ensure that the Financial Supervision Authority is able to gather accurate and complete information regarding the core business lines and critical functions so as to facilitate rapid decision making;

9) the capacity of the management information systems to provide the information essential for the effective resolution of the credit institution at all times;

10) the extent to which the credit institution has tested its management information systems under stress scenarios as defined by the Financial Supervision Authority;

11) the ability of the credit institution to ensure the continuity of its management information systems both for the affected credit institution and the new credit institution in the case that the critical functions and core business lines are separated from the rest of the functions and business lines;

12) adequate processes of the credit institution required to provide the Financial Supervision Authority with the information necessary to identify depositors and the amounts covered pursuant to the Guarantee Fund Act;

13) where the consolidation group uses intra-group guarantees, the description that those guarantees are provided at market conditions and the extent to which the risk management systems concerning those guarantees are robust;

14) where the consolidation group engages in back-to-back transactions, the description of the extent to which those transactions are performed at market conditions and the risk management systems concerning those transactions practices are robust;

15) the extent to which the use of intra-group guarantees or back-to-back booking transactions increases contagion across the consolidation group;

16) the extent to which the legal structure of the consolidation group inhibits the application of the resolution tools and powers as a result of the number of consolidation group entities, the complexity of the consolidation group structure or the difficulty in aligning business lines to consolidation group entities;

17) the amount and type of bail-inable liabilities of the credit institution;

18) where the assessment involves a mixed-activity holding company, whether the resolution of credit institutions, investment firms or financial institutions of the consolidation group could have a negative impact on the non-financial part of the consolidation group;

19) the existence and robustness of service level agreements;

20) whether third-country authorities have the resolution tools and powers necessary to support resolution tools and powers by the Financial Supervision Authority, and the scope for coordinated action between the Financial Supervision Authority and third-country authorities;

21) the feasibility of using resolution tools and powers in such a way which meets the resolution objectives, given the tools and powers available and the credit institution’s structure;

22) whether the consolidation group structure allows the Financial Supervision Authority to conduct resolution proceedings of or wind up the whole consolidation group or one or more consolidation group entities without causing a significant direct or indirect adverse effect on the financial system, market confidence or the economy and with a view to maximising the value of the consolidation group as a whole;

23) the arrangements and means through which resolution could be facilitated in the cases of consolidation groups that have subsidiaries established in different countries;

24) the credibility of using resolution tools and powers in such a way which meets the resolution objectives, given possible impacts on creditors, counterparties, clients and employees and possible tools and powers that third-country authorities may take;

25) the extent to which the impact of the credit institution’s resolution on the financial system and on the financial market’s confidence can be adequately evaluated;

26) whether the resolution proceedings of the credit institution have a significant direct or indirect adverse effect on the financial system, market confidence or the economy;

27) how contagion to other credit institutions or investment firms or to the financial markets could be contained through the application of the resolution tools and powers;

28) whether the resolution proceedings of the credit institution could have a significant effect on the operation of payment and settlement systems.

(5) A credit institution, sub-consolidation group or consolidation group shall be deemed to be resolvable if the Financial Supervision Authority is satisfied that:

1) it is possible and feasible to wind up and liquidate the credit institution pursuant to the procedure provided in Chapter 11 of the Credit Institutions Act and in the Bankruptcy Act or it is possible and feasible to wind up and liquidate the consolidation group entities pursuant to the procedure prescribed in the normal insolvency proceedings of other EEA countries, or

2) it is possible to apply resolution tools or powers to the credit institution or consolidation group in the resolution proceedings which ensure the continuity of critical functions carried out by the credit institution and avoid to the maximum extent possible any significant adverse consequences for the consolidation group entities or branches of Estonia and other EEA countries and for the financial system of Estonia and other EEA countries or of the European Union, including in circumstances causing broader financial instability or system-wide events.

(5¹) When assessing the resolvability specified in subsection 5 of this section, the Financial Supervision Authority shall also take into account the broader financial instability in the case of system-wide events, with a view to ensuring the continuity of critical functions carried out by the consolidation group entities, where they can be easily separated in a timely manner, or by other means.

(6) The Financial Supervision Authority shall promptly notify the European Banking Authority whenever it assesses that the credit institution, sub-consolidation group or consolidation group is not resolvable.

(7) The assessment of resolvability of the sub-consolidation group and consolidation group shall be taken into consideration in the decisions of the resolution college provided in Chapter 9 of this Act.

§ 34. Addressing and removing impediments to resolvability

(1) If in the assessment of resolvability for a credit institution carried out in accordance with § 33 of this Act, it is determined, after consulting the financial supervision function of the Financial Supervision Authority, that there are substantive impediments to the resolution proceedings of that credit institution, the Financial Supervision Authority shall notify in writing that determination to the credit institutions concerned and to the resolution authority of the EEA countries in which significant branches of the credit institution are located.

(2) Within four months of the date of receipt of a notification specified in subsection 1 of this section, the credit institution shall propose to the Financial Supervision Authority possible measures to address or remove the substantive impediments identified in the notification. The Financial Supervision Authority shall assess whether the proposed measures reduce or remove the impediments in question.

(2¹) The credit institution, within two weeks of the date of receipt of a notification specified in subsection 1 of this section, proposes to the Financial Supervision Authority possible measures to remove the substantive impediments from the resolution proceedings and the timeline for their implementation to ensure that the credit institution complies with the combined buffer requirement specified in § 18 or 19 of this Act and subsection 2 of § 86⁴⁴ of the Credit Institutions Act, if the substantive impediment to resolvability is caused by one of the following situations:

1) the credit institution meets the combined buffer requirement specified in subsection 2 of § 86⁴⁴ of the Credit Institutions Act when considered in addition to the requirements specified in subsections 1–3¹ of § 86⁵⁰ of the same Act, but it does not meet the combined buffer requirement when considered in addition to the minimum requirements when calculated in accordance with clause 1 of subsection 2 of § 17 of this Act;

2) the credit institution does not meet the requirements specified in Articles 92a and 494 of Regulation (EU) No 575/2013 of the European Parliament and of the Council or the requirements specified in §§ 17² and 17³, subsections 1–5 of § 17⁴ and subsections 1–5 of § 18¹ of this Act.

(2²) The timeline for the implementation of measures proposed under subsection 2¹ of this section shall take into account the reasons for the substantive impediment to resolvability.

(2³) The financial crisis resolution function of the Financial Supervision Authority, after consulting the financial supervision function of the Financial Supervision Authority, shall assess whether the measures specified in subsection 2¹ of this section effectively address or remove the substantive impediment in question.

(3) Where the financial crisis resolution function of the Financial Supervision Authority assesses that the measures proposed by a credit institution do not effectively reduce or remove the impediments identified, the Financial Supervision Authority shall require by a precept that the credit institution take alternative measures that may achieve the resolvability.

(3¹) In the assessment specified in subsection 3 of this section, the Financial Supervision Authority shall take into account the threat that those impediments to resolvability present for financial stability and the effect of the measures on the business of the credit institution, its stability and its ability to contribute to the economy.

(3²) The credit institution shall propose within one month of the receipt of the requirement specified in subsection 3 of this section a plan to achieve the resolvability.

(3³) Before the decision requiring the alternative measures specified in subsection 3 of this section, the financial crisis resolution function of the Financial Supervision Authority shall consult the financial supervision function and, if appropriate, the Eesti Pank, to assess the potential effect of those measures on the particular credit institution, on the internal market for financial services, and on the financial stability in other EEA countries and in the European Union as a whole.

(4) Pursuant to the provisions of subsection 3 of this section, the Financial Supervision Authority may require a credit institution or any consolidation group entity:

1) to submit specific or regular additional information;

2) to divest specific assets;

3) to limit or cease any existing or proposed activities;

4) to limit its maximum individual and aggregate exposures;

5) to restrict or prevent the development of new or existing activities or sale of new or existing products;

6) to change the legal or organisational structures of any consolidation group entity, either directly or indirectly under its control, so as to reduce complexity in order to ensure that critical functions may be legally and operationally separated from other functions through the application of the resolution tools or powers;

7) to set up a parent financial holding company in Estonia or elsewhere in the European Union;

9) to take other steps to meet the minimum requirement for own funds and eligible liabilities specified in Subchapter 2 of Chapter 2 of this Act, including in particular to attempt to renegotiate any eligible liability, additional Tier 1 instrument or Tier 2 instrument it has issued, with a view to ensuring that any decision of the Financial Supervision Authority to write down or convert that liability or instrument would be effected under the law of the EEA country governing that liability or instrument;

10) to revise any intragroup financing agreements or, in the absence thereof, to draw up such agreements or to draw up service agreements, whether intra-group or with third parties, to cover the provision of critical functions.

(4¹) Pursuant to the provisions of subsection 3 of this section, where a credit institution is the subsidiary of a mixed-activity holding company, the Financial Supervision Authority may require that the mixed-activity holding company set up a separate financial holding company to control the credit institution, if necessary in order to facilitate the resolution proceedings of the credit institution or to avoid an adverse effect arising from the application of the resolution tools or powers provided in this Act on the non-financial part of the consolidation group.

(4²) Pursuant to the provisions of subsection 3 of this section, the Financial Supervision Authority as the resolution authority may require a credit institution or an entity specified in clause 3 or 4 of subsection 1 of § 2 of this Act:

1) to submit a plan to restore compliance of the minimum level of own funds and eligible liabilities with §§ 18 and 19 of this Act;

2) to issue eligible liabilities to meet the requirements provided in § 18 or 19 of this Act;

3) to take other steps to meet the minimum requirement for own funds and eligible liabilities specified in § 18 or 19 of this Act, in particular to carry out the activities specified in clause 9 of subsection 4 of this section;

4) to change the maturity profile of own funds instruments, after having obtained the agreement of the competent supervisory authority, and eligible liabilities;

5) where an entity is the subsidiary of a mixed-activity holding company, that the mixed-activity holding company set up a separate financial holding company to control the entity, if necessary in order to facilitate the resolution of the entity and to avoid the application of the resolution tools and the exercise of the powers specified in Chapter 4 of this Act having an adverse effect on the non-financial part of the consolidation group.

(4³) Where the Financial Supervision Authority, in the context of the assessment of the resolvability of a credit institution in accordance with § 33 of this Act, or at any other time, determines that, within a class of liabilities which includes eligible liabilities, the amount of liabilities that, in accordance with subsection 2¹ of § 22 do not include the contractual term specified in subsection 1 of § 22, together with the liabilities which are excluded from the application of the bail-in tool in accordance with § 71 or which are likely to be excluded in accordance with § 72 amounts to more than ten per cent of that class, the Financial Supervision Authority shall immediately assess the impact of that particular fact on the resolvability of that credit institution.

(4⁴) In assessing the impact specified in subsection 4³ of this section, the impact on the resolvability resulting from the risk of not complying with the preconditions for compensation for loss to creditors provided in § 80 of this Act when applying write down and conversion powers to eligible liabilities is also taken into account.

(4⁵) Where the Financial Supervision Authority reaches a conclusion specified in subsection 4³ that the liabilities do not include the contractual term specified in subsection 1 of § 22 of this Act and create a substantive impediment to resolvability, it may apply the powers provided in subsection 4 of this section.

(5) The Financial Supervision Authority shall notify the credit institution of the assessment specified in subsection 3 of this section and demonstrate the deficiencies of the measures proposed by the credit institution and the appropriateness of alternative measures in removing the impediments to resolution proceedings. The credit institution shall submit within one month of the date of receipt of the assessment of the Financial Supervision Authority a plan to comply with the alternative measures.

(6) Before notifying the credit institution of its assessment, the Financial Supervision Authority shall consult, if appropriate, Eesti Pank and shall evaluate the potential effect of those measures on the credit institution, on the internal market for financial services, on the financial stability in other EEA countries and the European Union as a whole.

§ 35. Addressing and removing impediments to resolvability in case of consolidation group

(1) If the Financial Supervision Authority is the resolution authority of the consolidation group and it is determined that there are substantive impediments to the resolution proceedings of that consolidation group on the basis of the assessment specified in § 34 of this Act, the Financial Supervision Authority shall take all reasonable steps to reach a joint decision with resolution authorities of the EEA countries in which subsidiaries of the consolidation group are located on the application of measures provided in subsection 4 of § 34 of this Act in relation to all credit institutions that are part of the consolidation group. Prior to taking a joint decision, the Financial Supervision Authority shall consult the supervisory college of the consolidation group and the resolution authorities of the EEA countries in which significant branches are located insofar as is relevant to the significant branch.

(2) Where the Financial Supervision Authority is a resolution authority of a consolidation group, it shall, in cooperation with the European Banking Authority and the financial supervision authority of the consolidation group in accordance with Article 25(1) of Regulation (EU) No 1093/2010 of the European Parliament and of the Council and after consulting other financial supervision authorities concerned, prepare a report that analyses the substantive impediments to the effective application of the resolution tools and the exercising of the resolution powers in relation to the consolidation group.

(2¹) The report prepared in accordance with subsection 2 of this section considers the impact on the business model of the entire group and recommends any proportionate and targeted measures on the level of the consolidation group and, where necessary, to the sub-consolidation groups, if the measures are decided to be applied pursuant to subsection 1 of this section or are, in the opinion of the Financial Supervision Authority, necessary or appropriate to remove the impediments identified.

(2²) If the Financial Supervision Authority is the consolidation group level resolution authority, in a situation where an impediment to the resolvability of the consolidation group is due to a situation of a consolidation group entity specified in subsection 2¹ of § 34 of this Act, the Financial Supervision Authority shall notify its assessment of that impediment to the European Union parent undertaking after consulting the resolution authority of the resolution entity and the resolution authorities of its subsidiary credit institutions.

(2³) Within two weeks after receipt of the notification specified in subsection 2² of this section, a parent undertaking operating in the European Union must submit to the consolidation group level resolution authority possible measures and a timetable for their implementation.

(3) The Financial Supervision Authority shall forward the report prepared pursuant to subsection 2 of this section to the European Union parent undertaking of the consolidation group and resolution authorities of the EEA countries in which subsidiaries that are part of the consolidation group and significant branches are located. The resolution authorities of subsidiaries that are part of the consolidation group shall forward the report to the relevant subsidiaries within their remit.

(4) Within four months of the date of receipt of the report specified in subsection 3 of this section, the parent undertaking of the consolidation group may submit observations and propose to the Financial Supervision Authority alternative measures to remedy the impediments identified in the report. The Financial Supervision Authority shall communicate any measure proposed by the parent undertaking to the European Banking Authority and the resolution authorities of the EEA countries in which subsidiaries that are part of the consolidation group and significant branches are located insofar as is relevant to the significant branch.

(5) Within four months after the earlier of the submission of any observations by the parent undertaking specified in subsection 4 of this section and the expiry of the four-month period provided in subsection 4, the Financial Supervision Authority makes every effort to reach a joint decision within the resolution college with resolution authorities of the EEA countries where the subsidiaries of the consolidation group are located regarding material impediments that may hinder the effective application of resolution tools and powers to the consolidation group and, where necessary, regarding the proposal of the parent undertaking made under subsection 4 of this section and the measures required by the resolution authorities in order to address or remove the impediments. Prior to reaching a joint decision, the Financial Supervision Authority consults the resolution authorities and financial supervision authorities of the EEA countries in which significant branches are located.

(5¹) Where a parent undertaking operating in the European Union has not submitted its observations pursuant to subsection 5 of this section, the Financial Supervision Authority makes every effort to reach a joint decision within one month after the expiry of the four-month period specified in subsection 4.

(5²) The joint decision provided in subsection 5 of this section with regard to an impediment to resolvability caused by the situation specified in subsection 2¹ of § 34 of this Act must be reached within two weeks after the parent undertaking operating in the European Union has submitted its observations pursuant to subsection 4 of this section.

(6) In taking a joint decision the potential impact of the measures in all the EEA countries where the consolidation group operates shall be taken into account. The joint decision shall be fully reasoned and shall be presented by the Financial Supervision Authority to the parent undertaking of the consolidation group.

(7) The Financial Supervision Authority may address the European Banking Authority and request its assistance to the resolution authorities in reaching a joint decision in accordance with Article 31(c) of Regulation (EU) No 1093/2010 of the European Parliament and of the Council. In the absence of a joint decision on measures specified in clauses 6, 7 and 10 of subsection 4 of § 34 of this Act prior to the end of the four-month period, the Financial Supervision Authority may address the European Banking Authority to settle disagreements in accordance with Article 19 of the same Regulation. The European Banking Authority shall not be addressed within the terms provided in subsection 5 of this section or after a joint decision has been reached.

(8) If the Financial Supervision Authority is the resolution authority of the consolidation group and in the absence of a joint decision within the periods provided in subsection 5 of this section, the Financial Supervision Authority shall make its own decision on the appropriate measures provided in subsection 4 of § 34 of this Act to be taken at the consolidation group level. The decision of the Financial Supervision Authority shall be fully reasoned and shall take into account the views and reservations of other relevant resolution authorities. The decision shall be presented by the Financial Supervision Authority to the parent undertaking of the consolidation group.

(8¹) If the Financial Supervision Authority is not the resolution authority of the consolidation group but a subsidiary of the consolidation group is located in Estonia and no joint decision is reached within the period provided in subsection 5 of this section, the Financial Supervision Authority makes its own decision on the appropriate measures to be taken pursuant to subsection 4 of § 34 of this Act. The decision of the Financial Supervision Authority must be fully reasoned and take into account the views and reservations of other relevant resolution authorities. The decision is presented by the Financial Supervision Authority to the resolution entity.

(8²) If, within the term specified in subsection 5 of this section, the resolution authority of another EEA country has notified the European Banking Authority of disagreements relating to the reaching of a joint decision in accordance with Article 19 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council, the Financial Supervision Authority postpones the making of the decision specified in subsection 8¹ and awaits the decision of the European Banking Authority and thereafter makes its decision in accordance with the decision received. The Financial Supervision Authority does not address the European Banking Authority within the period provided in subsection 5 of this section or after reaching a joint decision.

(9) In the absence of a joint decision within the periods provided in subsection 5 of this section, the Financial Supervision Authority shall, where the subsidiary of the consolidation group is located in Estonia, make its own decision on the appropriate measures provided in subsection 4 of § 34 of this Act to be taken in relation to the subsidiary.

(10) If the resolution authority of the other EEA country has notified the European Banking Authority of disagreements on the achievement of a joint decision in accordance with the provisions of subsection 7 of this section within the period specified in subsection 5 of this section, the Financial Supervision Authority shall defer its decision and await the decision of the European Banking Authority and shall take its decision in accordance with the decision received. In the absence of the decision of the European Banking Authority within one month of the date of the receipt of the notification, the Financial Supervision Authority shall take its decision.

(11) The joint decision provided in this section and the decisions taken by the Financial Supervision Authority in the absence of a joint decision shall be recognised as conclusive with regard to resolution authorities of other EEA countries.

§ 36. Early intervention measures

(1) Where a credit institution infringes or is likely in the near future to infringe the requirements of Regulation (EU) No 575/2013 of the European Parliament and of the Council, or Articles 3 to 7, 14 to 17, and 24 to 26 of Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments and amending Regulation (EU) No 648/2012 (Text with EEA relevance) (OJ L 173, 12.6.2014, p. 84–148), or the requirements provided in the Credit Institutions Act or Securities Market Act, due to a rapid deterioration of the financial situation of the credit institution in connection with deteriorating liquidity or increasing leverage ratio, conditions for credit risk or limits to large exposures, the Financial Supervision Authority may take early intervention measures.

(2) The reasons for a rapid deterioration of the financial situation of the credit institutions specified in subsection 1 of this section is assessed on the basis of previously determined triggers, which may include a situation where the difference between the credit institution’s level of own funds and the minimum required level of own funds is less than 1.5 per cent.

(3) The provisions of this section do not prevent the Financial Supervision Authority from applying measures provided in § 104 of the Credit Institutions Act or other supervisory measures, inter alia, from establishing a moratorium on the credit institution.

(4) The Financial Supervision Authority may as an early intervention measure, by issuing a precept, within a reasonable term require:

1) the management board of the credit institution to implement the arrangements or measures set out in the recovery plan or to update such a recovery plan by a specific term when the circumstances that led to the early intervention are different from the assumptions set out in the initial recovery plan, and implement the arrangements or measures set out in the updated plan to ensure that the situation specified in subsection 1 of this section is prevented;

2) the management board of the credit institution to examine the situation, identify measures to solve any problems identified and draw up an action programme to overcome those problems and a timetable for its implementation;

3) the management board of the credit institution to promptly convene a general meeting of shareholders of the credit institution, set the firm agenda or include an issue on the agenda;

4) the management board of the credit institution to draw up a plan for negotiation on restructuring of debt, taking into account the recovery plan, where applicable;

5) changes to the credit institution’s business strategy, legal or organisational structures;

6) the provision of the necessary information, including performance of on-site inspections, and all the information to the Financial Supervision Authority necessary in order to update the resolution plan and prepare for the possible resolution proceedings of the credit institution and for valuation of the assets and liabilities of the credit institution.

(5) If the management board of the credit institution fails to convene a general meeting of shareholders in accordance with the provisions of clause 3 of subsection 4 of this section, the Financial Supervision Authority may convene the general meeting and set the agenda of the meeting.

(6) If the Financial Supervision Authority determines that the assumptions specified in subsections 1 and 2 of this section have been met, the Financial Supervision Authority may require the credit institution to contact potential acquirers in order to prepare for the resolution proceedings subject to the conditions provided in subsection 4 of § 59 of this Act, taking into account the confidentiality requirements provided in § 51 of this Act.

(7) Where there is a significant deterioration in the financial situation of a credit institution or where there are infringements of law, of administrative acts or of internal rules of the credit institution and measures specified in subsections 3–6 of this section are not sufficient, the Financial Supervision Authority may remove one or all of the members of the management board or supervisory board of the credit institution. A new member may only be appointed to replace a member removed from the management board or supervisory board with the consent of the Financial Supervision Authority. In such a case, the Financial Supervision Authority may decide that the appointment of a new member is not subject to the provisions of §§ 48, 56 and 57 of the Credit Institutions Act concerning managers of the credit institution.

§ 37. Temporary administrator

(1) Where the Financial Supervision Authority assesses that the removal of a member of the management board or supervisory board of the credit institution under subsection 7 of § 36 of this Act has not produced the desired results to remedy the situation of the credit institution, the Financial Supervision Authority may appoint one or more temporary administrators to the credit institution. The decision on the appointment of a temporary administrator shall be published on the website of the Financial Supervision Authority.

(2) Any temporary administrator may be appointed to work with the management board and supervisory board. If a temporary administrator is appointed to work with the management board, the Financial Supervision Authority shall further specify the mutual functions, powers and duties of the temporary administrator and the management board and supervisory board, inter alia, any requirements for the management body of the credit institution to consult or to obtain the consent of the temporary administrator prior to taking specific decisions or actions.

(3) The Financial Supervision Authority shall determine the powers, role and functions of the temporary administrator at the time of the appointment of the temporary administrator, specifying the limits set to the temporary administrator.

(4) A temporary administrator may exercise some or all of the powers of a member of the management board under the articles of association of the credit institution and under law, including the administrative functions of the management body. The functions of the temporary administrator may include ascertaining the financial position of the credit institution, managing the business or part of the business of the credit institution with a view to preserving or restoring the financial position of the credit institution and taking measures to restore the sound and prudent management of the business of the credit institution.

(5) A temporary administrator shall have the knowledge, skills, experience, impeccable professional and business reputation and education necessary to manage a credit institution and a temporary administrator shall avoid any conflict of interests and may not enter into transactions causing a conflict of interests. The provisions of subsection 6 of § 112 and subsections 1, 2 and 5–7 of § 113 of the Credit Institutions Act concerning the moratorium administrator shall apply to the appointment and activities of the temporary administrator.

(6) The Financial Supervision Authority may impose an obligation on the temporary administrator to obtain the consent of the Financial Supervision Authority prior to the exercise of some of the powers, including the disposal of the assets of the credit institution, or the performance of other acts.

(7) A temporary administrator is required to draw up reports on the financial position of the credit institution and on the acts performed in the course of its appointment, at intervals set by the Financial Supervision Authority and at the end of his or her mandate.

(8) A temporary administrator shall be appointed for up to one year. That period may be exceptionally renewed if the assumptions for appointing the temporary administrator continue to be met, and when taking such a decision the Financial Supervision Authority shall justify it to shareholders.

(9) A temporary administrator may convene a general meeting of the shareholders of the credit institution and set the agenda of the general meeting only with the consent of the Financial Supervision Authority.

(10) The appointment of a temporary administrator shall not prejudice the rights of the shareholders of the credit institution in accordance with the Commercial Code. The provisions of § 289² of the Commercial Code shall not apply to claims arising from the activities of a temporary administrator.

(11) A temporary administrator shall receive remuneration corresponding to his or her functions and qualifications from the funds of the credit institution under resolution proceedings. The Financial Supervision Authority shall determine the amount of the remuneration of the temporary administrator.

(12) A temporary administrator shall only be liable for the damage wrongfully caused through violation of the obligations of the temporary administrator. The limitation period for a claim filed against a temporary administrator is three years of the date of termination of the activities of the temporary administrator.

(13) The Financial Supervision Authority may remove a temporary administrator at any time and for any reason. The Financial Supervision Authority may also vary the terms of appointment of a temporary administrator at any time.

(14) The powers and duties arising from a contract entered into with a temporary administrator shall terminate pursuant to the contract. The provisions of the Law of Obligations Act concerning cancellation of an authorisation agreement apply to cancellation of the contract of a temporary administrator.

§ 38. Coordination of application of early intervention measures in relation to consolidation group

(1) Where the conditions for the early intervention have been met in accordance with this Subchapter and where the Financial Supervision Authority exercises supervision on a consolidated basis, it shall notify the European Banking Authority of the intention to apply early intervention measures or to appoint a temporary administrator and consult the other financial supervision authorities within the supervisory college.

(2) Where the Financial Supervision Authority exercises supervision over a subsidiary that is part of the consolidation group, it shall notify the European Banking Authority of the intention to apply the respective measures or to appoint a temporary administrator and consult the financial supervision authority exercising supervision on a consolidated basis.

(3) Following that consultation the Financial Supervision Authority shall decide whether and when to apply early intervention measures. The Financial Supervision Authority shall notify the decision to the other financial supervision authorities within the supervisory college and the European Banking Authority.

(4) Where the financial supervision authority of the other EEA country has notified the Financial Supervision Authority of the proposed early intervention measures or the appointment of a temporary administrator and where the Financial Supervision Authority exercises supervision on a consolidation basis, it may within three days of the date of receipt of the corresponding notification from the financial supervision authority of the other EEA country forward its assessment to the financial supervision authority on the impact of the application of the measures on the consolidation group or on consolidation group entities.

(5) Where the financial supervision authority of the other EEA country exercising supervision on a consolidated basis has provided its assessment to the Financial Supervision Authority in accordance with the provisions of subsection 4 of this section, the Financial Supervision Authority shall give due consideration to the assessment in taking its decision.

(6) Where early intervention measures are intended to be applied or a temporary administrator is intended to be appointed to several entities that are part of the same consolidation group, the Financial Supervision Authority shall consider together with the other relevant financial supervision authorities prior to the application of the respective measures whether it is more appropriate to appoint the same temporary administrator for all the consolidation group entities or to harmonise the proposed early intervention measures in order to facilitate the restoration of the financial position of the credit institution or consolidation group. The Financial Supervision Authority shall do everything within its power to reach a joint decision with financial supervision authorities of other relevant EEA countries within five days from the date of submission of the notification specified in subsection 1 of this section.

(7) If the Financial Supervision Authority exercises supervision on a consolidated basis, it shall draw up a joint decision that shall be reasoned and provide it to the parent undertaking of the consolidation group.

(8) The Financial Supervision Authority may submit a request to the European Banking Authority in accordance with Article 31 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council to receive assistance in reaching the agreement specified in subsection 6 of this section.

(9) In the absence of a joint decision within the period specified in subsection 6 of this section, the Financial Supervision Authority, if it exercises supervision on a consolidated basis or supervision over the subsidiary that is part of the consolidation group, takes an individual decision on the appointment of a temporary administrator or on the application of any other early intervention measure.

(10) The decision of the Financial Supervision Authority provided in subsection 3 or 9 of this section shall be fully reasoned and shall take into account the views and reservations of the other relevant financial supervision authorities. The decision shall be provided by the Financial Supervision Authority to the parent undertaking or to the subsidiary of the consolidation group.

(11) In the absence of a joint decision or where the Financial Supervision Authority does not agree with the proposal of the financial supervision authority of the other EEA country within the supervisory college to apply the early intervention measure provided in clause 1, 4 or 5 of subsection 4 of § 36 of this Act, before the end of the period provided in subsection 6 of this section the Financial Supervision Authority may address the European Banking Authority. The European Banking Authority shall not be addressed after the end of the period provided in subsection 6 of this section or after a joint decision has been reached.

(12) If the financial supervision authority of the other relevant EEA country has notified the European Banking Authority of disagreements on the achievement of a joint decision in accordance with the provisions of subsection 11 of this section, the Financial Supervision Authority shall defer its decision and await the decision of the European Banking Authority and shall take its decision in accordance with the decision of European Banking Authority. In the absence of the decision by the European Banking Authority within three days of the date of receipt of the notification, the Financial Supervision Authority shall take its decision.

§ 39. Conditions for commencement of resolution proceedings

(1) The Financial Supervision Authority may apply resolution tools or powers to a credit institution only if all of the following conditions are met:

1) the Financial Supervision Authority assesses that based on the information received in the course of the supervision it is probable that the credit institution is failing or likely to fail;

2) having regard to the time criterion and other relevant circumstances, no other tool or power, including a private sector measure and supervisory action or write down or conversion of capital instruments or eligible liabilities, would prevent the insolvency of the credit institution within a reasonable timeframe;

3) a resolution tool or power is necessary in the public interest.

(2) The insolvency of a credit institution is likely to occur in one or more of the following circumstances:

1) the credit institution infringes or will, in the near future, obviously infringe the requirements serving as a basis for the grant of the authorisation, in particular because the credit institution has incurred or is likely to incur losses that will significantly decrease its own funds;

2) the assets of the credit institution are or will, in the near future, obviously be less than its liabilities;

3) the credit institution is or will, in the near future, obviously be unable to pay its liabilities as they fall due;

4) the credit institution applies for extraordinary public financial support.

(3) That specified in clause 4 of subsection 2 of this section does not refer to a situation where State guarantee is requested in connection with:

1) liquidity loan granted by Eesti Pank;

2) debt obligations issued by a new credit institution;

3) increase in the share capital or acquisition of capital instruments at market conditions, where none of the conditions specified in clauses 1–3 of subsection 2 of this section and clause 5 of subsection 1 of § 56 of this Act are present at the time the extraordinary public financial support is granted.

(3¹) The provisions of subsection 3 of this section apply to State guarantee to be provided to a solvent credit institution as a temporary and proportionate precautionary measure for a specified term to remedy the consequences of the serious disturbance. Funds received by way of the State guarantee may not be used to offset losses that the credit institution has incurred or is likely to incur in the near future.

(3²) Upon the provision of State guarantee under clause 3 of subsection 3 of this section, the amount thereof shall be limited to the capital shortfall established in the stress tests, asset quality reviews or equivalent exercises conducted by the competent supervisory authority.

(4) The application of a resolution tool or power shall be treated as in the public interest under clause 3 of subsection 1 of this section if it contributes to the achievement of and is proportionate to one or more of the resolution objectives and winding up and liquidation of the credit institution under bankruptcy proceedings would not meet those resolution objectives.

(5) The Financial Supervision Authority may apply resolution tools or powers to a subsidiary financial institution of the credit institution only if all of the conditions provided in subsection 1 of this section are met with regard to both the financial institution and with regard to the parent undertaking subject to supervision on a consolidated basis.

(6) The Financial Supervision Authority may apply resolution tools or powers to a financial holding company, mixed financial holding company and mixed-activity holding company only if all of the conditions provided in subsection 1 of this section are met with regard to both the financial holding company, mixed financial holding company or mixed-activity holding company and with regard to the subsidiary credit institution thereof. Where the credit institution has been established in a third country, the competent authority of that country must have determined that the resolution objectives have been met under the law of that country.

(7) Where a mixed-activity holding company has a direct or indirect holding in a subsidiary credit institution through an intermediary which is a financial holding company, the intermediary financial holding company in accordance with the resolution plan must be treated as a resolution entity. In such case, the resolution tools or powers established for the purposes of consolidation group resolution may be applied to that intermediary financial holding company and not to the mixed-activity holding company.

(8) Where the financial holding company, mixed financial holding company or mixed-activity holding company does not meet the conditions for the commencement of the resolution proceedings provided in subsection 1 of this section, the Financial Supervision Authority may still apply resolution tools or powers with regard to them where:

1) the financial holding company, mixed financial holding company or mixed-activity holding company is a resolution entity;

2) one or more of the subsidiaries of the financial holding company, mixed financial holding company or mixed-activity holding company that are credit institutions, but not resolution entities, meet the conditions provided in subsection 1 of this section;

3) assets and liabilities of the subsidiaries specified in clause 2 of this subsection are such that the insolvency of those subsidiaries threatens the resolution consolidation group as a whole, and a resolution tool with regard to the entity is necessary either for the resolution of such subsidiaries which are credit institutions or for the resolution of the relevant resolution consolidation group as a whole.

(9) When assessing in accordance with the provisions of subsection 6 or 8 of this section whether the resolution objectives are met in respect of the subsidiary credit institution of the financial holding company, mixed financial holding company and mixed-activity holding company, the Financial Supervision Authority may agree with the resolution authority of the foreign country where the relevant financial holding company, mixed financial holding company or mixed-activity holding company has been established that they disregard any options for intra-group capital or loss transfers, including the possible write down or conversion of capital instruments.

§ 39¹. Specifications for commencement of resolution proceedings with regard to central body and credit institutions permanently affiliated to central body

(1) The Financial Supervision Authority may apply resolution tools and powers to a central body and all credit institutions permanently affiliated to it that are part of the same resolution consolidation group when that resolution consolidation group complies as a whole with the conditions provided in subsection 1 of § 39 of this Act.

(2) A credit institution or consolidation group entity in relation to which the Financial Supervision Authority considers that the conditions specified in clauses 1 and 2 of subsection 1 of § 39 of this Act are met, but that the condition for the public interest specified in clause 3 of the subsection specified above is not met, shall be liquidated under normal liquidation or bankruptcy proceedings.

§ 40. General principles governing resolution proceedings

(1) The Financial Supervision Authority shall apply the resolution tools or powers in accordance with the following principles:

1) the shareholders of the credit institution under resolution proceedings bear first losses;

2) creditors of the credit institution under resolution proceedings bear losses after the shareholders in accordance with the order of priority of their claims under bankruptcy proceedings, save as provided otherwise in this Act;

3) members of the management board and supervisory board of the credit institution under resolution proceedings are removed and replaced, except in the case when the retention of all or some of the members of the management board or supervisory board is considered to be necessary for the better achievement of the resolution objectives;

4) members of the management board and supervisory board of the credit institution under resolution proceedings shall provide all assistance for the achievement of the resolution objectives;

5) natural and legal persons are responsible for causing the insolvency of the credit institution; if the insolvency was caused by a grave error in management, the temporary administrator is required to file a claim for compensation for damage against the person liable for the error unless such claim has been filed already;

6) except where otherwise provided in this Act, creditors of the same class are treated in an equitable manner;

7) no creditor shall incur greater losses than would have been incurred if the credit institution or subsidiary financial institution thereof or the financial holding company, mixed financial holding company or mixed-activity holding company had been wound up and liquidated under bankruptcy proceedings and in accordance with the provisions of § 80 of this Act;

8) covered deposits and deposits subject to compensation are fully protected;

9) resolution tools or powers are applied in accordance with the safeguards provided in this Act.

(2) Where a credit institution is part of a consolidation group, the Financial Supervision Authority shall apply resolution tools and powers in a way that minimises the negative impact on other consolidation group entities and on the consolidation group as a whole and minimises the effects on financial stability in Estonia and other EEA countries, in particular, in the countries where other consolidation group entities operate. When applying the resolution tools or powers, the Financial Supervision Authority shall also take into account the State aid legislation of the European Union.

(3) Where resolution tools specified in clauses 1–3 of subsection 1 of § 55 of this Act are applied to a credit institution or entity that is part of the same consolidation group as the credit institution, provisions of subsections 1 and 3 of § 112 of the Employment Contracts Act are not applied to employees of the credit institution or entity that is part of the same consolidation group as the credit institution.

(4) When applying the resolution tools or powers, the Financial Supervision Authority shall inform and consult employee representatives of the relevant entity, where appropriate. The Financial Supervision Authority shall apply resolution tools and exercise resolution powers without prejudice to the representation of employees in management bodies of companies.

§ 40¹. Power to suspend certain obligations

(1) The Financial Supervision Authority has the power to suspend any payment or delivery obligations (hereinafter power to suspend) pursuant to any contract to which a credit institution or other consolidation group entity is a party, where all of the following conditions are met:

1) a determination that the credit institution or other consolidation group entity is failing or likely to fail has been made under clause 1 of subsection 1 of § 39 of this Act;

2) there is no immediately available private sector measure specified in clause 2 of subsection 1 of § 39 of this Act that would prevent the insolvency of the credit institution or other consolidation group entity;

3) the exercise of the power to suspend is deemed necessary to avoid the further deterioration of the financial situation of the credit institution or other consolidation group entity;

4) the exercise of the power to suspend is either necessary to identify the public interest or to choose the appropriate resolution tools or to ensure the effective application of one or more resolution tools.

(2) The financial crisis resolution function of the Financial Supervision Authority must consult the financial supervision function before exercising the power to suspend and the latter must respond without delay.

(3) The power to suspend shall not apply to payment or delivery obligations to the following:

1) the settlement systems or their operators as defined in the Payment and Settlement Systems Act;

2) central counterparties authorised in the Union pursuant to Article 14 of Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1–59) and third-country central counterparties recognised by the European Securities and Markets Authority pursuant to Article 25 of that Regulation;

3) central banks.

(4) The Financial Supervision Authority determines the period of exercise of the power to suspend having regard to the circumstances of each individual case, carefully assessing whether it is appropriate to extend the suspension also to covered eligible deposits, in particular covered deposits held by natural persons and micro, small and medium-sized enterprises.

(5) The period of exercise of the power to suspend shall be as short as possible, shall not exceed the minimum period of time that the Financial Supervision Authority considers necessary for the purposes specified in clauses 3 and 4 of subsection 1 of this section and shall not last longer than the period from the publication of a notice of suspension specified in subsection 9 to midnight in the EEA country of the credit institution or other consolidation group entity at the end of the business day following the day of the publication.

(6) When exercising the power to suspend, the Financial Supervision Authority shall have regard to the impact it might have on financial markets, considering the creditors’ rights and equal treatment of creditors in normal insolvency proceedings. The Financial Supervision Authority shall have regard to the national insolvency proceedings that apply as a result of the identification of the public interest.

(7) Upon application of the power to suspend, the payment or delivery obligations of any counterparties to that contract shall be suspended for the same period of time.

(8) A payment or delivery obligation that would have been due during the period of application of the power to suspend shall be due immediately upon expiry of that period.

(9) The Financial Supervision Authority shall notify the credit institution or other consolidation group entity and the authorities specified in subsection 1 of § 50 of this Act without delay when exercising the power to suspend after a determination has been made that the credit institution is failing or likely to fail pursuant to clause 1 of subsection 1 of § 39 and before the resolution decision is taken.

(10) The Financial Supervision Authority shall publish the decision on application of the power to suspend and the terms and period of suspension by the means provided in § 50 of this Act.

(11) The Financial Supervision Authority may exercise, for the duration of the power to suspend, the power to:

1) restrict secured creditors of that credit institution or other consolidation group entity from enforcing security interests in relation to any of the assets of that credit institution or other entity for the same duration, taking into account the specifications referred to in subsection 3 of § 43 of this Act;

2) suspend the termination rights of any party to a contract with that credit institution or other consolidation group entity for the same duration, taking into account the requirements provided in subsections 1–5 of § 43 and § 44 of this Act.

(12) If the Financial Supervision Authority has determined that a credit institution is failing or likely to fail pursuant to clause 1 of subsection 1 of § 39 of this Act and has thereafter exercised the power pursuant to subsection 1 or 11 of this section to suspend payment or delivery obligations, and if a resolution tool is subsequently taken with respect to that credit institution, the Financial Supervision Authority does not exercise its powers provided in subsection 2 of § 43 of this Act with regard to that credit institution to suspend certain obligations or restrict security interests.

§ 41. Decision on commencement of resolution proceedings

(1) The Financial Supervision Authority may take a decision to commence resolution proceedings if a credit institution or an entity that is part of the same consolidation group as the credit institution meets the conditions for the commencement of the resolution proceedings. The provisional valuation of the financial situation of a credit institution or an entity that is part of the same consolidation group as the credit institution carried out by the Financial Supervision Authority or a valuation carried out by an independent expert in accordance with the provisions of Chapter 5 of this Act shall serve as a basis for the decision on the commencement of the resolution proceedings.

(2) The decision of the Financial Supervision Authority on the commencement of the resolution proceedings shall be reasoned and prescribe the following:

1) resolution tools and powers that are intended to be applied;

2) the date of the commencement of the resolution proceedings and the time of the commencement of the application of resolution tools and powers;

3) the appointment of a special manager, where appropriate;

4) the procedure for valuation of the financial situation provided in Chapter 5 of this Act if the decision specified in subsection 1 of this section is based on the results of the provisional valuation of the financial situation carried out by the Financial Supervision Authority;

5) conditions for the commencement of the resolution proceedings in accordance with § 39 of this Act;

6) the procedure for the provision of services and transfer of resources in accordance with § 46 of this Act;

7) the filing of a petition specified in clause 9 of subsection 2 of § 18 of the Financial Supervision Authority Act, where appropriate;

8) other relevant important information.

(3) The Financial Supervision Authority shall not decide on the commencement of the resolution proceedings and the additional application of a resolution tool or power specified in § 55 of this Act in the resolution proceedings without hearing the position of Eesti Pank.

(4) Where resolution tools or powers need to be applied in respect of assets located in a third country or shares, other instruments of ownership, proprietary rights or obligations governed by the law of a third country and it is likely that the decision of the Financial Supervision Authority cannot be enforced due to objective circumstances, the Financial Supervision Authority may adopt the decision on the commencement of the resolution proceedings with a secondary condition.

(5) The decision of the Financial Supervision Authority on the commencement of the resolution proceedings shall be valid from the publication thereof pursuant to the procedure prescribed in subsection 3 of § 50 of this Act and it shall be immediately enforceable. The enforcement of the decision cannot be suspended or postponed, and the manner or procedure for the application of resolution tools or powers and the organisation of the operation of critical functions cannot be changed.

§ 42. Authority of Financial Supervision Authority in resolution proceedings

(1) The Financial Supervision Authority has the power to take decisions on the administration and disposal of shares, assets and liabilities of the a credit institution under resolution proceedings or an entity that is part of the same consolidation group as the credit institution, inter alia, to require, by a precept:

1) the write down or cancellation of shares or other capital instruments;

2) the transfer or sale of shares or all of the assets, rights and liabilities;

3) the application of a bail-in tool;

4) the amendment or alteration of the maturity of debt instruments and other bail-inable liabilities issued or the amendment of the amount of interest payable under such instruments and other bail-inable liabilities or the amendment of the maturity of liabilities on which the interest becomes payable, including the suspension of payment for a temporary period, except for secured liabilities;

5) the termination of derivatives contracts to implement § 76 of this Act;

6) the revocation of the subscription rights to acquire additional shares or other instruments of ownership;

7) the issue of new shares or other capital instruments;

8) the amendment to the terms of the contract entered into, withdrawal from the contract or termination thereof.

(2) In applying the bail-in tool provided in clause 3 of subsection 1 of this section, the Financial Supervision Authority has the power to require that:

1) the principal amount of or outstanding amount due in respect of bail-inable liabilities of the credit institution under resolution proceedings be reduced up to zero;

2) the debt instruments issued by the credit institution under resolution proceedings, except for secured liabilities, be cancelled;

3) the bail-inable liabilities of the credit institution under resolution proceedings be converted into ordinary shares or other instruments of ownership of that credit institution or entity that is part of the same consolidation group as the credit institution or a bridge institution to which assets, rights or liabilities of the credit institution under resolution proceedings are transferred.

(3) The Financial Supervision Authority has the power to assess the acquirer of a qualifying holding without applying time-limits of proceedings provided in § 30¹ of the Credit Institutions Act.

(4) Where necessary, the Financial Supervision Authority shall have the power to require competent operators of regulated securities markets to do the following on the regulated securities market:

1) to suspend or terminate trading or listing of shares or other instruments of ownership or debt instruments;

2) to list or admit to trading new shares or other instruments of ownership;

3) to relist or readmit any debt instruments which have been written down, without the requirement for the issuing of a prospectus pursuant to Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (OJ L 345, 31.12.2003, p. 64–89).

(5) The Financial Supervision Authority shall immediately notify the commercial register, central securities depository and other relevant registers of the decision on the commencement of the resolution proceedings and, where appropriate, submit petitions for entry on the basis of the decision on the application of a resolution tool.

(6) No legal provisions stipulating the requirement to obtain a prior approval or consent of a shareholder or creditor or any other third party for a transaction or act or legal provisions concerning the obligation to submit or register a prior notice or prospectus or other similar information or document shall apply to the resolution proceedings.

§ 43. Consequences of decision on commencement of resolution proceedings

(1) Unless otherwise provided in the decision on the commencement of the resolution proceedings, the power to administer and dispose of the assets of the credit institution under resolution proceedings shall transfer to a special manager and the following shall be suspended:

1) the voting rights of shareholders of the credit institution or of holders of other instruments of ownership;

2) the authority of all or some of the members of the management bodies of the credit institution, unless a member of the management body has been removed by a decision on the commencement of the resolution proceedings;

3) the calculation of a fine for delay or a contractual penalty which increases in time on claims against the credit institution.

(2) The Financial Supervision Authority has the power to suspend in Estonia, by its decision on the commencement of resolution proceedings, the following obligations and rights pursuant to any contract to which a credit institution under resolution proceedings is a party from the publication of a notification specified in § 50 of this Act to midnight at the end of the business day following the day of the publication:

1) any payment or delivery obligations of the credit institution, and the payment or delivery obligations of the other party to that contract;

2) security interests of secured creditors;

3) termination rights of any party to a contract, provided that the payment and delivery obligations and the provision of collateral continue to be performed.

(2¹) A suspension of the rights and obligations arising from contracts provided in subsection 2 of this section shall not constitute violation of such contracts.

(2²) The provisions of subsection 2 of this section apply uniformly to all consolidation group entities in relation to which a resolution tool is taken.

(3) The provisions of subsection 2 of this section shall not apply to:

1) payment or delivery obligations arising from the proper functioning of the settlement systems or their operators as defined in the Payment and Settlement Systems Act;

1¹) central counterparties authorised pursuant to Article 14 of Regulation (EU) No 648/2012 of the European Parliament and of the Council or recognised by the European Securities and Markets Authority pursuant to Article 25 of that Regulation;

1²) central banks in relation to assets pledged or provided by way of margin or collateral by the credit institution to the central bank.

(4) The Financial Supervision Authority may require that clause 3 of subsection 2 of this section also applies to any contract entered into by a subsidiary of a credit institution under resolution proceedings with any party if:

1) the obligations under that contract are guaranteed or are otherwise supported by the credit institution under resolution proceedings;

2) the termination rights are based solely on the insolvency or financial condition of the credit institution under resolution proceedings; and

3) the transfer power has been or may be exercised in relation to the credit institution under resolution proceedings and all the assets and liabilities of the subsidiary relating to that contract have been or may be transferred to and assumed by the recipient.

(4¹) The provisions of subsection 4 of this section apply if the Financial Supervision Authority provides in any other way adequate protection for such contractual obligations.

(4²) The Financial Supervision Authority determines the extent of exercise of the power specified in subsection 4 of this section having regard to the circumstances of each individual case, carefully assessing whether it is appropriate to extend the suspension also to covered eligible deposits, in particular covered deposits held by natural persons and micro, small and medium-sized enterprises.

(5) A person subject to the provisions of clause 3 of subsection 2 of this section may exercise a termination right under a contract before the end of the period specified in subsection 2 of this section if that person receives a notice from the Financial Supervision Authority that the rights and liabilities covered by the contract shall not be transferred to another entity or subject to write down or conversion on the application of the bail-in tool.

(5¹) Where the Financial Supervision Authority exercises the power provided in clause 3 of subsection 2 or subsection 4 of this section to suspend termination rights and where no notice pursuant to subsection 5 has been provided, the suspended right may be exercised after the end of the suspension period, taking account of the provisions of § 44 of this Act, as follows:

1) where the rights and obligations arising from the contract have been transferred to another entity, the counterparty may exercise termination rights in accordance with the terms of that contract only on the occurrence of any continuing or subsequent enforcement event by the recipient entity;

2) where the rights and obligations arising from the contract remain with the credit institution under resolution proceedings and the Financial Supervision Authority has not applied the bail-in tool in accordance with clause 1 of subsection 1 of § 70 of this Act to that contract, the counterparty may exercise termination rights in accordance with the terms of that contract after the end of the suspension period.

(6) The Financial Supervision Authority may apply to a court for the suspension of the compulsory enforcement or of any court proceedings with respect to the assets of a credit institution under resolution proceedings if this is necessary for the efficient application of resolution tools and powers.

(7) The measures for securing an action which were applied before deciding on the appointment of a special manager remain valid if a special manager is appointed unless the court decides otherwise.

(8) The specific procedure for the suspension of contracts entered into by a credit institution under resolution proceedings may be established by the minister in charge of the policy sector by a regulation.

§ 44. Performance of contractual obligations

(1) The fact of taking a crisis prevention measure or a crisis management measure, suspending certain obligations or making a decision on the commencement of the resolution proceedings shall not under a contract entered into by a credit institution be deemed to be an enforcement event within the meaning of Directive 2002/47/EC of the European Parliament and of the Council or insolvency proceedings within the meaning of the Payment and Settlement Systems Act. The provisions of §§ 314³ and 319² of the Law of Property Act do not apply to the resolution proceedings.

(2) The provisions of subsection 1 of this section also apply to such contract entered into by a subsidiary of a credit institution, the obligations under which are guaranteed or otherwise supported by the parent undertaking or by any consolidation group entity, or entered into by any entity of a consolidation group which includes cross-default provisions.

(3) Where the obligations under the contract, including payment and delivery obligations, and provision of collateral continue to be performed by a credit institution, a decision on the application of a crisis prevention measure, the suspension of certain obligations provided in § 40 of this Act or the application of resolution tools or powers or the occurrence of any event directly linked to the application thereof does not serve as a basis for:

1) exercising any termination, suspension, modification or set-off or close out netting rights, including in relation to a contract entered into by a subsidiary, the obligations under which are guaranteed or otherwise supported by a consolidation group entity and which includes cross-default provisions;

2) obtaining possession, exercising control or enforcing any security over or affect in any other manner any property of the credit institution or the entity that is part of the same consolidation group as the credit institution in relation to a contract which includes cross-default provisions;

3) affecting any contractual rights of the credit institution or an entity belonging to the same consolidation group as the credit institution in relation to a contract which includes cross-default provisions.

(4) Unless otherwise provided by subsection 6 of this section, the following is prohibited pursuant to a contract entered into by the credit institution under resolution proceedings:

1) the transfer of assets which form a security unless that liability and benefit of the security are also transferred;

2) the transfer of a secured liability unless the benefit of the security is also transferred;

3) the transfer of the benefit of the security unless the secured liability is also transferred;

4) the modification or termination of a security arrangement through the use of ancillary powers if the effect of that modification or termination is that the liability ceases to be secured;

5) the transfer of rights and liabilities covered by a title transfer financial collateral arrangement or a netting arrangement without transferring all the rights and obligations covered by the relevant master agreement at the same time.

(5) The provisions of subsection 4 of this section also apply to covered bonds and structured finance arrangements, including to securitisations and instruments used for hedging purposes which form an integral part of the cover pool and which are secured in a way similar to the covered bonds.

(6) Where necessary in order to ensure availability of the covered deposits, the Financial Supervision Authority may require the transfer of covered deposits which are part of financial collateral arrangements, security arrangements specified in subsection 4 or 5 of this section without transferring other assets, rights or liabilities that are part of the same arrangement, and the Financial Supervision Authority may also require the transfer, modification or termination of those assets, rights or liabilities without transferring the covered deposits.

§ 45. Other restrictions on resolution proceedings

(1) A court refuses, by an order, to accept a bankruptcy petition if:

1) the petition has been filed by an insolvent credit institution as a debtor;

2) the bankruptcy petition of the creditor is based on a claim to which a decision of the Financial Supervision Authority on the application of a resolution tool or power applies.

(2) Where a court has accepted a bankruptcy petition specified in subsection 1 of this section prior to the application of a resolution tool or power, the court shall postpone making a decision on the commencement of the bankruptcy proceedings until the termination of the application of a resolution tool or power.

§ 46. Provision of services and facilities

(1) Where relevant, the Financial Supervision Authority has the power to provide for the arrangements for the provision of any services or facilities by a credit institution under resolution proceedings that are necessary to ensure the exercise of the rights and performance of the obligations arising from contracts entered into by the credit institution under resolution proceedings relating to any financial instrument, right, asset or liability that has been transferred.

(2) To ensure the provision of any services or facilities by a credit institution under resolution proceedings, the Financial Supervision Authority has the power to take, among others, the following measures:

1) to require a credit institution under resolution proceedings or an entity that is part of the same consolidation group as the credit institution to provide any services or facilities, except funds, that are necessary to enable an acquirer to operate effectively the business transferred to it;

2) to enforce any services and facilities specified in clause 1 of this subsection of a resolution authority of the other relevant EEA country in respect of a consolidation group entity established in Estonia.

(3) The services and facilities specified in subsection 2 of this section shall be provided on the following terms:

1) where the services and facilities were provided under an agreement to the credit institution under resolution proceedings immediately before the resolution tool or power was applied and for the duration of that agreement, on the same terms;

2) where there is no agreement or where the agreement has expired, on reasonable terms.

§ 47. Appointment, powers and duties of special manager

(1) Taking into account the provisions of subsection 3 of § 41 of this Act, the Financial Supervision Authority may appoint a special manager or special managers by a decision on the commencement of the resolution proceedings, unless the Financial Supervision Authority has appointed a special manager in connection with the removal of members of the management body.

(2) A special manager shall have the power to represent, manage and monitor the credit institution under resolution proceedings. The special manager shall have all the powers of the shareholders and the management bodies of the credit institution.

(3) A special manager shall have the knowledge, skills, experience, education, professional qualifications and the impeccable business reputation necessary to manage a credit institution.

(4) A special manager shall have the duty to act in the best possible manner to ensure resolution and apply resolution tools or powers according to the decision of the Financial Supervision Authority.

(5) The Financial Supervision Authority shall determine the authority of a special manager, whereby the Financial Supervision Authority may require that the enforcement of decisions made by the special manager is subject to the prior consent of the Financial Supervision Authority.

(6) The Financial Supervision Authority shall promptly send an application concerning the appointment of a special manager for the purpose of making a relevant entry to the commercial register of the location of the credit institution and to the equivalent known register in the EEA country where the branch of such credit institution has been established, adding the name, personal identification code and contact information of the special manager.

(7) A special manager shall, inter alia, have the power to:

1) suspend enforcement of resolutions of the management board or supervisory board of the credit institution;

2) administer the assets of the credit institution located or registered in Estonia or a foreign country, including effect the transfer of shares or other instruments of ownership or assets, rights or liabilities to an acquirer;

3) change the shareholding structure of the credit institution;

4) increase the share capital of the credit institution, including submit a petition to the commercial register to enter the increase in the share capital in the commercial register along with documents specified in subsection 1 of § 343 of the Commercial Code;

5) draw up a business reorganisation plan of the credit institution;

6) effect the exchange of necessary information with the acquirer of shares or other instruments of ownership or assets, rights and liabilities, or the provision of other relevant assistance.

(8) A special manager shall be appointed for up to one year. The Financial Supervision Authority may renew that period, on an exceptional basis, if the conditions for appointment of a special manager continue to be met.

(9) The Financial Supervision Authority may remove the special manager at any time and appoint a new special manager. If the credit institution is part of a consolidation group, the Financial Supervision Authority shall consider with the resolution authorities of the other EEA country whether it is more appropriate to appoint the same special manager for the whole group.

(10) The powers and duties arising from a contract entered into with a special manager shall terminate pursuant to the contract. The provisions of the Law of Obligations Act concerning cancellation of an authorisation agreement apply to cancellation of the contract of a special manager.

(11) A special manager shall only be liable for the damage wrongfully caused to the credit institution or its shareholder or creditor through violation of the obligations of the special manager. The limitation period for a claim for compensation for damage arising from failure to perform the duties of a special manager is three years of the date when the victim became aware of the damage and the circumstances on which the liability of the special manager is based, but not more than three years of the termination of authority of the special manager.

(12) A special manager shall submit to the Financial Supervision Authority, within 30 days of appointment, a written report on the financial situation of the credit institution and acts performed by the special manager (hereinafter in this section activity report).

(13) The form of the activity report may be established by the minister in charge of the policy sector by a regulation.

(14) A special manager is required to submit activity reports at the request of the Financial Supervision Authority, but not less frequently than once a month.

§ 48. Business reorganisation plan of credit institution

(1) The management board of a credit institution or an entity that is part of the same consolidation group as the credit institution or, where appropriate, a special manager who has been appointed as the person liable for management in accordance with the provisions of § 47 of this Act (hereinafter in this section management board) must, within one month after the decision on the application of the bail-in tool is made, draw up and forward to the Financial Supervision Authority a business reorganisation plan (hereinafter business reorganisation plan) of the credit institution that complies with the state aid rules of the European Union.

(2) When the bail-in tool has been applied in accordance with the provisions of clause 1 of subsection 1 of § 56 of this Act to more than two entities that are part of the same consolidation group, the parent undertaking of the consolidation group shall prepare the business reorganisation plan covering all of the entities in the group and shall submit it to the resolution authority of the consolidation group.

(3) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall submit the business reorganisation plan to resolution authorities of other relevant EEA countries and the European Banking Authority.

(4) In exceptional circumstances, the Financial Supervision Authority may extend the period provided in subsection 1 of this section up to two months if it is necessary for achieving the resolution objectives. Where pursuant to the business reorganisation plan the European Commission needs to be notified of the State aid of the European Union, the Financial Supervision Authority may also extend the period provided in subsection 1 of this section up to two months or until the deadline laid down by the State aid rules of the European Union, whichever occurs earlier.

(5) A business reorganisation plan shall describe measures necessary to restore the viability of the credit institution or entity that is part of the same consolidation group as the credit institution or to restore partial business activities within a reasonable timescale. The measures shall be based on actual assumptions and take into account the economic environment and the environment affecting the financial market where the credit institution or entity that is part of the same consolidation group as the credit institution will operate.

(6) In addition to the provisions of subsection 5 of this section, the business reorganisation plan shall include at least the following:

1) a detailed diagnosis of reasons that caused the insolvency or likely insolvency of the credit institution or entity that is part of the same consolidation group as the credit institution;

2) a timetable for the implementation of the necessary measures;

3) the impact of the plan on the employees of the credit institution or entity that is part of the same consolidation group as the credit institution.

(7) In drawing up the business reorganisation plan, the current state and future prospects of the financial markets shall, inter alia, be taken account of and the plan shall reflect best-case and worst-case assumptions, including a combination of events allowing the identification of the credit institution’s main vulnerabilities. Assumptions shall be compared with appropriate sector-wide base values or benchmarks.

(8) Measures aiming to restore the viability may include:

1) changes to the internal operational systems and infrastructure within the credit institution;

2) the development of existing activities that can be made competitive;

3) the sale of assets or of business lines;

4) the reorganisation of the activities of the credit institution or entity that is part of the same consolidation group as the credit institution, including the withdrawal from loss-making activities.

(9) Within one month of the date of submission of the business reorganisation plan, the Financial Supervision Authority shall assess the likelihood that the plan, if implemented, will restore the viability of the credit institution or entity that is part of the same consolidation group as the credit institution.

(10) If the Financial Supervision Authority is satisfied that the plan achieves the long-term viability of the credit institution or entity that is part of the same consolidation group as the credit institution specified in subsection 9 of this section, the Financial Supervision Authority shall submit the business reorganisation plan to a court for approval. If the plan is approved, the provisions of the Code of Civil Procedure concerning the proceedings on petition apply.

(11) If the Financial Supervision Authority is not satisfied that the business reorganisation plan achieves the long-term viability of the credit institution or entity that is part of the same consolidation group as the credit institution specified in subsection 9 of this section, the Financial Supervision Authority shall notify the management board of the credit institution or entity that is part of the same consolidation group as the credit institution of its concerns and require the amendment of the plan in a way that addresses those concerns.

(12) The management board of the credit institution or entity that is part of the same consolidation group as the credit institution shall submit within two weeks from the date of receipt of the assessment specified in subsection 11 of this section an amended business reorganisation plan to the Financial Supervision Authority for approval. The Financial Supervision Authority shall assess the amended plan and shall notify the management board within one week from the date of receipt of the plan whether it is satisfied that the plan, as amended, addresses the concerns notified or whether further amendment is required.

(13) The management board shall implement the business reorganisation plan as approved by the Financial Supervision Authority, and shall submit a report to the Financial Supervision Authority at least every six months on progress in the implementation of the business reorganisation plan.

(14) If, in the opinion of the Financial Supervision Authority, it is necessary to amend the business reorganisation plan to achieve the aim provided in subsection 9 of this section, the management board shall revise the plan and shall submit the revised plan to the Financial Supervision Authority for assessment.

§ 49. Notification of potential insolvency

(1) The management board of a credit institution or entity that is part of the same consolidation group as the credit institution shall notify the Financial Supervision Authority where the credit institution or entity that is part of the same consolidation group as the credit institution is failing or likely to fail for the purposes of subsection 2 of § 39 of this Act.

(2) Where the Financial Supervision Authority assesses that the conditions for applying resolution tools and powers in accordance with clauses 1 and 2 of subsection 1 of § 39 of this Act are met, the Financial Supervision Authority shall notify the following authorities thereof without delay:

1) the financial supervision authorities exercising supervision over the credit institution under resolution proceedings or entity that is part of the same consolidation group as the credit institution, including the financial supervision authorities of the EEA countries where the branch of the credit institution is located;

2) Eesti Pank;

3) the Ministry of Finance;

4) the Guarantee Fund;

5) the authority exercising supervision on a consolidated basis if the provisions of § 97 of the Credit Institutions Act and §§ 47³ and 47⁵ of the Financial Supervision Authority Act apply to the credit institution or an entity belonging to the same consolidation group as the credit institution;

6) the European Systemic Risk Board.

(3) A notification of the Financial Supervision Authority whether or not to apply resolution tools or powers in relation to a credit institution or a relevant entity and which resolution tools or powers need to be applied shall contain the following:

1) the reasons, including the determination that the credit institution meets the conditions for the commencement of the resolution proceedings;

2) the resolution tools or powers that the Financial Supervision Authority intends to apply, including, where appropriate, the determination on potential winding up and liquidation of the credit institution under bankruptcy proceedings.

§ 50. Notification of decision on commencement of resolution proceedings

(1) The Financial Supervision Authority shall notify the following authorities without delay of the decision on the commencement of the resolution proceedings containing information on the resolution tools or powers to be applied and terms for application thereof:

1) the credit institution under resolution proceedings;

2) the financial supervision authorities exercising supervision over the credit institution under resolution proceedings or entity that is part of the same consolidation group as the credit institution, including the financial supervision authorities of the EEA countries where the branch of the credit institution is located;

3) Eesti Pank;

4) the Ministry of Finance;

5) the Guarantee Fund;

6) where appropriate, the resolution authority of the consolidation group;

7) the European Systemic Risk Board;

8) the European Commission;

9) the European Central Bank;

10) the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority;

11) where a person participating in resolution proceedings is a participant in the settlement system as defined in the Payment and Settlement Systems Act, the operator of the payment or settlement system.

(2) The notification shall contain information on the resolution tools or powers to be applied and terms for application thereof.

(3) The Financial Supervision Authority shall publish the notification of the adoption of the decision on the commencement of the resolution proceedings specified in § 41 of this Act and information on the consequences and the effects of the resolution tools or powers on clients on its website. The Financial Supervision Authority shall ensure the publication of this information on the website of the European Banking Authority and on the website of the credit institution under resolution proceedings.

(4) Subsection 3 of this section shall apply to each resolution tool or power additionally applied in the resolution proceedings.

(5) The Financial Supervision Authority shall also publish the notification of the commencement of the resolution proceedings and potential consequences and effects of the application of resolution tools or powers on clients in the official publication Ametlikud Teadaanded and in other media.

(6) Where the shares, other instruments of ownership or debt instruments of the credit institution under resolution proceedings are admitted to trading on a regulated securities market, the information on the commencement of the resolution proceedings shall be published in media used for the disclosure of information in accordance with Article 21(1) of Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38–57).

(7) If the shares, other instruments of ownership or debt instruments of the credit institution under resolution proceedings are not admitted to trading on a regulated securities market, the Financial Supervision Authority shall ensure that the notification of the commencement of the resolution proceedings is sent to the known shareholders and creditors of the credit institution under resolution proceedings whose information is available to the Financial Supervision Authority through the registers or databases.

§ 51. Confidentiality requirements

(1) Documents, information and explanations (hereinafter in this section information) obtained in the course of the application of early intervention measures, resolution proceedings or other activities provided in this Act shall be kept confidential. This information may not be communicated to any third parties, unless:

1) it is necessary to perform the obligations provided in this Act or to apply early intervention measures or resolution tools or powers;

2) the information is submitted or forwarded in the form such that individual data on the credit institution or entity that is part of the same consolidation group as the credit institution cannot be identified, or

3) the credit institution or entity that is part of the same consolidation group as the credit institution has granted a prior consent to forward the information.

(2) The provisions of this section shall not prevent the Financial Supervision Authority from forwarding this information to the Ministry of Finance, Eesti Pank, the Guarantee Fund, temporary administrator, special manager, moratorium administrator, trustee in bankruptcy, auditors, potential acquirers of shares of the credit institution under resolution proceedings, resolution authorities of other EEA countries, central banks, ministries, resolution funds and the European Banking Authority or third-country resolution authorities.

(2¹) The provisions of this section shall not prevent the Financial Supervision Authority from forwarding this information to the National Audit Office if the National Audit Office needs the information in order to assess the operational efficiency of the Financial Supervision Authority upon application of financial crisis prevention measures or resolution tools.

(2²) The information received from a competent resolution authority of the other EEA country or from the Single Resolution Board may be disclosed to the National Audit Office only with the express consent of the authority that has forwarded the information and only for the purposes that have been agreed to by the authority.

(3) Where the internal rules on exchange of information established on the basis of subsection 4 of § 5¹ of the Financial Supervision Authority Act have been infringed, the Financial Supervision Authority shall assess in cooperation with Eesti Pank the effect of the infringement on the public interest as regards financial, monetary or economic policy, on the economic interests of natural and legal persons, on the purpose of inspections, on investigations and on audits. The assessment of the effects of disclosing information shall include a specific assessment of the effects of any disclosure of the contents and details of recovery and resolution plan and the result of any assessment of resolvability.

§ 52. Objective and conditions of valuation of financial situation

(1) Before applying a resolution tool or exercising the power to write down or convert capital instruments and eligible liabilities, the valuation of the financial situation (hereinafter in this section valuation) of a credit institution, its subsidiary financial institution or financial holding company, mixed financial holding company or mixed-activity holding company that is part of the same consolidation group shall be carried out.

(2) The objective of the valuation shall be to determine the value of the assets and liabilities of the credit institution or entity specified in subsection 1 of this section that is part of the same consolidation group as the credit institution that meets the conditions for resolution provided in § 39 of this Act. The Financial Supervision Authority shall appoint an independent expert to valuate the financial situation.

(3) The valuation shall be carried out to decide:

1) whether the conditions for resolution proceedings or the conditions for the write down or conversion of capital instruments and eligible liabilities are met;

2) on the application of the most appropriate resolution tool or power;

3) when the power to write down or convert capital instruments and eligible liabilities is applied, on the extent of the cancellation or dilution of shares and the extent of the write down or conversion of capital instruments and eligible liabilities;

4) when the bail-in tool is applied, on the extent of the write down or conversion of bail-inable liabilities;

5) when the bridge institution tool or asset separation tool is applied, on the transfer of assets, rights, liabilities or shares or on any consideration to be paid to shareholders;

6) when the sale of shares and assets tool is applied, on the transfer of assets, rights, liabilities or shares and on the determination of market conditions under § 59 of this Act;

7) on the full recognition of any losses at the moment the resolution tool or power is applied.

(4) The valuation shall be based on prudent assumptions, including it shall take into account the potential liquidation of the credit institution and the extent of any losses. The valuation shall not take into consideration any potential extraordinary public financial support, emergency liquidity loan or any other extraordinary support by Eesti Pank.

(5) The valuation shall take account of reasonable expenses incurred in the course of the resolution proceedings in accordance with subsection 6 of § 55 of this Act and the interest or other fees in respect of any loans or guarantees provided by the Guarantee Fund to the credit institution under resolution proceedings.

(6) The valuation report shall be supplemented by the following information:

1) the updated annual accounts of the credit institution or any other entity specified in subsection 1 of this section;

2) an analysis and an estimate of the accounting value of the assets;

3) where appropriate, an analysis and an estimate of the market value of the assets and liabilities;

4) the list of on balance sheet and off balance sheet liabilities shown in the books and records with an indication of the respective priority levels;

5) the subdivision of the creditors in classes in accordance with their priority levels and an estimate of the treatment that each class of shareholders and creditors would have been expected to receive if the credit institution or any other entity specified in subsection 1 of this section were wound up and liquidated under bankruptcy proceedings.

(7) The valuation is an integral part of the decision of the Financial Supervision Authority to apply resolution tools or powers, including the decision to exercise the write-down or conversion power of capital instruments and eligible liabilities. The valuation itself is not subject to a separate right of appeal.

§ 53. Provisional and ex-post valuation of financial situation

(1) The Financial Supervision Authority shall carry out a provisional valuation of the financial situation (hereinafter provisional valuation) of a credit institution or an entity specified in subsection 1 of § 52 of this Act if:

1) a valuation by an independent expert is not possible, or

2) it is not possible to gather all the information specified in subsection 6 of § 52 of this Act due to the lack of time.

(2) The provisional valuation shall take into account any losses with appropriate justification.

(3) The results of a provisional valuation shall be a valid basis for taking a decision on the commencement of the resolution proceedings as well as for appointing a special manager or exercising the power to write down or convert capital instruments and eligible liabilities.

(4) A valuation that does not comply with all the requirements provided in § 52 of this Act shall be considered to be provisional until an independent person has carried out a valuation that is compliant with all the requirements provided in § 52 of this Act (hereinafter ex-post definitive valuation). The ex-post definitive valuation shall be carried out within a reasonable timeframe. The ex-post definitive valuation may be carried out either separately from the valuation required by shareholders and creditors provided in § 54 of this Act or simultaneously with and by the same independent person as that valuation, but shall be distinct from it.

(5) The purposes of the ex-post definitive valuation shall be:

1) to ensure that any losses on the assets of the credit institution or any other entity specified in subsection 1 of § 52 of this Act are fully recognised in the books of accounts of this entity;

2) to inform a decision to write back creditors’ claims or to increase the consideration in accordance with subsection 6 of this section.

(6) In the event that the ex-post definitive valuation’s estimate of the net asset value of the credit institution or any other entity specified in subsection 1 of § 52 of this Act is higher than the provisional valuation’s estimate of the net asset value, the Financial Supervision Authority may:

1) exercise its power to increase the value of the claims and instruments of creditors or shareholders which have been previously written down in the course of the application of the bail-in tool;

2) instruct a bridge institution or asset management vehicle to make a further payment of consideration in respect of the assets, rights and liabilities or shares of the credit institution under resolution proceedings to the creditors or to the shareholders under § 80 of this Act.

§ 54. Additional valuation

(1) In addition to the valuation provided in §§ 52 and 53 of this Act, an additional separate valuation shall be carried out by an independent expert. The additional valuation is carried out at the earliest opportunity after the application of a resolution tool or exercise of the power to write down or convert capital instruments in order to determine to which extent the actual de fact o treatment that shareholders or creditors, including the Guarantee Fund, have received under the decision on the commencement of the resolution proceedings differs from the situation where a court order on the declaration of bankruptcy would have been made on the date of taking the decision on the commencement of the resolution proceedings.

(2) The additional valuation shall assume that on the date of taking the decision on the commencement of the resolution proceedings a court order on the declaration of bankruptcy was made and the resolution tools or powers had not been effected.

(3) The additional valuation shall not take into account any potential extraordinary public financial support, emergency liquidity loan or any other financial support by Eesti Pank.

§ 55. General principles of resolution tools and powers

(1) The Financial Supervision Authority may apply the following resolution tools:

1) the sale of shares and net assets (hereinafter shares and assets) tool;

2) the bridge institution tool;

3) the asset separation tool;

4) the bail-in tool.

(2) Where the application of any tool specified in subsection 1 of this section results in losses being borne by creditors or their claims being converted, the Financial Supervision Authority shall exercise the power to write down and convert capital instruments and eligible liabilities in accordance with the provisions of Subchapter 2 of this Chapter together with or immediately before the application of the resolution tool.

(3) Where a credit institution meets the conditions for the commencement of the resolution proceedings and the Financial Supervision Authority decides to commence the resolution proceedings in relation to the credit institution, the Financial Supervision Authority shall apply the write down or conversion of capital instruments and eligible liabilities in accordance with the provisions of Subchapter 2 of this Chapter.

(4) The Financial Supervision Authority may apply the resolution tools together or individually, except the asset separation tool that may only be applied together with another resolution tool.

(5) Where only the resolution tool specified in clause 1 or 2 of subsection 1 of this section is used, and it is used to sell a part of the assets, rights or liabilities of the credit institution under resolution proceedings, its subsidiary financial institution or financial holding company, mixed financial holding company or mixed-activity holding company that is part of the same consolidation group, the entity from which the assets, rights or liabilities have been transferred shall be wound up and liquidated under bankruptcy proceedings. Such winding up and liquidation of that entity shall be done within a reasonable timeframe, having regard to any need to provide services pursuant to the provisions of § 46 of this Act and any other reason showing that the continuation of the activities of the entity within a certain timeframe contributes to the achievement of the resolution objectives.

(6) The Financial Supervision Authority, the Ministry of Finance or the Guarantee Fund may recover any reasonable expenses properly incurred in connection with the use of the resolution tools or powers or provision of extraordinary public financial support in the following way:

1) the subtraction of the relevant expenses from the amount of compensations to be paid;

2) the recovery of the expenses from the credit institution under resolution proceedings, or

3) the subtraction of the relevant expenses from any proceeds generated as a result of the termination of the operation of the bridge institution or the asset management vehicle.

(6¹) Upon recovering expenses, the recovery from entities specified in clauses 2 and 3 of subsection 6 of this section is preferred.

(7) The Financial Supervision Authority may establish a moratorium, make a proposal for the expropriation of shares of the credit institution or apply other resolution tools and powers not specified in subsections 1 and 2 of this section, provided that the following conditions have been met:

1) this does not pose obstacles to effective resolution proceedings of a consolidation group prescribed in this Act;

2) they are consistent with the resolution objectives and the general principles governing resolution proceedings specified in §§ 4 and 40 of this Act.

(8) Extraordinary public financial support may be applied in accordance with the provisions of § 79 of this Act in the occurrence of indications of a systemic financial crisis and when the following conditions are met:

1) the shareholders and creditors of the credit institution have made, for the purposes of loss absorption or recapitalisation, a contribution of eight per cent of the total liabilities including own funds of the credit institution through write down or conversion of liabilities including bail-inable liabilities or capital instruments or otherwise;

2) it shall be conditional on prior final approval under the State aid rules of the European Union.

(9) The provisions of §§ 110–116 of the Bankruptcy Act shall not apply to the resolution tools or powers used by the Financial Supervision Authority.

(10) The provisions of §§ 246, 247–249, 249¹, 292, 294, 294¹, 298 and 339–342, clauses 1 and 2 of subsection 1 of § 343, §§ 345, 349, 352–356 and 358, clauses 1 and 2² of subsection 1 and subsection 2 of § 359 and § 361 of the Commercial Code shall not apply to the use of resolution tools or powers.

(11) The provisions of the Commercial Code concerning the rights of shareholders in the event of a transformation, merger or division, including the provisions of §§ 391–405 and 418–427 concerning the merger of a public limited company, of §§ 433¹–433¹⁰ concerning the cross-border merger, of §§ 462–471 concerning the division of a public limited company, of §§ 477¹–477¹⁰ concerning the cross-border division, of §§ 502–504 concerning the transformation of a public limited company and of §§ 491¹–491¹⁰ of the Commercial Code concerning the cross-border transformation, shall not apply to the use of resolution tools or powers.

(11¹) Where, as a result of applying the resolution tools or powers, a credit institution is merged or divided, the provisions of Subchapter 1 of Chapter 6 of the Credit Institutions Act do not apply to it, unless otherwise provided in this Act.

(12) Where a transfer of shares, other instruments of ownership, other rights or liabilities includes assets that are located in the other EEA country or rights or liabilities under the law of the other EEA country, the transfer has effect in or under the law of that other EEA country.

§ 56. Write down and conversion of capital instruments and eligible liabilities

(1) The Financial Supervision Authority may require the write down or conversion of capital instruments and eligible liabilities of a credit institution or entity that is part of the same consolidation group as the credit institution into shares or other instruments of ownership when at least one of the following circumstances applies:

1) where conditions for the commencement of the resolution proceedings have been met and the general principles governing resolution proceedings have been complied with pursuant to the provisions of §§ 39, 39¹ and 40 of this Act;

2) the Financial Supervision Authority has determined that without the write down or conversion of capital instruments and eligible liabilities the credit institution or an entity that is part of the same consolidation group as the credit institution will no longer be viable;

3) the capital instruments have been issued by a subsidiary of the consolidation group and those capital instruments are recognised for the purposes of meeting own funds requirements on an individual and on a consolidated basis and the Financial Supervision Authority and the competent authority of the EEA country exercising financial supervision on a consolidated basis have made a joint determination in accordance with Chapter 9 of this Act that without the write down or conversion of the capital instruments the consolidation group will no longer be viable;

4) the capital instruments have been issued by the parent undertaking of the consolidation group and those capital instruments are recognised for the purposes of meeting own funds requirements of the parent undertaking both on an individual and on a consolidated basis, and the competent authority of the EEA country exercising financial supervision on a consolidated basis has made a determination that without the write down or conversion of the capital instruments the consolidation group will no longer be viable;

5) extraordinary public financial support is required by the credit institution or the entity that is part of the same consolidation group as the credit institution.

(1¹) The objective and conditions of valuation of financial situation of the credit institution provided in § 52 of this Act shall form the basis for a decision of the Financial Supervision Authority on the exercise of the power to write down or convert capital instruments and eligible liabilities.

(1²) In addition to the provisions of subsection 1¹ of this section, the following shall serve as a basis for the decision of the Financial Supervision Authority on the exercise of the power to write down or convert capital instruments and eligible liabilities:

1) the amount by which Common Equity Tier 1 items of a credit institution must be reduced and relevant capital instruments and eligible liabilities must be written down or converted, considering the priority of claims under bankruptcy proceedings of a credit institution provided in subsection 4 of § 57 of this Act;

2) the aggregate amount assessed by the Financial Supervision Authority pursuant to § 73 of this Act.

(1³) The Financial Supervision Authority may exercise the power to write down or convert capital instruments and eligible liabilities independently of a resolution tool only in relation to eligible liabilities that meet the conditions specified in clause 1 of subsection 8 of § 19 of this Act, except the condition related to the remaining maturity of liabilities as set out in Article 72c(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and in accordance with clause 7 of subsection 1 of § 40 of this Act.

(1⁴) Where capital instruments and eligible liabilities have been purchased by the resolution entity indirectly through other entities in the same resolution consolidation group, the power to write down or convert those capital instruments and eligible liabilities is exercised together with the exercise of the same power at the level of the parent undertaking of that entity or at the level of other parent undertakings that are not resolution entities, so that the losses are passed on to, and the credit institution concerned is recapitalised by, the resolution entity.

(1⁵) Where the Financial Supervision Authority applies a resolution tool in respect of a resolution entity or, in exceptional circumstances, deviating from the resolution plan, in respect of an entity that is not a resolution entity, the Financial Supervision Authority takes into account the reduced, written down or converted amount at the level of such entity in accordance with subsection 4 of § 57 of this Act for the thresholds provided in subsection 8 of § 55 or subsection 3 of § 78 or clause 1 of subsection 6 § 78 which apply to the relevant entity.

(2) In writing down or converting capital instruments and eligible liabilities, a credit institution or an entity that is part of the same consolidation group as the credit institution or the whole consolidation group shall be deemed to be no longer viable only if the credit institution, entity or consolidation group is failing or likely to fail and no private sector measures or supervisory action would prevent the insolvency of the credit institution within a reasonable timeframe.

(3) Capital instruments issued by a subsidiary that is part of a consolidation group and equally ranked capital instruments issued by the parent undertaking shall be written down or converted on the same terms.

(4) When the Financial Supervision Authority has made a determination specified in clause 3, 4 or 5 of subsection 1 of this section in the case of a credit institution or of a consolidation group with cross-border activity, in taking its decision the Financial Supervision Authority shall take into account the potential impact of the resolution proceedings in all the EEA countries where the credit institution or the consolidation group operates.

(5) Where the Financial Supervision Authority exercises the power to write down or convert capital instruments and eligible liabilities, it shall promptly notify the Ministry of Finance thereof.

(6) The Financial Supervision Authority shall exercise the power to write down or convert capital instruments and eligible liabilities where:

1) the capital instruments have been issued by a credit institution authorised in Estonia or established in Estonia or an entity that is part of the same consolidation group as the credit institution and those capital instruments are recognised for the purposes of meeting own funds requirements of the credit institution in accordance with Article 92 of Regulation (EU) No 575/2013 of the European Parliament and of the Council on an individual basis;

2) the capital instruments or eligible liabilities have been issued by a credit institution that is subject to financial supervision on a consolidated basis by the Financial Supervision Authority.

(7) Before the Financial Supervision Authority exercises the power to write down or convert capital instruments and eligible liabilities and where it has determined that the conditions specified in clauses 2–5 of subsection 1 of this section are met, it shall transmit a notification along with reasons to resolution authorities and financial supervision authorities of other relevant EEA countries associated with the consolidation group.

§ 57. Exercise of power to write down or convert capital instruments and eligible liabilities

(1) The information on the level required to absorb losses in order to recapitalise the credit institution or the entity that is part of the same consolidation group as the credit institution set out in the valuation of the financial situation carried out in accordance with Chapter 5 of this Act shall form the basis for exercising the power to write down or convert capital instruments and eligible liabilities.

(2) When writing down or converting capital instruments and eligible liabilities, one or both of the following actions are taken in respect of shares and other instruments of ownership:

1) existing shares or other instruments of ownership are cancelled or transferred to bailed-in creditors;

2) the estimated value of shares and other instruments of ownership is substantially reduced if the credit institution under resolution proceedings has a positive value of net assets.

(3) The provisions of subsection 2 of this section apply where the shares or other instruments of ownership were issued or conferred:

1) pursuant to conversion of debt instruments to shares or other instruments of ownership in accordance with contractual terms of the original debt instruments on the occurrence of an event that preceded the valuation of financial situation specified in § 52 of this Act;

2) pursuant to the conversion of capital instruments and eligible liabilities to Common Equity Tier 1 instruments.

(4) The write down or conversion of capital instruments and eligible liabilities is applied in resolution proceedings in accordance with the priority of claims under bankruptcy proceedings of a credit institution in the following order:

1) Common Equity Tier 1 items are reduced first in proportion to the losses and one or both of the actions specified in subsection 2 of this section are taken to the extent of their capacity;

2) the principal amount of Additional Tier 1 instruments is written down or converted into Common Equity Tier 1 instruments or both, to the extent required to achieve the resolution objectives or to the extent of the capacity of such instruments, whichever is lower;

3) the principal amount of Tier 2 instruments specified in subsection 1⁴ of § 56 of this Act is written down or converted into Common Equity Tier 1 instruments or both, to the extent required to achieve the resolution objectives specified in subsection 1 of § 4 or to the extent of the capacity of such instruments, whichever is lower;

4) the principal amount of eligible liabilities specified in subsection 1⁴ of § 56 of this Act is written down or converted into Common Equity Tier 1 instruments or both, to the extent required to achieve the resolution objectives specified in subsection 1 of § 4 or to the extent of the capacity of the eligible liabilities, whichever is lower.

(5) In the case of write down of the principal amount of a capital instrument or eligible liability specified in subsection 14 of § 56 of this Act, the reduction of the principal amount is permanent, subject to the application of the possible write-up mechanism provided in subsection 3 of § 73 of this Act, and the holder of the capital instrument or eligible liability has no claims in respect of the amount of the written down instrument, unless the holders of the instruments do not receive compensation pursuant to the provisions of subsection 7 of this section or for losses arising from the performance of previously incurred liabilities or the write down of the principal amount of the capital instrument or eligible liability. This requirement does not apply to any liability already accrued, or to the liability for damages that may arise as a result of an appeal challenging the legality of the exercise of the write-down power.

(6) Capital instruments and eligible liabilities may only be converted where the following conditions are met:

1) those Common Equity Tier 1 instruments are issued by the credit institution or the entity that is part of the same consolidation group as the credit institution, with the agreement of the Financial Supervision Authority or, where applicable, of the resolution authority of the other EEA country;

2) those Common Equity Tier 1 instruments are issued prior to any issuance of shares or other instruments of ownership by that credit institution or that entity that is part of the same consolidation group as the credit institution for the purposes of provision of contributions to own funds by the State or a government entity;

3) those Common Equity Tier 1 instruments are transferred without delay following the exercise of the conversion power;

4) the conversion rate that determines the number of Common Equity Tier 1 instruments that are provided in respect of each capital instrument or eligible liability complies with the principles provided in § 75 of this Act and any relevant guidelines of the European Banking Authority.

(6¹) Where the Financial Supervision Authority intends to sell assets to a bridge institution, the subsequent additional capital needs of the bridge institution shall be considered in writing down capital instruments and eligible liabilities.

(7) In order to effect a conversion of capital instruments and eligible liabilities, the Financial Supervision Authority may require a credit institution or entity that is part of the same consolidation group as the credit institution to issue Common Equity Tier 1 instruments to the holders of the capital instruments and eligible liabilities.

(8) For the purposes of the provision of Common Equity Tier 1 instruments in accordance with subsection 6 of this section, the Financial Supervision Authority may require a credit institution or entity that is part of the same consolidation group as the credit institution to obtain the prior consent of the Financial Supervision Authority to issue the relevant number of Common Equity Tier 1 instruments.

(9) After the write down or conversion of capital instruments or eligible liabilities, the Financial Supervision Authority carries out an additional valuation specified in § 54 of this Act in accordance with clause 2 of subsection 6 of § 53 and § 80.

§ 58. Exercise of power to write down or convert capital instruments and eligible liabilities on consolidated basis

(1) If, after consulting the resolution authority of the relevant resolution entity, the Financial Supervision Authority decides to establish the circumstances specified in clause 3 of subsection 1 of § 56 of this Act, it immediately sends a notice of such decision to the resolution authorities of such EEA countries and the resolution authorities of the consolidation group or, in the absence thereof, the competent authorities of such EEA countries where the entities belonging to the consolidation group that are affected by the decision are located.

(2) Where the Financial Supervision Authority is the resolution authority of the consolidation group, it makes every effort to agree with the resolution authorities of other EEA countries on the circumstances specified in subsection 1 of this section for the purpose of reaching a joint decision. If no agreement is reached, these circumstances are not established.

(3) Where the Financial Supervision Authority decides to establish the circumstances specified in clause 2, 3 or 4 of subsection 1 of § 56 of this Act, it sends a notice of such decision immediately, but not later than 24 hours after consulting the resolution authority of the relevant resolution entity, to:

1) the authority exercising supervision on a consolidated basis or, in the absence thereof, the relevant financial supervision authority of the EEA country exercising supervision on a consolidated basis;

2) other resolution authorities of entities belonging to the same consolidation group if the consolidation group has directly or indirectly purchased the liabilities specified in subsection 8 of § 19 of this Act from an entity falling within the scope of subsections 2 and 4–6 of § 19.

(4) In the notice specified in subsection 3 of this section, the Financial Supervision Authority must reason its decision to establish the circumstances specified in clause 2, 3 or 4 of subsection 1 of § 56 this Act.

(5) Where the Financial Supervision Authority has sent the notice specified in subsections 1 and 3 of this section concerning the write down of capital instruments and eligible liabilities, the Financial Supervision Authority assesses the following circumstances after consulting the authorities specified in subsections 1 and 3:

1) whether an alternative measure to the write down or conversion of capital instruments and eligible liabilities is available, and where such an alternative measure is available, whether it can feasibly be applied;

2) whether there is a prospect that the application of an alternative measure would address, in an adequate timeframe, the circumstances that would otherwise require a determination provided in subsection 1 of § 56 of this Act to be made.

(6) The alternative measures specified in clause 1 of subsection 5 of this section are deemed to be early intervention measures, measures provided in § 104 of the Credit Institutions Act or transfer of funds or capital from the parent undertaking of the consolidation group.

(7) Where the Financial Supervision Authority, after consulting the resolution authority or another competent authority of the other EEA country, considers that at least one alternative measure is available, it can feasibly be applied and it would deliver the outcome specified in clause 2 of subsection 5 of this section, the Financial Supervision Authority must ensure the application of such measure.

(8) Where the Financial Supervision Authority considers that no alternative measures are available that would deliver the outcome specified in clause 2 of subsection 5 of this section, the Financial Supervision Authority decides whether the establishment of the circumstances provided in subsection 1 of § 56 of this Act is appropriate in the specific case.

(9) Where the Financial Supervision Authority has established the circumstances specified in subsection 2, 3 or 4 of § 56 of this Act in connection with the resolution proceedings of a credit institution or a consolidation group operating on a cross-border basis, the Financial Supervision Authority takes into account the potential impact of the resolution in all the EEA countries where the credit institution or consolidation group operates.

(10) Where the Financial Supervision Authority is the resolution authority of the subsidiary, it implements at the earliest opportunity the decision made in accordance with this section to write down or convert capital instruments and eligible liabilities.

§ 59. Bases and conditions for sale

(1) The Financial Supervision Authority shall issue a precept to the credit institution under resolution proceedings for the sale of all or any assets, rights and liabilities (hereinafter in Subchapters 3, 4 and 5 assets) of the credit institution or all or any shares issued by the credit institution to the potential purchaser without the prior consent of the shareholders or the third party that is not a bridge institution.

(2) The Financial Supervision Authority shall determine which conditions apply to the sale of the assets and shares, taking into account the principle of the sale at market conditions. Assets and pools of assets may be sold separately. The assets shall be sold at an auction, unless otherwise decided by the Financial Supervision Authority. The assets may be sold without organising an auction with the consent of the Financial Supervision Authority if the sale of assets in this manner is more profitable.

(2¹) The provisions of subsection 2 of § 62 of this Act apply to the seller of the assets and shares.

(3) Upon the sale of assets and shares, the Financial Supervision Authority shall require the credit institution to transfer the assets and shares to the acquirer. The Financial Supervision Authority may exercise the power of the sale of assets and shares more than once.

(4) The sale of the assets or shares of the credit institution may be effected under the following conditions:

1) it shall not unduly favour or discriminate between potential acquirers;

2) it shall be free from any conflict of interest;

3) it shall not confer any unfair advantage on a potential acquirer;

4) it shall take account of the need to effect a rapid resolution tool;

5) the sale is effected in the manner that is most profitable;

6) the sale is transparent.

(4¹) The compensation to be received upon sale of the assets or shares or other instruments of ownership of a credit institution must serve the direct interests of the credit institution under resolution proceedings and original owners of the assets or shares or relevant instruments of the credit institution, taking into account the provisions of subsection 6 of § 55 of this Act.

(5) The provisions of subsection 2 of this section shall not apply where the Financial Supervision Authority determines that the sale at market conditions would undermine one or more of the resolution objectives and in particular if:

1) there would be a material threat to financial stability arising from the insolvency of the credit institution under resolution proceedings;

2) the compliance with the market conditions during the sale would undermine the effectiveness of the application of the sale of assets and shares tool.

(5) The Financial Supervision Authority may, with the consent of the acquirer, also apply the sale of assets and shares tool with the condition of the obligation to sell back where the assets or shares or other instruments of ownership transferred to the acquirer are given back to the credit institution under resolution proceedings or to their original owners, and the credit institution under resolution proceedings or original owners shall be obliged to take back any such assets or shares or other instruments of ownership.

(6) The provisions of Chapter 8 of this Act shall apply to transfers between the credit institution under resolution proceedings or the original owners of shares and the bridge institution.

(7) Where the Financial Supervision Authority applies the sale of assets and shares tool partially and not all the assets or shares are transferred to another entity, such transfer may not affect the operation of the settlement systems as defined in the Payment and Settlement Systems Act.

§ 60. Powers and liability of acquirer

(1) Where the assets or shares of the credit institution under resolution proceedings have been acquired by a transfer, the acquirer thereof shall have the authorisation, where appropriate, provided in legislation to continue the business.

(2) The acquirer may be a member of payment and settlement systems and a participant in a regulated securities market and may continue to have access to them, provided that it meets conditions for participation in such systems and market. The operators may not deny access to the payment and settlement systems or the regulated securities market on the ground that the acquirer does not possess a credit rating, or the credit rating of the bridge institution as an acquirer is not commensurate to the levels required to be become a member or participant.

(3) Where the acquirer does not meet the membership or participation conditions for a relevant payment or settlement system or regulated securities market, the acquirer may, with the consent of the Financial Supervision Authority, be a member of the system or participant in the market for up to 24 months on a temporary basis without holding the access authorisation.

(4) Shareholders or creditors of the credit institution under resolution proceedings and third parties whose assets are not transferred to an acquirer shall not have any rights over or in relation to the assets transferred to the acquirer.

(5) The Financial Supervision Authority may require that the assets and shares be transferred back to the credit institution or original shareholders if the acquirer agrees to it. After the transfer of assets and shares, the credit institution or original shareholders shall be deemed to be the owners. The credit institution and original shareholders shall be obliged to take back any such assets and shares.

§ 61. Assessment of acquisition of qualifying holding

(1) Where a transfer of shares results in the acquisition of or increase in a qualifying holding in a credit institution, the Financial Supervision Authority as the supervisory authority shall also consider the achievement of the resolution objectives in assessing the holding provided in §§ 29–33 of the Credit Institutions Act.

(2) If the Financial Supervision Authority as the supervisory authority has not completed the assessment of the holding by the date of transfer of shares:

1) the shares are transferred to the acquirer;

2) during the assessment period of the holding and during any period of sale of assets, the acquirer’s voting rights attached to such shares shall be suspended and vested solely in the Financial Supervision Authority.

(3) During the assessment period of the holding and during any period of sale of assets provided in subsection 2 of this section, the Financial Supervision Authority has the power not to apply the requirements for acquisitions or sales of qualifying holdings provided in §§ 29–33 of the Credit Institutions Act.

(4) Upon completion of the assessment of the holding by the Financial Supervision Authority as the supervisory authority, the Financial Supervision Authority shall notify the acquirer in writing of the decision on the acquisition of the holding or on the prohibition of the acquisition pursuant to the provisions of § 31 of the Credit Institutions Act.

(5) If the Financial Supervision Authority as the supervisory authority takes a decision on the acquisition of the holding, the acquirer may exercise the voting rights attached to the acquired shares as of the date of becoming aware of the decision.

(6) If the Financial Supervision Authority as the supervisory authority takes a decision on the prohibition of the acquisition of the holding:

1) the provisions of clause 2 of subsection 2 of this section shall apply to the exercise of the voting rights;

2) the Financial Supervision Authority may require the acquirer to retransfer the shares within a certain period, taking into account the current market conditions;

3) the provisions of subsection 3 of this section shall not apply.

§ 62. Establishment of bridge institution

(1) To ensure at least the continuity of critical functions or provision of services, the Ministry of Finance shall establish, on the proposal of the Financial Supervision Authority, a public limited company or acquire the shares of a public limited company (hereinafter bridge institution) with a view to take over all or any shares or assets of the credit institution under resolution proceedings.

(2) The bridge institution shall be a credit institution or investment firm and it is subject to the provisions of the Credit Institutions Act or Securities Market Act, including the provisions concerning the application for authorisation. In extraordinary circumstances, the Financial Supervision Authority may take a decision under which the provisions of the Credit Institutions Act or Securities Market Act, in particular concerning the application for authorisation, the compliance with the capital or liquidity requirements or the acquisition of the qualifying holding, are not observed on a temporary basis, but no longer than for six months, in establishing the bridge institution.

(3) The provisions of Subchapters 1 and 3 of Chapter 6, except for § 88, of the State Assets Act shall not apply to the exercise of founder’s rights, management and supervision of the bridge institution.

§ 63. Transfer of shares and assets

(1) The Financial Supervision Authority shall require the credit institution under resolution proceedings to transfer the shares or assets of the credit institution to a bridge institution.

(2) The Financial Supervision Authority may exercise the power provided in subsection 1 of this section on more than one occasion.

(3) The shares or assets may be transferred without the consent of the shareholders of the credit institution under resolution proceedings or the third party that is not a bridge institution for a fair compensation. The provisions of Chapter 29¹ of the Commercial Code shall not apply to the takeover of shares for a monetary compensation.

(3¹) The compensation to be received upon transfer of the assets or shares or other instruments of ownership of a credit institution must serve the direct interests of the credit institution under resolution proceedings and original owners of the assets or shares or relevant instruments of the credit institution, taking into account the provisions of subsection 6 of § 55 of this Act.

(4) The provisions of Chapter 8 of this Act shall apply to transfers between the credit institution under resolution proceedings or the original owners of shares and the bridge institution.

(5) When transferring the shares or assets, it shall be ensured that the total value of liabilities transferred to the bridge institution does not exceed the total value of the assets transferred from the credit institution under resolution proceedings.

§ 64. Transfer of shares

(1) The Ministry of Finance shall immediately notify the central securities depository of the transfer of shares of the credit institution under resolution proceedings. On the basis of the notice, the central securities depository shall enter a temporarily restrictive entry on the shares or on the accounts related to the shares of the credit institution. The account remains frozen on the basis provided in subsection 3 of § 17 of the Securities Register Maintenance Act.

(2) The central securities depository shall transfer the shares specified in subsection 1 of this section to the securities account indicated by the Ministry of Finance.

(3) The central securities depository shall delete the third-party rights with regard to the shares specified in subsection 1 of this section before the transfer of the shares to the Ministry of Finance.

§ 65. Management of bridge institution

(1) The provisions of § 88 of the State Assets Act shall apply to the management of a bridge institution.

(2) The Financial Supervision Authority shall make a proposal to the minister in charge of the policy sector for the appointment of its representative or representatives the members of the supervisory board and management board of the bridge institution.

3) The Ministry of Finance shall coordinate the following with the Financial Supervision Authority:

1) the functions and remuneration of the members of the supervisory board and management board of the bridge institution;

2) the strategic plan and risk profile of the bridge institution.

(4) Shareholders or creditors of the credit institution under resolution proceedings and other third parties whose assets are not transferred to a bridge institution shall not have any rights in relation to the assets transferred. This is without prejudice to Chapter 8 of this Act.

(5) The members of the supervisory board or management board of the bridge institution shall have no liability to shareholders or creditors of the credit institution under resolution proceedings for acts and omissions in the discharge of their duties unless the act or omission implies gross negligence or intent which would have affected rights of such shareholders or creditors.

(6) The bridge institution shall be managed with a view to sell shares or assets of the bridge institution or credit institution under resolution proceedings to a third party within a reasonable timeframe or within the term provided in subsection 4 or 5 of § 68 of this Act.

§ 66. Conditions for continuing operation of bridge institution and access to payment systems

(1) A bridge institution may continue to provide the services to the same extent as provided by the credit institution under resolution proceedings and to exercise any such right that was exercised by the credit institution in respect of the assets transferred.

(2) The bridge institution may be a member of payment and settlement systems and a participant in a regulated securities market and may continue to have an access to them, provided that it meets conditions for membership and participation. The operators may not deny access to the payment and settlement systems or the regulated securities market on the ground that the bridge institution does not possess a credit rating, or the credit rating of the bridge institution is not commensurate to the levels required to become a member or participant.

(3) A bridge institution shall be a member of the Guarantee Fund and it shall pay contributions pursuant to the provisions of the Guarantee Fund Act.

(4) Where the bridge institution does not meet the participation or membership conditions for the systems specified in subsection 2 of this section, the bridge institution may, with the consent of the Financial Supervision Authority, be a member of the system or participant in the market for up to 24 months.

(5) On the proposal of the Financial Supervision Authority, the bridge institution may be released from the payment of contributions to the Guarantee Fund within 24 months of becoming a member of the Guarantee Fund.

§ 67. Transfer of shares and assets back

(1) The Financial Supervision Authority may make a proposal to the Ministry of Finance to transfer the shares or assets back to original shareholders or a third party. After the transfer of the shares and assets, original shareholders shall be deemed to be the owners.

(2) In transferring shares and assets back, one of the following conditions shall be met:

1) the possibility that the shares or assets might be transferred back is specified in the transfer agreement;

2) the shares or assets do not in fact fall within the shares or assets or do not meet the conditions for transfer of such shares or assets specified in the transfer agreement.

§ 68. Termination of operation of bridge institution

(1) The operation of the bridge institution shall be terminated:

1) if the bridge institution merges on the basis of subsection 2 or 3 of § 65 of the Credit Institutions Act;

2) if the bridge institution ceases to meet the requirements provided in § 46 of this Act;

3) if the bridge institution’s assets are sold to a third party;

4) if the objective set in the articles of association of the bridge institution has been achieved;

5) by a court order on compulsory winding-up of the bridge institution.

(2) The provisions of Subchapter 1 of Chapter 6 of the Credit Institutions Act apply to the merger of the bridge institution.

(3) The decision provided in clauses 2 and 4 of subsection 1 of this section is taken by the Ministry of Finance on the proposal of the Financial Supervision Authority.

(4) If the operation of the bridge institution is not terminated in any of the cases provided in clauses 1–4 of subsection 1 of this section, the compulsory winding-up of the bridge institution shall be commenced on the application of the Financial Supervision Authority within two years of the date when the last transfer of shares or assets was made to the bridge institution from the credit institution under resolution proceedings.

(5) In exceptional circumstances, the Financial Supervision Authority may extend the period specified in subsection 4 of this section where this:

1) supports the outcomes specified in subsection 1 of this section;

2) ensures the availability of essential banking or financial services.

(6) Any decision made under subsection 5 of this section shall be fully reasoned and shall contain a detailed assessment of the market situation and future prospects of the bridge institution.

(7) Any proceeds generated as a result of the termination of the operation of the bridge institution shall benefit the shareholders of the bridge institution.

(8) The sale of the shares or assets of the bridge institution for a fee shall be based on the provisions of Chapter 4 of the State Assets Act.

(9) Where a bridge institution is used for the purpose of transferring assets of more than one credit institution under resolution proceedings, the provisions of subsections 7 and 8 of this section shall apply to the assets transferred from each of the credit institutions under resolution proceedings.

§ 69. Asset separation

(1) The Financial Supervision Authority may decide to apply the asset separation tool. Under the decision the Ministry of Finance shall establish, on the proposal of the Financial Supervision Authority, a public limited company or acquire a public limited company (hereinafter asset management vehicle) where all or any assets of the credit institution under resolution proceedings are transferred. The assets of the bridge institution previously established may also be transferred to the asset management vehicle.

(2) The asset management vehicle shall manage the assets transferred to it with a view to maximising their value through eventual sale or wind up and liquidation of the asset management vehicle. The assets may be transferred without the consent of the shareholders of the credit institution under resolution proceedings or any third party for a fair compensation.

(3) The Financial Supervision Authority may decide to apply the asset separation tool if one of the following occurs:

1) the market situation for the sale of those assets in the bankruptcy proceedings is unfavourable or the sale of the assets could have negative effects on financial markets as a whole;

2) the transfer of those assets is necessary to ensure the proper functioning of the credit institution under resolution proceedings or the bridge institution;

3) the transfer of those assets is necessary to maximise proceeds from the subsequent sale thereof.

(4) If the Ministry of Finance establishes an asset management vehicle or acquires the shares thereof, the Financial Supervision Authority shall require the credit institution under resolution proceedings or the bridge institution to transfer of its assets to the asset management vehicle.

(5) The Financial Supervision Authority may apply the asset separation tool on more than one occasion.

6) The Ministry of Finance shall coordinate with the Financial Supervision Authority the asset management vehicle’s:

1) memorandum and articles of association;

2) remuneration of the members of the supervisory board and management board and their functions;

3) strategic plan and risk profile.

(7) The Financial Supervision Authority may make a proposal to the Ministry of Finance to transfer the assets back to the credit institution under resolution proceedings. The credit institution shall be obliged to take back any such assets.

(8) The assets may be transferred if the possibility that the assets might be transferred back has been previously specified in the transfer agreement or if the assets to be transferred back do not directly fall within the classes of, or meet the conditions for transfer of, assets specified in the transfer agreement.

(9) Without prejudice to the provisions of Chapter 8 of this Act, shareholders or creditors of the credit institution under resolution proceedings and third parties whose assets are not transferred to the asset management vehicle shall not have any rights in relation to the assets transferred.

(10) The members of the supervisory board or management board of the asset management vehicle shall have no responsibility to shareholders or creditors of the credit institution, and no liability to shareholders or creditors for acts and omissions in the discharge of their duties unless the act or omission implies gross negligence or intent which affects rights of such shareholders or creditors.

(11) When applying the asset separation tool, the Financial Supervision Authority shall determine the consideration for which the asset management vehicle acquires the assets, taking into account the valuation carried out in respect of the assets and liabilities of the credit institution and the State aid rules of the European Union. The consideration to be paid shall be in the direct interests of the credit institution under resolution proceedings. The consideration may also be paid in the form of debt obligations issued by the asset management vehicle.

§ 70. Bases for bail-in

(1) In accordance with the principles governing resolution proceedings and to meet the resolution objectives, the Financial Supervision Authority may apply the bail-in tool (hereinafter bail-in tool) for any of the following purposes:

1) to recapitalise a credit institution that meets the preconditions for resolution proceedings or an entity that is part of the same consolidation group as the credit institution in accordance with the conditions for authorisation provided in the Credit Institutions Act or Securities Market Act, and to sustain public confidence in the credit institution or the entity; or

2) to convert liabilities to equity or reduce the principal amount of claims or liabilities where they are transferred to a bridge institution with a view to increase its capital or with a view to apply the sale of shares or assets tool or the asset separation tool.

(2) The Financial Supervision Authority may apply the bail-in tool for the purpose provided in clause 1 of subsection 1 of this section only if there is a reasoned assumption that the application of that tool together with other relevant measures, including measures implemented in accordance with the business reorganisation plan provided in § 48 of this Act, will, in addition to achieving relevant resolution objectives, restore the credit institution or any other entity specified in subsection 1 of this section to financial soundness and viability.

(3) In applying the bail-in tool, the Financial Supervision Authority shall respect the legal form of the credit institution or entity that is part of the same consolidation group as the credit institution and may also initiate the change in the legal form of that institution or entity.

§ 71. Scope of bail-in tool

(1) The bail-in tool may be applied to the liabilities of a credit institution under resolution proceedings or an entity that is part of the same consolidation group as the credit institution, except the following liabilities:

1) covered deposits and deposits subject to compensation;

2) secured liabilities, including covered bonds and financial instruments forming part of a covered bond portfolio, which are used for hedging purposes and which are secured in a way similar to covered bonds;

3) any liability that arises by virtue of the holding of client assets, including any liability that arises by virtue of assets held on behalf of investment funds;

4) any liability that arises by virtue of a fiduciary relationship between the credit institution under resolution proceedings or entity that is part of the same consolidation group as the credit institution as fiduciary and another person as beneficiary, provided that such a beneficiary is protected under the applicable insolvency or civil law;

5) liabilities to companies, except to entities of the same consolidation group, with the original maturity of less than seven days;

6) liabilities with a remaining maturity of less than seven days and owed to the settlement systems as defined in the Payment and Settlement Systems Act and the system operators specified in subsections 1 and 2 of § 4 of the same Act or to their participants and arising from the participation in such a system, or to central counterparties established in the European Union pursuant to Article 14 of Regulation (EU) No 648/2012 of the European Parliament and of the Council or third-country central counterparties recognised by the European Securities and Markets Authority pursuant to Article 25 of that Regulation;

6¹) liabilities to credit institutions or entities that are part of the same resolution consolidation group as the credit institutions without being themselves resolution entities, regardless of their maturities;

7) liabilities under employment contracts to an employee, in relation to accrued salary, pension benefits or other fixed remuneration, except for the performance pay of members of staff specified in subsection 3 of § 57¹ of the Credit Institutions Act that is not regulated by a collective bargaining agreement;

8) liabilities to suppliers arising from the provision of goods or services that are critical, except for financial services, including IT services, utilities and the rental and upkeep of premises;

9) liabilities to the Tax and Customs Board, Social Insurance Board and the relevant tax and social security authorities of other EEA countries, provided that those liabilities are preferred under the applicable law;

10) liabilities arising under the Guarantee Fund Act in relation to contributions to the Deposit Guarantee Sectoral Fund.

(1¹) Upon application of clause 6¹ of subsection 1 of this section, the resolution authority of a subsidiary which is not a resolution entity must assess whether the sum of the items provided in subsection 8 of § 19 of this Act is sufficient to support the implementation of the resolution strategy.

(2) The application of the bail-in tool may not affect the cover pool of covered bonds. The cover pool of covered bonds shall remain segregated and with enough funding.

(3) The provisions of clause 2 of subsection 1 and subsection 2 of this section shall not preclude the application of the bail-in tool in relation to any part of a secured liability, including a liability for which collateral has been pledged, that exceeds the value of the assets, pledge, lien or collateral against which it is secured.

(4) The provisions of clause 1 of subsection 1 of this section shall not preclude the application of the bail-in tool in relation to any amount of a deposit that is not covered and not subject to compensation.

(5) Having regard to the requirements for large exposure provided in Regulation (EU) No 575/2013 of the European Parliament and of the Council and the Credit Institutions Act, the Financial Supervision Authority may limit, in accordance with subsection 4 of § 34 of this Act, the extent to which other credit institutions hold bail-inable liability positions required for the application of a bail-in tool, save for liability positions that are held at entities that are part of the consolidation group.

§ 72. Exceptions in application of bail-in tool

(1) In exceptional circumstances, where the bail-in tool is applied, the Financial Supervision Authority may fully or partially exclude the application thereof where:

1) it is not possible to bail-in that liability within a reasonable time notwithstanding the good faith efforts of the Financial Supervision Authority;

2) the exclusion is strictly necessary and proportionate to achieve the continuity of critical functions and core business lines;

3) the exclusion is strictly necessary and proportionate to avoid widespread contagion, in particular as regards deposits held by natural persons and micro, small and medium sized enterprises, and this would severely disrupt the functioning of financial markets and of financial market infrastructures in a manner that could cause a serious disturbance to the economy of EEA countries;

4) application of the bail-in tool would cause the value of the liabilities and claims to decrease in such a way that creditors would have to bear losses to a greater extent than in a situation where the bail-in of the respective liabilities would be excluded.

(2) In applying subsection 1 of this section, the Financial Supervision Authority shall give consideration to:

1) the principle that losses should be borne first by shareholders of the credit institution under resolution proceedings and next, pursuant to the general procedure, by creditors of the credit institution in order of preference;

2) the level of loss absorbing capacity that would remain in the credit institution under resolution proceedings if the liability or class of liabilities were excluded from the application of the bail-in tool;

3) the need to maintain adequate resources for financing resolution proceedings.

(3) In applying subsection 1 of this section, the Financial Supervision Authority may either partially or completely exclude a liability from write down or limit the extent of the write down applied to that liability.

(4) In applying subsection 1 of this section, the Financial Supervision Authority may increase the level of write down or conversion applied to other bail-inable liabilities, taking into account that no creditor shall incur greater losses than would have been incurred if the credit institution had been wound up and liquidated under normal bankruptcy proceedings.

(4¹) The Financial Supervision Authority carefully assesses whether such liabilities to credit institutions or entities that are part of the same resolution consolidation group without being themselves resolution entities and that are not subject to the exclusions provided in clause 6¹ of subsection 1 of § 71 of this Act should be partially or fully excluded from the scope of the bail-in in order to ensure the appropriate implementation of the resolution strategy. The specified assessment is not applied to the liabilities provided in subsection 4 of this section.

(5) The Financial Supervision Authority shall notify the European Commission of the intention to apply the exceptions provided in subsection 1 of this section.

§ 73. Assessment of amount of bail-in

(1) Prior to the application of the bail-in tool, the Financial Supervision Authority shall assess on the basis of a valuation of the financial situation the aggregate of:

1) where relevant, the amount by which bail-inable liabilities must be written down in order to absorb losses;

2) where relevant, the amount by which bail-inable liabilities must be converted into shares or other capital instruments in order to restore the Common Equity Tier 1 capital ratio of either the credit institution under resolution proceedings or the bridge institution.

(2) The assessment specified in subsection 1 of this section shall establish the amount by which bail-inable liabilities need to be written down or converted in order to restore the Common Equity Tier 1 capital ratio of the credit institution under resolution proceedings or, where applicable, establish the ratio of the bridge institution in accordance with the conditions for authorisation and to continue to carry out the activities in the longer term, taking into account any contribution made pursuant to the provisions of clause 4 of subsection 1 of § 73¹³ of the Guarantee Fund Act.

(2¹) Where the Financial Supervision Authority applies the asset separation tool provided in § 69 of this Act, the amount by which bail-inable liabilities need to be reduced shall take into account a prudent estimate of the capital needs of the asset management vehicle as appropriate.

(3) Where the amounts of bail-in based on the valuation of the financial situation carried out in accordance with Chapter 5 of this Act exceed the amounts under the definitive valuation, a write-up mechanism may be applied to reimburse creditors and then shareholders to the extent necessary.

(4) The Financial Supervision Authority may establish additional requirements for the valuation of the financial situation of the credit institution under resolution proceedings or an entity that is part of the same consolidation group as the credit institution to ensure that the valuation is based on information about the assets and liabilities that is as up to date and comprehensive as is reasonably possible.

§ 74. Sequence of write down and conversion of liabilities

(1) When applying the bail-in tool, liabilities are written down or converted as follows:

1) Common Equity Tier 1 items are reduced in accordance with the provisions of clause 1 of subsection 4 of § 57 of this Act;

2) if the reduction pursuant to clause 1 of this subsection is less than the aggregate amount of write down, the amounts of Additional Tier 1 items are reduced to the extent required and, where appropriate, to the extent of the aggregate amount of Additional Tier 1 capital;

3) if the amount of the total reduction pursuant to clauses 1 and 2 of this subsection is less than the aggregate amount of write down, the amounts of Tier 2 items are reduced to the extent required and, where appropriate, to the extent of the aggregate amount of Additional Tier 2 capital;

4) if the total reduction of the own funds items specified in clauses 1–3 of this subsection is less than the aggregate amount, the principal amount of subordinated liabilities that is not Additional Tier 1 or Tier 2 capital is reduced to the extent required in accordance with the hierarchy of claims in bankruptcy proceedings to produce the aggregate amount of write down.

(2) If, and only if, the total reduction of shares or other instruments of ownership, capital instruments and bail-inable liabilities provided in subsection 1 of this section is less than the amounts referred to in § 57 of this Act, the Financial Supervision Authority applies the bail-in tool to the extent required to the rest of liabilities, reducing the principal amount of, or outstanding amount payable in respect of, bail-inable liabilities in accordance with the hierarchy of claims in bankruptcy proceedings.

(3) When applying subsections 1 and 2 of this section, the losses are allocated equally between shares of the same class or other instruments of ownership or bail-inable liabilities of the same rank by reducing the outstanding amount payable in respect of those shares or other instruments of ownership or bail-inable liabilities to the same extent pro rata to their value.

(4) The provisions of subsection 3 of this section shall not apply where exceptions provided in § 72 of this Act are used.

(5) The provisions of subsections 2 and 3 of this section shall not prevent liabilities which have been excluded in accordance with § 72 of this Act from receiving more favourable treatment than bail-inable liabilities which are of the same rank of claims in bankruptcy proceedings.

(6) Before applying the write down or conversion under subsection 2 of this section, the Financial Supervision Authority shall convert or reduce the principal amount on instruments specified in subsection 1 of this section when those capital instruments have not already been converted and they contain the terms prescribing the following:

1) the reduction of the principal amount of the capital instrument of the credit institution or entity that is part of the same consolidation group as the credit institution to redress the financial position, restore the solvency or increase the levels of own funds;

2) the conversion of the capital instruments to shares or other instruments of ownership on the occurrence of the reduction specified in clause 1 of this subsection.

(7) Where the principal amount of an instrument has been reduced, but not to zero, in accordance with terms specified in clause 1 of subsection 6 of this section before the application of the tool specified in subsection 1 of this section, the Financial Supervision Authority shall apply the write-down and conversion powers to the residual amount of that principal amount of the instrument in accordance with subsection 1 of this section.

(8) When deciding on the write down or conversion of liabilities, the Financial Supervision Authority shall take into account the principle that one class of liabilities is not written down or converted, while a class of liabilities that is subordinated to that class remains substantially unconverted into equity or not written down, unless otherwise provided in § 72 of this Act.

(9) In writing down and converting liabilities, the claims provided in clauses 4 and 5 of subsection 1 of § 131 of the Credit Institutions Act are deemed to have the same priority ranking.

(10) The liabilities specified in subsection 2¹ of § 22 of this Act shall not include Additional Tier 1 instruments, Tier 2 instruments, or bonds, other types of transferable debt instruments or instruments on the basis of which a debt arises or the existence of a debt is recognised, which are specified in subsection 1 of § 131 of the Credit Institutions Act, where those instruments are unsecured liabilities.

§ 75. Rate of conversion of liabilities to equity

(1) A conversion rate means the factor that determines the number of shares or other instruments of ownership into which a liability of a specific class will be converted, by reference either to a single instrument of the class in question or to a specified unit of value of a debt claim, and it shall express appropriate compensation to the creditors who have incurred any losses by virtue of the exercise of the write down and conversion powers.

(2) When the Financial Supervision Authority exercises the powers specified in §§ 42 and 56 of this Act, it may apply a different conversion rate to different classes of capital instruments and liabilities

(3) When the Financial Supervision Authority applies different conversion rates, the conversion rate applicable to liabilities that are considered to be senior under applicable insolvency law shall be higher than the conversion rate applicable to subordinated liabilities.

§ 76. Conversion of liabilities arising from derivatives

(1) When the bail-in tool is applied to a liability arising from a derivative, it shall only be applied upon or after closing-out the derivative contract.

(2) Upon the commencement of the resolution proceedings, the Financial Supervision Authority shall be empowered to terminate any derivative contract to which the credit institution under resolution proceedings is a party, except for the derivative contract subject to the provisions of § 72 of this Act.

(3) Where derivative transactions are subject to a netting agreement, the Financial Supervision Authority or an independent valuer appointed by it under Chapter 5 of this Act shall assess the balance of the claim remaining after netting mutual liabilities arising from those transactions in accordance with the terms of the netting agreement.

(4) The Financial Supervision Authority shall determine the value of liabilities arising from derivatives, taking account of the following:

1) appropriate methodologies for determining the value of classes of derivatives, including transactions that are subject to netting agreements;

2) principles for establishing the term at which the value of a derivative position is established;

3) appropriate methodologies for comparing the reduction in value that would arise from the close out of derivative contracts and the application of the bail-in tool with the amount of losses that would be borne by derivatives in bail-in proceedings.

§ 77. Validity of bail-in tool

(1) Where the Financial Supervision Authority exercises the powers specified in clauses 4–7 of subsection 1 of § 42 and § 56 of this Act, the administrative act of the Financial Supervision Authority on the reduction of principal or outstanding amount due in respect of liabilities or conversion or cancellation of debt shall be published in accordance with § 50 of this Act and it takes effect as of making the administrative act public. The administrative act is immediately binding on the credit institution under resolution proceedings and affected creditors and shareholders.

(2) Where the Financial Supervision Authority has applied the bail-in tool and reduced to zero the principal amount of, or outstanding amount payable in respect of, a liability in relation to contingent liabilities or claims, in the event of which the terms of the obligation or claim have not accrued, that liability shall be treated as discharged for all purposes, and shall not be provable in any subsequent proceedings in relation to the credit institution under resolution proceedings or any successor entity in any subsequent winding up or liquidation proceedings.

(3) Where the Financial Supervision Authority reduces in part, but not in full, the principal amount of, or outstanding amount payable in respect of, a liability by applying the bail-in tool:

1) the liability shall be discharged to the extent of the amount reduced;

2) the relevant instrument or agreement that created the original liability shall continue to apply in relation to the residual principal amount of, or outstanding amount payable in respect of the liability, subject to any modification of the amount of interest payable to reflect the reduction of the principal amount, and any further modification of the terms.

§ 78. Terms of using resources of Resolution Sectoral Fund

(1) The resolution fund resources may be used for the credit institution under resolution proceedings where the Financial Supervision Authority decides, in applying the bail-in tool, to exclude or partially exclude certain liabilities from the exercise of that power in accordance with the provisions of § 72 of this Act, and the losses that would have been borne on account of the holders of those liabilities have not been passed on fully to other creditors.

(2) In the case provided in subsection 1 of this section, the resolution fund resources may be used to do the following:

1) cover losses which have not been absorbed by bail-inable liabilities and restore the net asset value of the credit institution under resolution proceedings to zero in accordance with the provisions of clause 1 of subsection 1 of § 73 of this Act, or

2) purchase shares or other capital instruments in the credit institution under resolution proceedings in order to recapitalise the credit institution in accordance with the provisions of clause 2 of subsection 1 of § 73 of this Act.

(3) Unless otherwise provided in this section, the resolution fund resources may only be used if the shareholders of the credit institution under resolution proceedings or the holders of capital instruments and other bail-inable liabilities have previously absorbed losses through write down, conversion or otherwise to the extent of an amount not less than 8 per cent of the total liabilities including own funds of the credit institution measured in accordance with the provisions of Chapter 5 of this Act.

(4) The resolution fund resources may be used to the extent of up to 5 per cent of the assets of the credit institution under resolution proceedings, valuated in accordance with the provisions of Chapter 5 of this Act.

(5) Where all unsecured and non-preferred liabilities, other than covered deposits, of the credit institution under resolution proceedings have been written down or converted in full, the Financial Supervision Authority may, in extraordinary circumstances, take a decision to use the resolution fund resources to the extent exceeding 5 per cent of the assets of the credit institution and where the resolution fund resources derive from:

1) alternative financing sources pursuant to the provisions of §§ 86, 86¹ or 87 of the Guarantee Fund Act;

2) contributions of the resolution fund provided in the Guarantee Fund Act that have not been previously used for the benefit of the credit institution under resolution proceedings.

(6) In extraordinary circumstances, the application of the threshold provided in subsection 3 of this section may be excluded and the resolution fund resources may be used under subsection 2 of this section where:

1) the shareholders or creditors specified in subsection 3 of this section previously absorb losses equal to an amount not less than 20 per cent of the risk weighted assets of the credit institution;

2) the resolution fund includes by way of contributions, not including quarterly contributions made to the Deposit Guarantee Sectoral Fund, raised in accordance with the provisions of the Guarantee Fund Act an amount which is at least equal to 3 per cent of covered deposits and deposits subject to compensation of the credit institutions authorised in Estonia; and

3) the credit institution has assets below 900 billion euros on a consolidated basis.

§ 79. Use of public tools in resolution proceedings

(1) Extraordinary public support may be provided to the credit institution under resolution proceedings to maintain financial stability and other public tools (hereinafter public tools) may only be applied:

1) after consulting the Financial Supervision Authority;

2) after the Financial Supervision Authority has assessed the feasibility of using resolution tools provided in this Act or they have actually been applied to the maximum extent.

(2) For the purposes of this Act, public tools mean State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union, or any other support, which, if provided for at national level, would constitute State aid, and that is provided in order to preserve or restore the viability, liquidity or solvency of a credit institution or entity that is part of the same consolidation group as the credit institution.

(3) Public tools shall, inter alia, mean the following performed in relation to a credit institution under resolution proceedings or an entity that is part of the same consolidation group as the credit institution:

1) the acquisition of shares or other capital instruments or any other form of recapitalisation;

2) the achievement of a temporary control relationship, including the expropriation of the shares of the credit institution in accordance with the provisions of the Credit Institutions Act.

(4) Public tools may only be applied if the conditions for the commencement of the resolution proceedings are met and their application complies with at least one of the following conditions:

1) after consulting the Financial Supervision Authority and Eesti Pank, it is assessed that the mere application of a resolution tool does not avoid a negative effect on the financial system;

2) the mere application of a resolution tool does not sufficiently protect the public interests, and where Eesti Pank has previously provided an extraordinary liquidity loan;

3) after consulting the Financial Supervision Authority, it is assessed that the mere application of a resolution tool does not sufficiently protect the public interests and the shares or other capital instruments of the credit institution under resolution proceedings or entity that is part of the same consolidation group as the credit institution have already been acquired and it is appropriate to acquire a controlling interest in that credit institution or entity.

(5) The holdings or capital instruments specified in subsection 3 of this section are sold to legal persons in private law as soon as possible when the market and financial conditions are appropriate.

§ 80. Bases for compensation for loss

(1) If the valuation of the financial situation carried out under Chapter 5 of this Act determines that any shareholder or creditor of the credit institution has incurred greater losses than it would have incurred in winding up and liquidation of the credit institution under bankruptcy proceedings, they are entitled to compensation for the difference from the Guarantee Fund.

(2) The provisions of subsection 1 of this section shall also apply where:

1) only parts of the rights, assets and liabilities of the credit institution under resolution proceedings have been transferred in the resolution proceedings, and the shareholders and creditors whose claims have not been transferred receive in satisfaction of their claims at least as much as what they would have received if the credit institution under resolution proceedings had been wound up and liquidated under bankruptcy proceedings;

2) the bail-in tool has been applied in the resolution proceedings in case of which the shareholders and creditors whose claims have been written down or converted to equity do not incur greater losses than they would have incurred if the credit institution under resolution proceedings had been wound up and liquidated under bankruptcy proceedings.

(3) In the event that the ex-post valuation’s estimate of the net asset value of the credit institution is higher than the provisional valuation’s estimate of the net asset value, the Financial Supervision Authority may:

1) increase the value of the claims and instruments of creditors or shareholders which have been previously written down in the course of the application of the bail-in tool, or restore the value;

2) instruct a bridge institution or asset management vehicle to make a further payment of consideration in respect of the assets, rights and liabilities or shares of the credit institution under resolution proceedings paid to the creditors or shareholders.

(4) Claims concerning the determination of the consideration shall be reviewed in the proceedings on petition in a civil procedure. A petition for the determination of the consideration shall be filed with a court within three months of the publication of the resolution of the management board of the Financial Supervision Authority which relies on the ex-post valuation.

(4¹) The provisions of subsection 4 of this section also apply to disputes arising from the transfer of assets specified in subsection 12 of § 55 of this Act.

(5) The partial or full annulment of a decision of the Financial Supervision Authority to commence the resolution proceedings or apply a resolution tool or power shall not affect the validity of transactions and acts performed in the resolution proceedings and the compensation for loss shall be limited to the compensation for the direct proprietary loss.

§ 81. Resolution colleges and management thereof

(1) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall establish a resolution college to carry out, in particular, the tasks specified in §§ 17–19, 28, 30, 33, 35, 84 and 85 of this Act more efficiently and, where appropriate, to coordinate resolution activities and cooperation with relevant third-country resolution authorities.

(2) In addition to the Financial Supervision Authority, the members of the resolution college shall be:

1) the resolution authorities of the EEA countries in which consolidation group entities or significant branches are located;

2) the financial supervision authority exercising supervision on a consolidated basis and financial supervision authorities of the EEA countries in which consolidation group entities or significant branches are located;

3) Eesti Pank or central banks of other EEA countries specified in clauses 1 and 2 of this subsection, unless central banks are the financial supervision authorities, and where financial supervision authorities of the EEA countries decide to involve central banks in the resolution college;

4) the Ministry of Finance or relevant ministries of other EEA countries specified in clauses 1 and 2 of this subsection, unless they are the resolution authorities;

5) the Guarantee Fund or deposit guarantee schemes of other EEA countries specified in clauses 1 and 2 of this subsection;

6) the European Banking Authority as an observer.

(3) The resolution authorities of third countries may be invited to participate in the resolution college as observers if subsidiaries or significant branches established in the European Economic Area are part of the same consolidation group as the parent undertaking established in a third country or if subsidiaries or significant branches established in a third country are part of the same consolidation group as the parent undertaking established in the European Economic Area, provided that they are subject to confidentiality requirements equivalent to the conditions provided in § 90 of this Act.

(4) A resolution college shall perform the following tasks:

1) exchange information relevant for the development of consolidation group resolution plans, for the application to consolidation groups of preparatory and preventative measures and resolution tools and powers;

2) develop consolidation group resolution plans;

3) assess the resolvability of a consolidation group;

4) address or remove impediments to the resolvability of consolidation groups;

5) decide on the need to develop a consolidation group resolution scheme provided in §§ 84 and 85 of this Act and reach the agreement on the scheme;

6) coordinate public communication of consolidation group resolution strategies and resolution schemes;

7) coordinate the use of resolution fund resources;

8) set the minimum requirements for own funds for a consolidation group at consolidated and subsidiary level under Subchapter 2 of Chapter 2 of this Act.

(5) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall, under the leadership of the resolution college, perform the following tasks:

1) establish rules of procedure for the functioning of the resolution college, after consulting the other members of the resolution college;

2) coordinate the activities of the resolution college;

3) convene and chair meetings and keep the members of the resolution college fully informed in advance of the organisation of meetings of the resolution college, of the issues to be discussed and of the items to be considered;

4) decide which members and observers shall be invited to attend meetings of the resolution college, taking into account the relevance of the issue to be discussed for those members and observers, in particular the potential impact on financial stability in the EEA countries concerned;

5) keep the members of the resolution college informed of the decisions of those meetings.

(6) Where a credit institution or parent undertaking of the consolidation group established in a third country has a subsidiary or significant branch in Estonia and in at least one more EEA country, the Financial Supervision Authority shall establish a resolution college along with the relevant EEA country (hereinafter third-country related resolution college). If the Financial Supervision Authority and no other financial supervision authority of the EEA country does not exercise supervision on a consolidated basis over the group, the Financial Supervision Authority shall agree with the EEA country who shall chair the third-country related resolution college. The provisions of this section concerning the resolution college shall apply to the third-country related resolution college.

(7) If the Financial Supervision Authority is the resolution authority of the consolidation group, the resolution college need not be established if forms of cooperation or colleges established in any other manner perform the same functions and carry out the same tasks provided in this section and comply with the conditions and procedures covering membership and participation in colleges provided in this section and the requirement for the exchange of information provided in § 83 of this Act.

§ 81¹. European resolution college

(1) Where a third-country credit institution or parent undertaking has subsidiaries established in the European Union or European Union parent undertakings, established in two or more EEA countries, or two or more European Union branches that are regarded as significant by two or more EEA countries and one of the entities specified above is located in Estonia, the Financial Supervision Authority, together with other resolution authorities of relevant EEA countries, where those entities are established or where those significant European Union branches are located shall establish one single European resolution college.

(2) The European resolution college specified in subsection 1 of this section shall perform the functions and carry out the tasks provided in § 81 of this Act with respect to the entities specified in subsection 1 of this section, in so far as those tasks are relevant.

(3) The tasks of the European resolution college shall include, among other things, the setting of minimum requirements. When setting the minimum requirement, members of the European resolution college shall take into consideration the global resolution strategy, if any, adopted by third-country authorities.

(4) Where a subsidiary established in the European Union or a parent undertaking operating in the European Union and its subsidiary credit institution that is a resolution entity and the members of the European resolution college agree with the resolution strategy specified in subsection 3 of this section, the subsidiary established in the European Union or the parent undertaking operating in the European Union on a consolidated basis complies with the minimum requirement provided in § 19 of this Act by issuing instruments specified in subsections 8 and 8¹ of § 19 to their ultimate parent undertaking established in a third country, or to a subsidiary of that ultimate parent undertaking established in the same third country or to another entity under the conditions provided in clause 1 of subsection 8 of § 19 and clauses 2 and 3 of subsection 8¹.

(5) The Financial Supervision Authority shall chair the European resolution college where:

1) a parent undertaking established in Estonia holds all European Union subsidiaries of a third-country credit institution or third-country parent undertaking;

2) the value of total on-balance sheet assets held by a third-country parent undertaking or subsidiary operating in Estonia is higher than the value of total on-balance sheet assets held by other European Union entities.

(6) The Financial Supervision Authority may, by mutual agreement with the resolution authorities of all relevant EEA countries, waive the requirement to establish a European resolution college if another working group or college performs the same functions and carries out the same tasks as provided in subsections 1–5 of this section and complies with all the conditions and procedures for exchange of information provided in § 83 of this Act, including the conditions and procedures concerning membership of and participation in the European resolution colleges. In the specified case, all the provisions of this Act relating to the European resolution colleges apply to such working groups or colleges.

(7) Subject to subsections 5 and 6 of this section, the European resolution college shall otherwise function in accordance with § 81 of this Act.

§ 82. General principles regarding decision-making involving other EEA countries

(1) When making decisions related to the resolution proceedings, the Financial Supervision Authority shall have regard to the potential impact of its decisions on the stability of the financial system of the other EEA country and comply with the following principles in its decision-making:

1) the imperatives of efficacy of decision-making and of keeping resolution costs as low as possible by efficient coordination and approval of decisions when applying a resolution tool;

2) that decisions are made and resolution tools are applied in a timely manner and with due urgency when required;

3) that, in making decisions, consideration is given to the impact of any decision on the fiscal position, resolution fund and deposit guarantee and investor compensation system of relevant EEA countries, including the EEA countries where significant branches are located;

4) that the objective is to balance the interests of various EEA countries and to avoid unfairly prejudicing or unfairly protecting the interests of EEA countries, including to avoid unfair burden allocation across EEA countries;

5) that any obligation to consult under this Act implies that, when applying the proposed decision or tool, consulting is required, in particular, on the circumstances which have or which are likely to have an effect on the parent undertaking or subsidiary of the consolidation group established in the European Union or its branch and an impact on the stability of the EEA country where the group entity or branch has been established;

6) that, when applying resolution tools and powers, resolution plans are followed under the procedure provided in § 30 of this Act, unless it is considered that the resolution objectives will be achieved more effectively by taking other tools which are not provided in the resolution plans.

(2) In addition to the provisions of subsection 1 of this section, the Financial Supervision Authority, the Ministry of Finance and Eesti Pank shall cooperate with each other to ensure that resolution decisions are made and tools are applied in a coordinated and efficient manner.

§ 83. Information exchange

(1) The Financial Supervision Authority and the Ministry of Finance shall provide one another and relevant authorities of other countries in a timely manner with information required for the exercise of the tasks under this Act. The Financial Supervision Authority shall primarily provide the Ministry of Finance with information if the state budget or other public funds or resolution fund resources may be required to apply a resolution tool or power.

(2) If the Financial Supervision Authority is the resolution authority of the consolidation group, it shall coordinate the flow of all relevant information between resolution authorities participating in the resolution college and provide them with the relevant information in a timely manner.

(3) If the Financial Supervision Authority has obtained information from a third-country resolution authority, it shall seek the consent of the third-country resolution authority for the onward transmission of that information, save where the third-country resolution authority has already consented to the onward transmission of that information. The Financial Supervision Authority shall not transmit information provided from a third-country resolution authority if the third-country resolution authority has not consented to its onward transmission.

§ 84. Consolidation group resolution in case of notification of resolution authority of subsidiary

(1) Where the Financial Supervision Authority assesses that a subsidiary credit institution that is part of a consolidation group or any other subsidiary in a group meets the conditions for the commencement of the resolution proceedings, it shall notify the following information without delay to the resolution authority of the consolidation group, to the financial supervision authority exercising supervision on a consolidated basis and to the other members of the resolution college:

1) the decision that the subsidiary meets the conditions for the commencement of the resolution proceedings;

2) the proposed relevant resolution tools or powers or insolvency measures or powers.

(2) If the Financial Supervision Authority is the resolution authority of the consolidation group and has received a notification under subsection 1 of this section from the resolution authority of the other EEA country, the Financial Supervision Authority, after consulting the other members of the resolution college, shall assess the likely impact of the tools proposed by the resolution authority that forwarded the notification on the consolidation group and on consolidation group entities, and whether the proposed tools would make it likely that the conditions for the commencement of the resolution proceedings would be satisfied in relation to consolidation group entities in other EEA countries.

(3) If the Financial Supervision Authority assesses in accordance with the provisions of subsection 2 of this section that the proposed tools would not make it likely that the conditions for the commencement of the resolution proceedings are satisfied in relation to consolidation group entities in other EEA countries, the Financial Supervision Authority may take other measures. Where the Financial Supervision Authority has not forwarded the notification under subsection 1 of this section to the resolution authority or resolution authority of the consolidation group, it may also take other measures if the resolution authority of the consolidation group assesses that the proposed tools would not make it likely that the conditions for the commencement of the resolution proceedings are satisfied in relation to consolidation group entities in other EEA countries.

(4) If the Financial Supervision Authority assesses in accordance with the provisions of subsection 2 of this section that the proposed tools would make it likely that the conditions for the commencement of the resolution proceedings would be satisfied in relation to consolidation group entities in other EEA countries, the Financial Supervision Authority shall, no later than within 24 hours after receiving the relevant notification, propose a resolution scheme to the members of the resolution college. That 24-hour period may be extended with the consent of the resolution authority which made the notification.

(5) If the Financial Supervision Authority has made the notification under subsection 1 of this section and in the absence of an assessment by the resolution authority of the consolidation group within the term provided in subsection 1 of this section, the Financial Supervision Authority may apply the tools or measures specified in clause 2 of subsection 1 of this section.

(6) A consolidation group resolution scheme shall:

1) take into account and follow the resolution plans, unless the Financial Supervision Authority assesses along with resolution authorities of other EEA countries that resolution objectives will be achieved more effectively by applying tools which are not provided in the resolution plans;

2) outline the resolution tools that should be applied by the Financial Supervision Authority and other resolution authorities of the EEA countries in relation to the consolidation group with the aim of performing the resolution functions or meeting the resolution objectives in accordance with the provisions of §§ 4 and 40 of this Act;

3) specify how those resolution tools should be coordinated between the resolution authorities;

4) establish a financing plan of the resolution proceedings which takes into account the provisions of the group resolution plan and principles for sharing responsibility and costs pursuant to the provisions of clause 6 of subsection 2 of § 29 of this Act and § 73²¹ of the Guarantee Fund Act.

(7) The Financial Supervision Authority shall agree on a consolidation group resolution scheme in cooperation with resolution authorities of other EEA countries.

(8) If the Financial Supervision Authority disagrees with the resolution scheme proposed by the resolution authority of the consolidation group or considers that it is more appropriate to take other independent measures other than those proposed in the resolution scheme for reasons of financial stability, the Financial Supervision Authority shall notify the resolution authority of the consolidation group and other resolution authorities associated with the consolidation group of those circumstances along with any reasons. In disagreeing with the resolution scheme, the conditions agreed in the resolution plan, the potential impact on financial stability in the other EEA countries concerned as well as the effect of the tools or measures applied by the Financial Supervision Authority on other consolidation group entities shall be taken into consideration.

(9) The decision specified in subsection 7 of this section or the decision taken by the Financial Supervision Authority in the absence of a joint decision provided in subsection 8 of this section shall be recognised as conclusive in respect of the resolution authorities of other EEA countries.

(10) In any case where the Financial Supervision Authority does not implement a consolidation group resolution scheme, it shall, in applying its tools or measures, inform the resolution authorities of other EEA countries regularly about those tools or measures and shall cooperate with them within the resolution college with a view to achieving a coordinated resolution strategy for all the consolidation group entities that are failing or likely to fail.

§ 85. Consolidation group resolution in case of notification of resolution authority of parent undertaking

(1) Where the Financial Supervision Authority is the resolution authority of the consolidation group and it assesses that a parent undertaking of the consolidation group meets the conditions for the commencement of the resolution proceedings, it shall notify the following information without delay to the other members of the resolution college:

1) the decision that the parent undertaking meets the conditions for the commencement of the resolution proceedings;

2) the proposed relevant resolution tools or powers or insolvency measures and powers.

(2) The tools or measures specified in clause 2 of subsection 1 of this section may include the implementation of a consolidation group resolution scheme in any of the following circumstances:

1) tools or measures applied at parent level make it likely that the conditions for the commencement of the resolution proceedings would be fulfilled in relation to group entities in other EEA countries;

2) tools or measures applied at parent level only are not sufficient to stabilise the crisis situation or are not likely to provide an optimum outcome;

3) one or more subsidiaries of the consolidation group meet the conditions for the commencement of the resolution proceedings according to a determination by the resolution authorities of those subsidiaries;

4) tools or measures applied at consolidation group level will be necessary for the subsidiaries of the group.

(3) Where the tools or measures specified in clause 2 of subsection 1 of this section of the Financial Supervision Authority are not reflected in a consolidation group resolution scheme, the Financial Supervision Authority shall take its decision after consulting the other members of the resolution college. In taking its decision, the Financial Supervision Authority shall take into account and follow the resolution plan, unless it assesses along with resolution authorities of other EEA countries that resolution objectives will be achieved more effectively by applying tools which are not provided in the resolution plan, and the Financial Supervision Authority shall also take into account the financial stability of the other EEA countries concerned.

(4) Under the provisions of subsection 2 of this section, the Financial Supervision Authority as the resolution authority of the consolidation group shall agree on a consolidation group resolution scheme in cooperation with resolution authorities of other EEA countries.

§ 86. Recognition and enforcement of third-country resolution proceedings

(1) A third-country related resolution college shall, by way of cooperation, take a joint decision on whether to recognise third-country resolution proceedings. The resolution proceedings shall relate to a credit institution or a parent undertaking of a consolidation group established in a third country which:

1) has subsidiaries or significant branches established in Estonia and located in at least one more EEA country;

2) has otherwise assets, rights or liabilities located in Estonia and in at least one more EEA country and governed by the law of Estonia and the other EEA country.

(2) The provisions of subsection 1 of this section shall not apply in the event provided in § 87 of this Act.

(3) Where the joint decision on the recognition of the third-country resolution proceedings is reached, the Financial Supervision Authority shall implement the decisions taken in the third-country resolution proceedings in accordance with this Act and the Credit Institutions Act.

(4) In the absence of a joint decision on the recognition of the third-country resolution proceedings, the Financial Supervision Authority shall make its own decision on whether to recognise and enforce third-country resolution proceedings. In making the decision, the Financial Supervision Authority shall give due consideration to the interests of other relevant EEA countries where a third-country credit institution or parent undertaking of the consolidation group operates, and to the impact of the recognition and enforcement of the third-country resolution proceedings on the other consolidation group entities and the financial stability in other relevant EEA countries.

(5) To achieve those objectives, the Financial Supervision Authority may:

1) exercise the resolution powers in relation to assets of a third-country credit institution or parent undertaking of the consolidation group that are located in Estonia or governed by the law of Estonia;

2) exercise the resolution powers in relation to rights or liabilities of a third-country credit institution that are held in the name of the branch located in Estonia or governed by the law of Estonia, or where claims in relation to such rights and liabilities are enforceable in Estonia;

3) perfect a transfer of shares or other instruments of ownership to a subsidiary of the third-country consolidation group which has been established in Estonia or require another person to apply the respective tool;

4) suspend payment rights, delivery obligations, security interests or temporarily the performance of a contract, where such powers are necessary in order to enforce third-country resolution proceedings;

5) render unenforceable any right to terminate or liquidate contracts, or affect the contractual rights, of third-country credit institutions or other entities that are part of the same consolidation group as the credit institution, where such a right arises from resolution tools applied in respect of such entities, whether directly by the third-country resolution authority itself or otherwise pursuant to legislation governing the resolution arrangements in that third country.

(6) The Financial Supervision Authority may apply, where necessary in the public interest, a resolution tool with respect to a parent undertaking of the third-country consolidation group where the relevant third-country resolution authority or other authority determines that a credit institution that has been established in that third country meets the conditions for resolution under the law of that third country. The Financial Supervision Authority is empowered to use any resolution power in respect of that parent undertaking.

(7) The recognition and enforcement of third-country resolution proceedings shall be without prejudice to any bankruptcy or liquidation proceedings in respect of entities established in Estonia.

(8) This section shall apply in respect of the third-country resolution proceedings until an international agreement specified in Article 93(1) of Directive 2014/59/EU of the European Parliament and of the Council enters into force with the relevant third country. This section shall also apply following the entry into force of an international agreement with the relevant third country to the extent that the recognition and enforcement of the third-country resolution proceedings is not governed by that agreement.

§ 87. Right to refuse recognition or enforcement of third-country resolution proceedings

The Financial Supervision Authority, after consulting resolution authorities of other EEA countries within a third-country related resolution college, may refuse to recognise or to enforce third-country resolution proceedings if it considers:

1) that the third-country resolution proceedings would have adverse effects on financial stability in Estonia or in another EEA country;

2) that an independent resolution tool in relation to a branch established in Estonia is necessary to achieve one or more of the resolution objectives;

3) that creditors, in particular depositors located or payable in Estonia, would not receive the same treatment as third-country creditors and depositors with similar rights under the third-country resolution proceedings;

4) that recognition or enforcement of the third-country resolution proceedings would have material fiscal implications for Estonia; or

5) that the effects of such recognition or enforcement would be contrary to the effective law.

§ 88. Resolution of branch of third-country credit institution established in Estonia

(1) The Financial Supervision Authority shall have all the powers provided in this Act in relation to a branch of a third-country credit institution established in Estonia that is not subject to any third-country resolution proceedings or that is subject to third-country proceedings, but one of the circumstances specified in § 87 of this Act applies to that branch.

(2) The powers specified in subsection 1 of this section may be exercised by the Financial Supervision Authority where it considers that the tool is necessary in the public interest and at least one of the following conditions is met:

1) the branch no longer meets, or is likely not to meet, the conditions for its authorisation and operation and there is no prospect that any private, supervisory or relevant third-country action would restore the branch to compliance or prevent insolvency in a reasonable timeframe;

2) the third-country credit institution is, in the opinion of the Financial Supervision Authority, unable or unwilling, or is likely to be unable, to pay its obligations to creditors of the branch, or obligations that have been assumed for the branch, as they fall due and the Financial Supervision Authority is satisfied that no resolution proceedings or bankruptcy or liquidation proceedings under the law of the third country have been or will be initiated in relation to that third-country credit institution in a reasonable timeframe;

3) the third-country resolution authority or other authority has initiated third-country resolution proceedings in relation to the third-country credit institution, or has notified to the Financial Supervision Authority its intention to initiate such proceedings.

(3) Where the Financial Supervision Authority applies an independent resolution tool in relation to a branch, it shall have regard to the resolution objectives and general principles and apply the relevant tool in accordance with the general principles governing resolution proceedings provided in § 40 of this Act and provisions of Chapter 5 concerning valuation of financial situation.

§ 89. Cooperation with third-country resolution authorities and other authorities

(1) Where appropriate, the Financial Supervision Authority concludes cooperation arrangements with the relevant third-country resolution authority or other authority. The cooperation arrangements shall include an agreement on processes and arrangements between a third-country resolution authority or other authority and the Financial Supervision Authority for sharing necessary information and cooperation in carrying out the following tasks:

1) the development and maintenance of resolution plans;

2) the cooperation in the development of resolutions plans, including of principles of exercising powers under §§ 86 and 88 of this Act and of principles of exercising similar powers provided in the law of the relevant third countries;

3) the application of resolution tools and exercise of resolution powers and similar powers provided in the law of the relevant third countries;

4) the application of early intervention measures and consultation before taking any significant tool under this Act or relevant third-country law affecting the credit institution or consolidation group;

5) the coordination of public communication in the case of the application of joint resolution tools and powers.

(2) The provisions of this section shall not preclude the power of the Financial Supervision Authority to conclude bilateral or multilateral arrangements with third countries in accordance with Article 33 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council.

(3) The Financial Supervision Authority shall notify the European Banking Authority of cooperation arrangements concluded with third-country resolution authorities or other authorities.

§ 90. Communication of confidential information to third country

(1) The Financial Supervision Authority and the Ministry of Finance shall communicate confidential information, including recovery plans, to relevant third-country resolution authorities or other authorities only if the following conditions are met:

1) those third-country resolution authorities or other authorities are subject to requirements of professional secrecy that are at least equivalent to the provisions of § 51 of this Act;

2) the information is necessary for the performance by the third-country resolution authorities or other authorities of their resolution functions under national law and is not used for any other purposes.

(2) In so far as the exchange of information relates to personal data, the processing of such personal data and transmission thereof to third-country authorities shall be governed by the Personal Data Protection Act and Regulation (EU) 2016/679 of the European Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1–88).

(3) Confidential information originating in another EEA country may be disclosed by the Financial Supervision Authority or the Ministry of Finance to relevant third-country resolution authorities or other authorities if the following conditions are met:

1) the resolution authority or other competent authority of the EEA country where the information originated agrees to that disclosure;

2) the information is disclosed only for the purposes permitted by the resolution authority or other authority of the EEA country.

§ 90¹. Rights of Financial Supervision Authority upon exercising supervision

The Financial Supervision Authority has the right to issue precepts to a central counterparty and take appropriate decisions upon exercising supervision over compliance with the requirements provided in this Act and in Title III of Regulation (EU) 2021/23 of the European Parliament and of the Council and legislation established on the basis thereof.

§ 90². Early intervention measures in respect of central counterparty

(1) The Financial Supervision Authority has the right to apply early intervention measures specified in Articles 18 and 19 of Regulation (EU) 2021/23 of the European Parliament and of the Council for the purposes of central counterparty crisis prevention.

(2) Where the Financial Supervision Authority appoints one or more temporary special managers to a central counterparty in conformity with subsection 1 of this section, subsections 1–7 and 11–14 of § 37 of this Act apply accordingly.

§ 90³. Powers of Financial Supervision Authority in central counterparty resolution

(1) For the purposes of effective application central counterparty resolution, the Financial Supervision Authority has all the powers specified in Article 48(1) and Article 49 of Regulation (EU) 2021/23 of the European Parliament and of the Council and the power to issue relevant precepts and take decisions.

(2) The Financial Supervision Authority shall immediately notify the commercial register and other appropriate registers of the decision on the commencement of the resolution proceedings in respect of a central counterparty and of removal of its management board or supervisory board and, where appropriate, submit petitions for entry on the basis of the decision on the application of a resolution tool or another decision, including petitions for entry concerning the appointment of a special manager, in conformity with Article 50 of Regulation (EU) 2021/23 of the European Parliament and of the Council.

§ 90⁴. Specifications in resolution

The specifications provided in subsections 10 and 11 of § 55 of this Act apply to the resolution tools and powers in respect of central counterparties.

§ 90⁵. Restrictions related to resolution proceedings

The restrictions provided in § 45 of this Act apply to resolution proceedings.

§ 90⁶. Requirements for bridge central counterparties

The provisions of §§ 62–64, subsections1–3 of § 65, subsections 1, 2 and 4 of § 66 and §§ 67 and 68 of this Act apply in addition to the requirements for bridge central counterparties provided in Articles 42 and 43 of Regulation (EU) 2021/23 of the European Parliament and of the Council.

§ 90⁷. Alternative sources for funding resolution

Based on Article 44 of Regulation (EU) 2021/23 of the European Parliament and of the Council, the Financial Supervision Authority may make a proposal to the Ministry of Finance or Eesti Pank to enter into contracts to borrow or obtain other forms of financial support in order to ensure the effective application of the resolution tools to a central counterparty.

§ 90⁸. Government tools

In order to maintain financial stability, extraordinary public support may be granted to a central counterparty under resolution proceedings and other government tools may only be applied:

1) after consulting Eesti Pank and the Financial Supervision Authority;

2) where the principles provided in paragraphs 1 and 3 of Article 45 of Regulation (EU) 2021/23 of the European Parliament and of the Council are taken as the basis.

§ 90⁹. Bases for compensation for loss

(1) The Financial Supervision Authority and the Ministry of Finance have the right to recover all reasonable expenses incurred by them in connection with the application of the resolution tools or powers. Such funds and expenses shall be recovered, as a creditor with a claim of the first ranking, among others:

1) from the central counterparty under resolution proceedings, including any of its claims against defaulting clearing members;

2) in case of delivery or transfer of the assets, rights and obligations of a central counterparty, from any proceeds received to the central counterparty from the purchaser, prior to the application of Article 40(4) of Regulation (EU) 2021/23 of the European Parliament and of the Council;

3) from any proceeds received as a result of the termination of the bridge central counterparty, prior to the application of Article 42(5) of Regulation (EU) 2021/23 of the European Parliament and of the Council.

(2) In addition to the provisions of subsection 1 of this section, the Ministry of Finance may recover reasonable expenses from any proceeds received upon the application of public tools specified in Article 46 of Regulation (EU) 2021/23 of the European Parliament and of the Council and upon temporary public ownership specified in Article 47 of the same regulation, including proceeds received from the sale of the equity holding or bridge institution.

(3) As regards the compensation for loss, subsections 4 and 5 of § 80 of this Act apply.

§ 91. Upper limit for non-compliance levy for each imposition thereof

(1) In the event of a failure to comply with or inappropriate compliance with the precept issued pursuant to this Act or another administrative act, the Financial Supervision Authority may impose non-compliance levy pursuant to the procedure provided in the Substitutional Performance and Non-Compliance Levies Act.

(2) In the event of a failure to comply with or inappropriate compliance with an administrative act, the upper limit for the non-compliance levy is:

1) in the case of a natural person, up to 5,000 euros for the first occasion and up to 50,000 euros for each subsequent occasion to enforce the performance of one and the same obligation but no more than 5,000,000 euros altogether or the amount corresponding to up to two times the profit earned or loss prevented as a result of the violation;

2) in the case of a legal person, up to 32,000 euros for the first occasion and up to 100,000 euros for each subsequent occasion to enforce the performance of one and the same obligation but no more than 10 per cent of the total net annual turnover of the legal person, including gross income which, in compliance with Regulation (EU) No 575/2013 of the European Parliament and of the Council, consists of commissions and fees and interest and other similar income, or the amount corresponding to up to two times the profit earned or loss prevented as a result of the violation.

(3) If a legal person is a subsidiary of a parent undertaking, the appropriate turnover specified in clause 2 of subsection 2 of this section is the turnover for the preceding financial year in accordance with the consolidated annual accounts of the main parent undertaking.

§ 92. Failure to disclose or submit information

(1) Failure to disclose by the due date a report, document, explanation or other information provided for in this Act, failure to submit the same to the Financial Supervision Authority or to submit the same on time, or submission or disclosure of incorrect or misleading information

is punishable by a fine of up to 5,000,000 euros or up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 5,000,000 euros or an amount corresponding to twice the amount of the profits made or losses avoided as a result of the misdemeanour, or up to ten per cent of the consolidated turnover of the legal person or its consolidation group.

§ 94. Violation of minimum requirement for own funds and eligible liabilities

(1) Violation of the minimum requirement for own funds and eligible liabilities provided in this Act

is punishable by a fine of up to 5,000,000 euros or up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 5,000,000 euros or an amount corresponding to twice the amount of the profits made or losses avoided as a result of the misdemeanour, or up to ten per cent of the consolidated turnover of the legal person or its consolidation group.

§ 94¹. Violation of requirements for recovery plan

(1) Failure to draw up, maintain, update or submit to the Financial Supervision Authority a recovery plan provided in this Act and conforming to Article 9 of Regulation (EU) 2021/23 of the European Parliament and of the Council, its late submission or submission of inaccurate, inadequate or misleading information

is punishable by a fine of up to 5,000,000 euros or up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour, or up to ten per cent of the consolidated turnover of the legal person or its consolidation group.

§ 94². Violation of requirements for drawing up resolution plan

(1) Violation of the requirements of Article 13 of Regulation (EU) 2021/23 of the European Parliament and of the Council, including failure to submit to the Financial Supervision Authority information necessary for drawing up resolution plans or its late submission or submission of inaccurate, inadequate or misleading information

is punishable by a fine of up to 5,000,000 euros or up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour, or up to ten per cent of the consolidated turnover of the legal person or its consolidation group.

§ 94³. Failure to perform obligation to notify that central counterparty is failing or likely to fail

(1) Failure to perform the obligation to notify the Financial Supervision Authority that a central counterparty is failing or likely to fail provided in Article 70(1) of Regulation (EU) 2021/23 of the European Parliament and of the Council

is punishable by a fine of up to 5,000,000 euros or up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to twice the amount corresponding to the profits made or losses avoided as a result of the misdemeanour, or up to ten per cent of the consolidated turnover of the legal person or its consolidation group.

§ 94⁴. Turnover of legal person and its consolidation group

The turnover of a legal person provided in this Chapter is the annual net turnover for the preceding financial year, including gross income, which in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council consists of commission and fees, and interest and similar income. Where a legal person is a subsidiary of a parent undertaking, the net turnover is the annual net turnover for the preceding financial year in accordance with the consolidated financial statements of the ultimate parent undertaking.

§ 94⁵. Limitation period

The limitation period of misdemeanours provided in this Chapter is three years.

§ 95. Proceedings

Extra-judicial proceedings concerning the misdemeanours provided for in this Chapter shall be conducted by the Financial Supervision Authority.

§ 96. Alignment with requirements arising from Act and application of Act

(1) Credit institutions are required to bring their activities into compliance with the requirements of this Act by 30 June 2015.

(2) Credit institutions are required to bring their activities into compliance with the minimum requirement for own funds and eligible liabilities provided in Subchapter 2 of Chapter 2 of this Act by 1 January 2016.

(3) The obligation to submit reports provided in § 22¹ of this Act applies from the deadline to comply with the minimum requirements, but not later than from 1 January 2024.

(4) Upon application of resolution tools or exercise of write down or conversion powers specified in § 56 of this Act, the requirements for public disclosure of the minimum requirement will apply from the deadline to comply with the requirements specified in § 18 or 19.

(5) For the purposes of subsection 3 of § 17² and § 17³ of this Act, capital requirements shall be interpreted in accordance with the supervisory authority’s application of the transitional provisions provided in Chapters 1, 2 and 4 of Title I of Part Ten of Regulation (EU) No 575/2013 of the European Parliament and of the Council and in the legislation of EEA countries exercising the options granted to the supervisory authorities by that Regulation.

(6) The provisions of clause 6¹ of subsection 1 of § 71 of this Act do not apply where those liabilities ranked below ordinary unsecured liabilities under normal insolvency proceedings as at 31 December 2014.

§ 96¹. Application of minimum requirement for own funds and eligible liabilities

(1) When setting the deadline specified in clauses 15 and 16 of subsection 1 of § 29 of this Act, the Financial Supervision Authority shall determine an appropriate transitional period to comply with the minimum requirement established after entry into force of the wording of this Act passed on 12 May 2021, the final deadline of which shall be 1 January 2024. The final deadline applied to resolution entities specified in subsections 1 and 3 of § 18¹ of this Act is 1 January 2022.

(2) The Financial Supervision Authority shall communicate to the credit institution an expected level of the minimum requirement for own funds and eligible liabilities for each 12-month period during the entire transitional period determined, with a view to facilitating a gradual build-up of its loss-absorbing and recapitalisation capacity.

(3) In addition to the final deadline to comply with the minimum requirement, the Financial Supervision Authority may determine an intermediate target level that must be complied with by 1 January 2022.

(4) When determining the transitional period specified in subsection 1 of this section, the Financial Supervision Authority shall take into account:

1) the prevalence of deposits and the absence of debt instruments in the funding model of the credit institution;

2) the access of the credit institution to the capital markets for eligible liabilities;

3) the extent to which the resolution entity relies on Common Equity Tier 1 capital to meet the requirement specified in § 17² of this Act.

(5) The Financial Supervision Authority may set a transitional period that ends after 1 January 2024 where duly justified and appropriate on the basis of the criteria specified in subsection 4 of this section, taking into consideration:

1) the development of the entity’s financial situation;

2) the prospect that the entity will be able to ensure compliance in a reasonable timeframe with the minimum requirements;

3) whether the entity is able to replace liabilities that no longer meet the eligibility or maturity criteria of the minimum requirement, and if not, whether that inability is of an idiosyncratic nature or is due to market-wide disturbance.

(6) The liabilities arising from agreement provisions set out in subsection 1 of § 22 of this Act apply if the liability has been issued or the relevant agreement has been entered into after entry into force of the wording of this Act passed on 12 May 2021.

§ 96². Implementation of disclosure obligation of credit institution

A credit institution must publish a report on the own funds provided in subsection 4 of § 22¹ of this Act if such own funds have been issued later than on 1 January 2024. The credit institution publishes the first report by 31 December 2025 at the latest.