Krediidiasutuste seadus (KAS)

§ 1. Scope of application of Act

(1) This Act regulates the foundation, activities, dissolution, liabilities and supervision of credit institutions.

(2) The provisions of this Act, the Financial Supervision Authority Act, the Financial Supervision Authority Act and the Administrative Procedure Act apply to the proceedings prescribed in this Act, in accordance with 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, pp 63-89).

§ 2. Application of Act

(1) This Act applies to all credit institutions that are being established, are established and are operating in Estonia, their parent companies and subsidiaries, including financial holding companies, mixed-activity holding companies and mixed financial holding companies, as well as the branches of credit institutions.

(2) This Act also applies to subsidiaries, branches and representative offices of foreign credit institutions in Estonia, unless otherwise provided by international agreements entered into by Estonia.

(2¹) The provisions of § 3, subsection 4 of § 12, §§ 20⁶ and § 21³–21⁶, subsection 5⁵ of § 87, § 91, subsection 5 of § 92 and Chapters 9 and 12 of this Act are applied to a credit institution of a Contracting Party to the Agreement on the European Economic Area, including its Estonian branch.

(2²) The provisions of §§ 3, 20⁶, 21, 21² and 21³, subsection 5⁵ of § 87, § 91, subsection 5, 8¹ of § 92, 81, Chapters 9 and 12, §§ 141¹⁸ and 141¹⁹ of this Act, and subsection 6 of § 47¹ and subsections 1² and 1³, 3–4, 5–7, 8 and 9 of§ 47⁵ of the Financial Supervision Authority Act are applied to the Estonian branch of a third-country credit institution in case the branch provides the following services:

1) the service specified in clauses 2 and 6 of subsection 1 of § 6 of this Act, in case it is provided by an undertaking established in a third country which would qualify as a credit institution or would meet the conditions provided in sub-clause b of clause 1 of subsection 1 of Article 4 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, pp 1–337) in the event that it were established in the European Union;

2) the service specified in clause 1 of subsection 1 of § 6 of this Act, in the event that it is provided by an undertaking established in a third country.

(3) Eesti Pank is not deemed to be a credit institution.

(4) A credit institution providing investment service or ancillary service to investment service for the purposes of the Securities Market Act is applied the provisions of §§ 45, 46¹, subsection 9 of § 47, §§ 48 and 49, clause 14 of subsection 1 of § 54, § 65, subsections 1 and 2 of § 65¹, subsection 1 of § 65², §§ 69 and 70, subsections 5–8 of § 79, subsections 2 and 4 of § 79¹, §§ 81¹, 82, 82³–82⁴, 82⁶, 82⁹–83, 83², 132, 134¹ and 138¹, Chapters 10, 13¹, 17 and 18¹, Subchapter 6 of Chapter 21 and Part 6 of the Securities Market Act and of the legislation established for the improvement or implementation of them or on the basis thereof. The provisions of subsection 1 of § 88³ of the Securities Market Act are not applied to a credit institution in case it itself deposits client and the provisions of clause 5 of § 88¹ of the Securities Market Act are not applied to a credit institution.

(4¹) Upon the provision of investment services specified in subsection 1 of § 43 of the Securities Market Act, including the provision of any ancillary services, such as the attracting of deposits or the granting of credits or loans, provided that the purpose thereof is to provide services on the basis of the Securities Market Act, the provisions of subsection 2² of this section do not apply to a third-country credit institution.

(5) A credit institution that provides or recommends an investment risk deposit for the purposes of subsection 2 of § 89¹ of this Act is applied the provisions of subsection 7 of § 47 of the Securities Market Act.

(5¹) In case the credit institution is the provider or distributor of the pan-European personal pension product specified in clause 2 of Article 2 of Regulation (EU) 2019/1238 of the European Parliament and of the Council on a pan-European personal pension product (PEPP) (OJ L 198, 25.07.2019, pp 1-63) for the purposes of clause 15 or 16 of the same Article, the credit institution is obliged to comply with the requirements set forth in the specified regulation.

(6) The Covered Bonds Act shall be applied to the issue of covered bonds by a credit institution.

(7) A credit institution that provides crypto-asset service or is an issuer of crypto-assets or offers crypto-assets or applies for admission to trading in crypto-assets, is applied, in addition to the provisions of this Act, the provisions of Regulation (EU) No 2023/1114 of the European Parliament and of the Council on markets in crypto-assets and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (OJ L 150, 09.06.2019, pp 40-205), of Regulation (EU) No 2023/1113 of the European Parliament and of the Council on information to be transmitted in money transfers and certain crypto-asset transfers and amending Directive (EU) No 2015/849 (OJ L 150, 09.06.2023, pp 1-39), of the Market in Crypto-Assets Act and provisions in the legislation supplementing or implementing them or established on the basis thereof.

(8) Where requirements have been laid down in respect of the same activity in this Act and the Markets in Crypto-assets Act, the credit institution is subject to requirements that are more detailed or more stringent.

§ 3¹. Terms

(1) Terms not specified in this Act are used for the purposes of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2) Upon application of the requirements or supervisory measures provided for in this Act or Regulation (EU) No 575/2013 of the European Parliament and of the Council on a consolidated or sub-consolidated basis, the terms "a credit institution", "a parent credit institution in a Contracting State ", " an EU parent credit institution " and "a parent institution" also involve:

1) a financial holding company and a mixed financial holding company to which approval has been granted pursuant to § 13⁴ of this Act;

2) a credit institution controlled by an EU parent financial holding company, an EU parent mixed financial holding company, a parent financial holding company in a Contracting State or a parent mixed financial holding company in a Contracting State if the parent institution concerned is not subject to the obligation to obtain approval according to § 13⁴ of this Act;

3) another financial holding company, mixed financial holding company or credit institution which the financial supervisory authority has designated in the consolidation group for a certain term as responsible for ensuring compliance on a consolidated basis with the requirements provided for in this Act and Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(3) A branch of a third-country credit institution means a branch established by:

1) an undertaking whose head office is situated in a third country, and which provides the services specified in subsection 2² of § 2 of this Act;

2) a credit institution whose head office is situated in a third country.

[1, 2]

(4) A third-country main contractor means an undertaking whose head office is situated in a third country and which has established a branch of a third-country credit institution in Estonia, and, where applicable, the intermediate or higher-level parent undertakings of such undertaking.

(5) A foreign state for the purposes of this Act means both a Contracting State of the European Economic Area agreement and also a third country.

§ 4. Receipt of deposits from public

(1) Credit institutions have the exclusive right to receive money from the public for the purposes of depositing or to receive repayable funds in any other manner.

(1¹) The receipt of funds necessary for provision of the services specified in subsection 1 of § 3 and subsection 3 of § 6 of the Paying Institutions and E-money Institutions Act is not deemed to be deposit or receipt from the public of other repayable funds within the meaning of this section if e-money is immediately issued against such funds.

(2) For the purposes of this Act, deposits or other repayable funds are deemed to be received from the public if the proposal to deposit money or receive repayable funds in any other manner is made to the public.

(3) For the purposes of this Act, the public are deemed to be a previously unspecified set of persons.

(4) The provisions of subsection 1 of this section do not apply to the receipt of money from the public for depositing or to the receipt of other repayable funds in any other manner by:

1) states which are contracting parties to the EEA agreement (hereinafter contracting state);

2) local or regional governments of EEA states;

3) international organisations or other international institutions governed by public law of which a contracting state is a member;

4) legal persons to the extent to which they have the right, pursuant to the legislation of a contracting state or the European Union, to receive funds from the public provided that such activities are subject to supervision for the protection of depositors and investors.

§ 5. Financial institution

(1) For the purposes of this Act, a financial institution is a company other than a credit institution, the principal and permanent activity of which is to acquire holdings or conclude one or more of the transactions specified in clauses 2–12 of subsection 1 of § 6 of this Act.

(2) The provisions of § 20⁵ of this Act concerning financial institutions shall be applied to entities specified in points (3) to (24) of Article 2(5) of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, pp 338-436).

§ 6. Financial services

(1) For the purposes of this Act, financial services are services to third parties rendered by a person in the course of professional or economic activities which consist of the conclusion of the following transactions and acts:

1) deposit transactions for the receipt of deposits and other repayable funds from the public;

2) borrowing and lending operations, including consumer credit, mortgage credit, factoring and other transactions for financing business transactions;

3) leasing transactions;

4) payment services for the purposes of the Paying Institutions and E-Money Institutions Act;

5) issuance and administration of non-cash means of payment, eg electronic payment instruments, electronic money, electronic money tokens, traveller's cheques and bills of exchange;

6) guarantees and commitments and other transactions creating binding obligations to persons in future;

7) transactions for their own account or for the account of clients in traded securities provided in § 2 of the Securities Market Act and in foreign exchange and other money market instruments, including transactions in cheques, exchange instruments, certificates of deposit and other such instruments;

8) transactions and acts related to the issue and sale of securities;

9) provision of advice to clients on issues concerning economic activities, and transactions and acts related to the merger or division of companies or participation therein;

10) money broking;

11) portfolio management and consultation on investment issues;

12) safekeeping and administration of securities;

13) collection, processing and transmission of credit information;

14) safe custody services;

14¹) transactions and acts related to issuance and sale of asset-based tokens;

14²) provision of crypto-asset service;

15) other transactions and acts which are essentially similar to the financial transactions specified in clauses 1–14² of this subsection.

(2) A credit institution may conclude transactions and perform acts other than those specified in subsection 1 of this section if these are directly ancillary or supplementary to its principal activity. In order to conclude such transactions or perform such acts, a credit institution may establish a company or gain control over another company (hereinafter ancillary undertaking).

(3) For the purposes of this Act, an ancillary undertaking of a credit institution is a company the principal and permanent activity of which is the administration of immovable property, the provision of information technology services, or other activities which are ancillary or supplementary to the principal activities of one or several credit institutions.

§ 10. Holding of voting rights

Calculation of voting rights and determination of controlled companies shall be based on the provisions of § 10 of the Securities Market Act.

§ 12. Business names of credit institutions and use of word “pank” [bank] therein

(1) A credit institution founded as a public limited company is required to use the word “pank” [bank] in the business name thereof and a credit institution founded as an association is required to use the word “ühistupank” [association bank] in the business name thereof.

(2) Only credit institutions may use the words “pank” or “ühistupank” or derivatives or foreign language equivalents thereof in their business names.

(3) A branch of a credit institution may add the place name of the administrative unit in which the branch is located or other place names to the business name of the credit institution.

(4) A foreign credit institution may operate in Estonia under a business name which is registered in a state where the institution is founded (hereinafter home state) if the name is clearly distinguishable from other business names entered in the commercial register in Estonia. If there is any danger that a business name is not clearly distinguishable from the business names of other credit institutions operating in Estonia, the Financial Supervision Authority has the right to demand that such business name be accompanied by an attribute.

(5) The business name of a credit institution shall not be such as to be confused for another credit institution or a state central bank.

(6) Subsections 1 and 2 of this section do not apply to cases in which it is evident that the institution in question is not a credit institution.

§ 13. Authorisation and identification code

(1) A company that wishes to receive cash deposits or receive other repayable funds from the public in any other manner must hold a corresponding authorisation (hereinafter authorisation). An authorisation grants the right to provide investment services specified in subsection 1 of § 43 of the Securities Market Act and ancillary services of an investment service specified in § 44 of the Securities Market Act to the extent specified in the authorisation.

(2) The Financial Supervision Authority shall grant authorisation to companies founded in Estonia. The registered office and head office of a credit institution authorised by the Financial Supervision Authority must be in Estonia.

(3) An authorisation is granted for an unspecified term.

(3¹) Upon granting authorisation, the Financial Supervision Authority shall issue, at the prior request of the applicant, the right to use the identification code and the identification code itself, which is a unique two-digit numeric identifier in an international payment account number and which enables identification of the credit institution upon the performance of the payment instruction and automatic processing thereof.

(4) An authorisation is not transferable, and the use thereof by other persons is prohibited.

§ 13¹. Application for authorisation

(1) In order to apply for authorisation, the members of the management board entered in the memorandum of association or registry card of the company being founded or operating (hereinafter applicant) shall submit a written application and the following documents and information (hereinafter in § 13¹–18 of this Act application):

1) a copy of the articles of association and in case of an operating company, a decision on amendment of the articles of association together with the amended text of the articles of association;

2) upon foundation of a company, a notarised copy of the foundation agreement or resolution and a document certifying the resources for payment of the share capital;

3) the business plan which complies with the requirements provided for in § 13² of this Act;

4) for an operating company, documents certifying the size of own funds together with a sworn auditor's report;

5) the applicant's starting balance sheet and an overview of revenue and expenditure or, for an operating company, the balance sheet and income statement as of the end of the month preceding the month of submission of application and the last three annual reports if they exist;

6) information on the information technology and other technological means and systems, security systems, control mechanisms and systems needed for provision of the planned financial services;

7) internal rules and rules of procedure to regulate the activities or drafts thereof which meet the requirements provided in § 63 of this Act and if the business plan specified in § 13² of this Act includes providing investment services, meet the requirements regarding internal rules provided in the Securities Market Act;

8) accounting policies and procedures of draft thereof;

9) statutes of the internal audit unit or draft thereof;

10) information on the members of the management board and supervisory board and the head of the internal audit unit of the applicant (hereinafter in this Chapter managers), including, for each person, the name and surname, personal identification code or, in the absence thereof, date and place of birth, educational background, a complete list of places of employment and posts and, for the members of the management board, a description of their areas of responsibility as well as documents certifying the trustworthiness of the managers and their conformity to the requirements of this Act, which the applicant deems important to submit;

11) information on the auditor of the applicant, including the name, residence or seat, personal identification code or, in the absence of the identification code, the date of birth or registry code of the auditor;

12) a list of the shareholders or members of the applicant which sets out the name and the personal identification code or registry code of each shareholder or member, or the date of birth in the absence of a personal identification code or registry code, and information on the number of shares and votes to be acquired or owned by each shareholder or member;

13) documents for last three years certifying the financial status of a natural person who is a shareholder or member of the applicant if his or her share capital or amount of contribution exceeds 2 per cent of the share capital or votes in the applicant;

14) the articles of association of a legal person who is a shareholder or member of the applicant and annual reports for last three years together with the auditor’s reports and the list of shareholders together with data relating to the percentage of their share in the share capital of the respective company if the share or amount of contribution of the legal person exceeds 5 per cent of the share capital or votes in the applicant;

15) information specified in § 30 of this Act on persons who own qualifying holdings in the applicant;

16) information on companies in which the holding of the applicant or a manager thereof exceeds 20 per cent, which also sets out the amount of share capital, a list of the areas of activity and the size of the holding of the applicant or manager;

17) a document by which applicant assumes the obligation to pay the single contribution prescribed in the Guarantee Fund Act and, if the business plan specified in § 13² of this Act includes providing investment services, the obligation to pay the single contribution to the Investor Protection Sectoral Fund prescribed in the Guarantee Fund Act;

18) a description of the structure of the applicant's consolidation group together with information concerning the size of the holdings of the companies belonging thereto, including information concerning the parent undertakings, financial holding companies and mixed financial holding companies belonging to the consolidation group;

19) an explanation justifying the request for exemption from the obligation to provide basic payment services provided in subsection 1 of § 881 of this Act.

(1¹) The partnership agreement or articles of association of a credit institution is required to determine that the registered office and head office of the credit institution is in Estonia.

(2) If, during the processing of an application for an activity licence, there are changes in the information or documents specified in subsection 1 of this section, the applicant shall submit the corresponding updated information or documents to the Financial Supervision Authority immediately after making or becoming aware of the amendments.

(3) The accuracy of information and documents submitted concerning natural persons specified in clauses 10 and 11 of subsection 1 of this section shall be confirmed by the signature of the persons.

(4) .

(5) In case the applicant for the license of an association bank is a company with a loan portfolio that wishes to provide the services specified in clauses 1–3 of subsection 1 of § 6 of this Act, in addition to the documents and data specified in subsection 1 of this section, an asset quality assessment report prepared by an auditing firm must also be submitted in order to obtain the licence. The specified report must contain the opinion of the auditing firm on compliance with the requirements established for the loan portfolio of the applicant for the licence of a credit institution.

§ 13². Business plan

(1) A business plan shall include a description of the character of the planned business activities, organisational structure, internal audit system and management structure of the applicant, and a also a description, forecast and analysis of the following factors:

1) the size of the assets, share capital and shareholders’ equity of the applicant;

2) the level of the technical administration of the activities of the applicant;

3) strategy and market share in which the applicant proposes to engage in activities;

4) proposed activity, provided services and offered products, presumed clients and competition conditions on the market;

5) annual balance sheet and financial indicators including revenue, expenditure, profit and cash flows, and the presumptions which constitute the basis thereof;

6) credit and investment policies;

7) general principles and strategy of risk management.

(2) A business plan shall be submitted for at least three years.

§ 13³. Review of applications for authorisation

(1) Where an applicant has failed to submit all the information and documents specified in § 13¹ of this Act, or where such information or documents are incomplete or have not been prepared in accordance with the requirements, the Financial Supervision Authority has the right to dismiss the application without review or demand elimination of the deficiencies by the applicant.

(2) The Financial Supervision Authority may demand the submission of additional information and documents if it is not convinced on the basis of the information and documents specified in § 13¹ of this Act as to whether the applicant for authorisation has adequate facilities for the provision of financial services or whether it meets the requirements for credit institutions prescribed by this Act or legislation issued on the basis thereof or if other circumstances relating to the applicant need to be verified.

(3) In order to verify the information submitted by an applicant, the Financial Supervision Authority may perform on-site inspections, order an assessment or special audit, consult state databases, obtain spoken explanations from the applicant's managers and auditors, their representatives and where necessary, third parties concerning the content of documents and facts which are relevant in making a decision on the grant of authorisation.

(4) The information and documents specified in subsections 1–3 of this section shall be submitted within a reasonable term determined by the Financial Supervision Authority.

(5) The Financial Supervision Authority may refuse to review an application if the applicant has failed to eliminate the deficiencies specified in subsection 1 of this section within the prescribed term or has not submitted the information or documents requested by the Financial Supervision Authority by the end of the term. Upon refusal to review an application, the Financial Supervision Authority shall return the submitted documents.

(6) Upon processing of an application for authorisation, the Financial Supervision Authority shall cooperate with the financial supervision authority of the corresponding contracting state if:

1) the applicant is a parent undertaking or subsidiary of a credit institution, management company, investment fund, investment firm, insurance undertaking, paying institution, e-money institution or other person subject to financial supervision established in a contracting state;

2) the subsidiary of a parent undertaking is a credit institution, management company, investment fund, investment firm, insurance undertaking, paying institution, e-money institution or other person subject to financial supervision established in a contracting state;

3) the applicant and a credit institution, management company, investment fund, investment firm, insurance undertaking, paying institution, e-money institution or other person subject to financial supervision established in a contracting state are companies controlled by one and the same person.

§ 13⁴. Approval to operate as financial holding company or mixed financial holding company

(1) A financial holding company or mixed financial holding company operating as a parent company in Estonia or elsewhere in the European Union is required to apply to the Financial Supervision Authority for approval to operate or for application of an exception pursuant to § 13⁷ of this Act if consolidated supervision is exercised over the company by the Financial Supervision Authority. Other financial holding company or mixed financial holding company is required to apply for approval in accordance with this section where it is obliged to comply with the requirements established in this Act and in Regulation (EU) No 575/2013 of the European Parliament and of the Council on a sub-consolidated basis or where it has been designated as responsible for ensuring compliance with prudential requirements by the consolidation group on a consolidated basis (hereinafter in this Chapter the designated undertaking) in accordance with clause 3 of subsection 1 of § 13⁷ of this Act.

(1¹) The Financial Supervision Authority continuously monitors, but reviews at least once a year, the functioning of the operations of the parent undertaking of a credit institution and its compliance with the provisions of subsection 2 of this section, as well as whether the credit institution, the undertaking applying for an authorisation based on § 13 of this Act or the designated undertaking has correctly designated the undertaking that meets the conditions Under which the specified undertaking may be treated as a financial holding company or a mixed financial holding company operating as a parent undertaking in Estonia or elsewhere in the European Union.

(1²) Where the parent undertaking or the designated undertaking specified in subsection 1¹ of this section is established in another Member State of the European Union, the Financial Supervision Authority makes every possible effort to cooperate with the competent financial supervision authority of that Member State in carrying out the review specified in the same subsection.

(2) The person specified in subsection 1 of this section shall submit to the Financial Supervision Authority and, if the Financial Supervision Authority does not exercise consolidated supervision over the company, also to the relevant financial supervision authority, a written application and the following documents and data:

1) the legal structure and organizational structure of the consolidation group of the financial holding company or mixed financial holding company, including clearly the subsidiaries and, where applicable, the parent undertakings, and the location and type of activities of each entity in the consolidation group;

2) the information specified in clause 10 of subsection 1 of § 13¹ of this Act concerning the members of the management board and supervisory board of a financial holding company or mixed financial holding company and information on the compliance of the specified persons with the conditions provided in subsections 2–2⁴ and 3–5 of § 48 and subsections 6 and 7 of § 48¹ of this Act;

3) the data on the shareholders or members with a qualifying holding in accordance with § 30 of this Act if the subsidiary of the financial holding company or mixed financial holding company is a credit institution;

4) the organizational structure of the consolidation group and the division of tasks;

5) other information which the financial supervision authority needs for making a decision specified in § 13⁶ or § 13⁷ of this Act.

§ 13⁵. Review of application for approval

(1) Where approval to operate as a financial holding company or mixed financial holding company takes place simultaneously with the assessment specified in §§ 30-31 of this Act, or with an exemption from the approval requirement provided in § 13⁷ the Financial Supervision Authority coordinates its activities, where necessary, with the authority exercising supervision on a consolidated basis and the financial supervision authority of the Contracting State in which the financial holding company or mixed financial holding company is established, unless it is the supervisory authority.

(2) In the case provided in subsection 1 of this section, the Financial Supervision Authority suspends the running of the term provided in subsection 2 of § 30¹ or subsection 2 of § 37³ of this Act for at least 20 working days or until the relevant proceedings have been completed.

(3) If it is not possible to establish on the basis of the data and documents specified in subsection 2 of § 13⁴ of this Act whether the applicant complies with the requirements established for the applicant by this Act or legislation issued on the basis thereof, or if it is necessary to verify other facts related to the applicant, the Financial Supervision Authority may request the submission of additional data and documents.

(4) In order to verify the data submitted by an applicant, the Financial Supervision Authority may apply the provisions of subsections 2–4 of § 13³ of this Act.

§ 13⁶. Decision on approval

(1) The Financial Supervision Authority may make a decision on approval of the activities of a financial holding company or a mixed financial holding company only if all the following conditions are met:

1) the internal procedures and division of tasks of the consolidation group are sufficient to comply with the requirements established by this Act and Regulation (EU) No 575/2013 of the European Parliament and of the Council on a consolidated or sub-consolidated basis;

2) the organizational structure of the consolidation group of which the financial holding company or mixed financial holding company forms part does not prevent or otherwise restrict the exercise of effective supervision over the subsidiary or parent credit institution in accordance with the requirements on an individual, consolidated or sub-consolidated basis;

3) the shareholders or members with a qualifying holding of the financial holding company or mixed financial holding company and the members of the management board and supervisory board comply with the requirements provided for in this Act.

(2) Upon compliance with the requirements specified in clause 1 of subsection 1 of this section, the Financial Supervision Authority shall assess:

1) the coordination of the activities of all the subsidiaries of the financial holding company or mixed financial holding company, including, where necessary, the conformity of the division of tasks of the subsidiaries;

2) the possibilities for avoiding or mitigating conflicts of interest within the consolidation group;

3) the implementation of measures covering the consolidation group of the parent financial holding company or mixed financial holding company in the whole consolidation group.

(3) Upon compliance with the requirements provided for in clause 2 of subsection 1 of this section, the Financial Supervision Authority shall take into account:

1) the position of the financial holding company or mixed financial holding company in the multi-level consolidation group;

2) the ownership structure of shares or units;

3) the rights and obligations and responsibilities of the financial holding company or mixed financial holding company in the consolidation group.

(4) The Financial Supervision Authority makes a decision to grant the approval, to refuse the approval or on the exemption from the approval requirement to a financial holding company or mixed financial holding company within four months as of receipt of all the necessary appropriate documents and data, but not later than six months after the receipt of the application for approval.

(5) In the event of a refusal specified in subsection 4 of this section, the Financial Supervision Authority may, where necessary, apply the measures provided for in clauses 1–5 of subsection 1 of § 104⁵ of this Act.

(6) The provisions provided in Subchapter 1 of Chapter 6 of this Act applies to the merger and division of a financial holding company and a mixed financial holding company. Where a financial holding company or a mixed financial holding company is established as a result of a merger or division, such company must apply for approval from the Financial Supervision Authority, and the obligation to apply for a merger authorization in accordance with subsection 1 of § 68 or a division authorization in accordance with subsection 1 of § 70² of this Act, as well as the time limits prescribed in subsection 3 of § 69 or subsection 3 of § 70³ thereof, do not apply to the establishment thereof.

(7) The provisions provided in Subchapter 2 of Chapter 6 of this Act are applied to the transfer of material assets and liabilities of a financial holding company and a mixed financial holding company. Where a financial holding company or a mixed financial holding company acting as a parent company participates in the transfer of material assets and liabilities, the percentages prescribed in subsection 2 of § 70⁶ 2 of this Act are applied thereto on a consolidated basis.

§ 13⁷. Specifications of requirement for approval

(1) A financial holding company and a mixed financial holding company may apply for an exemption from the approval requirement where all of the following conditions are met:

1) the principal activity of the financial holding company is holding a participation in subsidiaries or the principal activity of a mixed financial holding company in respect of credit institutions or financial institutions is holding a participation in subsidiaries;

2) the financial holding company or mixed financial holding company is not a resolution entity in some resolution consolidation groups of its consolidation group in accordance with the resolution strategy which has been determined by the relevant resolution authority;

3) a subsidiary credit institution, financial holding company or mixed financial holding company that has been granted approval i accordance with § 13⁴ of this Act has been designated as responsible for ensuring compliance with prudential requirements by the consolidation group on a consolidated basis, and has been provided with all the necessary resources and legal powers to effectively perform the respective duties;

4) the financial holding company or mixed financial holding company does not make management, operational or financial decisions affecting the subsidiary of the consolidation group or its subsidiary credit institution or financial institution;

5) there are no obstacles to the effective supervision over the consolidation group on a consolidated basis.

(2) If the Financial Supervision Authority has established in the course of supervision over the activities of a financial holding company or mixed financial holding company that at least one of the conditions specified in subsection 1 of this section is not complied with, the financial holding company or mixed financial holding company is required to apply for approval pursuant to § 13⁴ of this Act.

(3) The financial holding company and a mixed financial holding company to which the requirement for approval of operating pursuant to subsection 1 of this section is not applied, shall be applied the requirements of the consolidation framework of the consolidation group in accordance with this Act and Regulation (EU) No 575/2013 of the European Parliament and the Council.

(4) Without prejudice to the application of subsections 1 and 3 of this section, the Financial Supervision Authority, in its capacity as the competent authority responsible for supervision on a consolidated basis, may, on a case-by-case basis, permit the exclusion from consolidation of a financial holding company or mixed financial holding company exempted from the approval requirement, provided that the following conditions are met:

1) the exclusion from consolidation does not prejudice the effectiveness of the supervision exercised over the subsidiary credit institution or the consolidation group;

2) the financial holding company or mixed financial holding company does not hold equity positions other than equity positions in the subsidiary credit institution, or in an intermediary parent financial holding company or mixed financial holding company exercising control over the subsidiary credit institution;

3) the financial holding company or mixed financial holding company does not employ excessive financial leverage and holds only the positions related to its participation in the subsidiary credit institution or in an intermediary parent financial holding company or mixed financial holding company exercising control over the subsidiary credit institution.

(5) Where the Financial Supervision Authority is not the authority exercising consolidated supervision over a financial holding company or mixed financial holding company, the Financial Supervision Authority must cooperate with the authority exercising consolidated supervision to reach a joint decision in the following proceedings:

1) making the approval decision provided in § 13⁶ of this Act;

2) granting an exemption from the approval requirement provided in subsections 1 and 3 of this section;

3) exclusion from the scope of consolidation provided in subsection 4 of this section;

4) application of the supervisory measures provided in subsection 2 of this section and subsection 1 of § 104⁵ of this Act.

(6) Where the Financial Supervision Authority is the authority exercising consolidated supervision, it draws up an assessment of the matters specified in subsections 1–3 and 5 of § 13⁶ and subsections 1–3 of this section of this Act and transmits it to the financial supervision authority of the Contracting State where the financial holding company or mixed financial holding company is established.

(7) The Financial Supervision Authority makes every effort to reach a joint decision with the authority exercising consolidated supervision in the case specified in subsection 5 of this section within two months as of the receipt of the assessment of the consolidated supervision authority.

(8) Upon reaching a joint decision is reached, the Financial Supervision Authority implements it to a financial holding company or a mixed financial holding company established in Estonia.

(9) In the event that the Financial Supervision Authority fails to reach a joint decision with the supervisory authority of another Contracting State during the proceedings specified in subsection 5 of this section, it refers the matter to the European Banking Authority for settlement in accordance with Article 19 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, pp 12–47), and postpones making the decision until they have received the decision by the European Banking Authority. The Financial Supervision Authority adopts its final decision in conformity with the decision received. The Financial Supervision Authority does not turn to the European Banking Authority during the period specified in subsection 7 of this section, as well as subsequent to the conclusion of a joint decision.

(10) Where the joint decision specified in subsection 7 of this section is taken in respect of a mixed financial holding company, and the Financial Supervision Authority or the authority exercising supervision on a consolidated basis is not the coordinator of the mixed financial holding company pursuant to Article 10 of Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council (OJ L 35, 11.2.2003, pp 1–27), the Financial Supervision Authority makes every effort to seek the consent of the coordinator together with consolidated supervisory authority. The Financial Supervision Authority informs the European Banking Authority or the European Insurance and Occupational Pensions Authority established based on Regulation (EU) No 1094/2010 of the European Parliament and of the Council establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, pp 48–83), of any disagreements concerning the granting of consent. The Financial Supervision Authority applies the decision of the European Banking Authority or the European Insurance and Occupational Pensions Authority to the mixed financial holding company.

§ 13⁸. Application by investment firm for authorisation as credit institution and specific requirements for application

(1) An investment firm that meets the conditions specified in sub-clause b of clause 1 of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council must submit an application for authorization in accordance with § 13¹ of this Act at the latest on the day when at least one of the following conditions is met:

1) the average volume of its total assets in one month is 30 billion euros or more for 12 consecutive months;

2) the average volume of its total assets in one month is less than 30 billion euros for 12 consecutive months and the investment firm belongs to a consolidation group in which the total value of the consolidated assets is equal to or exceeds 30 billion for all the investment firms established in the European Union within that group, including all their subsidiaries and branches established in a third country, that are engaged in the activities specified in clauses 3 and 6 of subsection 1 of § 43 of the Securities Market Act and where the total value of the assets of each individual investment firm is less than 30 billion euros.

(2) An investment firm specified in subsection 1 of this section may continue the activities specified in sub-clause b of clause 1 of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council until obtaining the authorisation of a credit institution.

(3) Where the Financial Supervision Authority decides upon receipt of information pursuant to Article 95a after the adoption of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments and amending Directives 2002/92/EC and 2011/61/EU (OJ L 173, 12.06.2014, pp 349–496) that an investment firm needs to apply for authorization as a credit institution pursuant to § 13¹ of this Act, it notifies the investment firm and the financial supervision authority specified in clause 26 of subsection 1 of Article 4 of Directive 2014/65/EU of the European Parliament and of the Council and take over the authorization procedure from that financial supervision authority specified above as of the date of notification.

(4) The Financial Supervision Authority ensures that, where possible, information related to valid authorisations is taken into account in the procedure for the authorisation of a person specified in subsections 1 and 3 of this section.

(5) The Financial Supervision Authority may exempt an investment firm from the obligation to apply for the authorisation specified in subsection 1 of this section, provided that the investment firm has submitted an appropriate application. The Financial Supervision Authority notifies the European Banking Authority of the receipt of the application for exemption from the obligation to apply for an authorisation, awaits the opinion of the European Banking Authority, and subsequently takes its decision.

(6) Upon making its decision, the Financial Supervision Authority takes into account the information in accordance with Article 95a of Directive 2014/65/EU of the European Parliament and of the Council, the opinion of the European Banking Authority, and the following circumstances:

1) where the investment firm belongs to a consolidation group, the organisational structure of that consolidation group, the primary accounting arrangements, and the allocation of assets between the entities of the consolidation group;

2) the nature, scope and complexity of the activities carried out in the Member State of the European Union where the investment firm is established, and across the European Union as a whole;

3) the significance and systemic risk of the activities carried out in the Member State of the European Union where the investment firm is established, and across the European Union as a whole.

(7) Where the decision of the Financial Supervision Authority deviates from the opinion of the European Banking Authority, they justify the deviation from the opinion in their decision.

(8) The Financial Supervision Authority notifies the investment firm and the European Banking Authority of their decision.

(9) The Financial Supervision Authority reviews the decision, specified in subsection 5 of this section, every three years.

§ 14. Decision on grant of authorisation

(1) The Financial Supervision Authority shall make a decision to grant or refuse to grant authorisation within six months after receipt of all the necessary documents and information which meet the requirements, but not later than within twelve months after receipt of the application for authorisation.

(2) Upon granting authorisation, the Financial Supervision Authority may set secondary conditions to the applicant based on the circumstances provided in subsection 1 of § 15 of this Act.

(3) The Financial Supervision Authority shall have the decision to grant or refuse to grant authorisation delivered to the applicant without undue delay.

(4) The provisions of subsection 4 of § 250 of the Commercial Code and subsection 3 of § 7 of the Commercial Associations Act shall not apply to entry of applicants in the commercial register. The management board of the applicant is required to submit a petition for entry in the commercial register within six months as of the delivery of the decision to grant authorisation.

§ 15. Bases for refusal to grant authorisation

(1) The Financial Supervision Authority shall refuse to grant authorisation to the applicant if:

1) the applicant does not meet the requirements for credit institutions provided for in this Act or legislation issued on the basis thereof;

2) the resources for full payment of the share capital of a company being founded or existence of adequate own funds are not proved;

3) the applicant does not have the necessary funds or experience to operate as a credit institution with continuity;

4) the managers, auditor or shareholders of the applicant do not meet the requirements provided for in this Act or legislation established on the basis thereof;

5) close links between the applicant and another person prevent adequate supervision over the applicant, or the requirements arising from legislation or the implementation of legislation of the state where the persons with whom the applicant has close links is established prevent adequate supervision over the applicant;

6) the information submitted by the applicant indicates that the applicant mainly plans to operate in another contracting state;

7) the internal rules of a credit institution specified in § 63 of this Act are not adequately accurate or unambiguous for regulation of the activities of the credit institution;

8) the applicant or its managers have been punished for an economic offence, official misconduct, offence against property or offence against public trust and information concerning the punishment has not been expunged from the criminal records database pursuant to the Criminal Records Database Act.

(2) Among other matters, the following shall be considered upon assessment of that provided for in clause 3 of subsection 1 of this section:

1) the level of the organisational and technical administration of the activities of the applicant;

2) the educational background, work experience, business connections, trustworthiness and reputation of the persons connected with the management of the applicant;

3) the adequacy and sufficiency of the business plan provided for in § 13² of this Act;

4) the activities, financial situation, reputation and experience of the applicant, its parent company and persons belonging to the same consolidation group as the applicant.

§ 16. Termination of authorisation

Authorisation terminates:

1) in the event of the merger of the credit institution based on subsection 2 of § 65 of this Act, upon the entry of the new credit institution in the commercial register;

2) in the event of the merger of the credit institution based on subsection 3 of § 65 of this Act, upon the entry of the merger in the commercial register;

3) in the event of the voluntary dissolution of the credit institution, upon the receipt of authorisation for voluntary dissolution from the Financial Supervision Authority;

4) in the event of revocation of authorisation, upon the revocation of the authorisation;

5) in the event of the bankruptcy of the credit institution, upon declaration of bankruptcy by a court.

§ 17. Revocation of authorisation and identification code (järg)

(1) The Financial Supervision Authority may revoke authorisation if:

1) the credit institution fails to commence activities or if an act or omission by the founders of the credit institution shows that the credit institution will be unable to commence activities within twelve months as of the issue of authorisation, or if the activities of the credit institution are suspended for more than six consecutive months;

2) it has become evident that the credit institution has submitted misleading information or documents, or incorrect information or falsified documents to the Financial Supervision Authority, or such documents have been submitted upon application for authorisation;

3) the credit institution does not meet the requirements in force with regard to grant of authorisation;

4) the circumstances provided for in clauses 4 or 5 of subsection 1 of § 15 become evident;

5) the credit institution has repeatedly or materially violated provisions of legislation regulating the activities thereof, the credit institution or manager thereof has been imposed a punishment for an economic offence, official misconduct, offence against property or offence against public trust if information concerning the punishment has not been expunged from the criminal records database pursuant to the Criminal Records Database Act or the activities or omissions of the credit institution are not in compliance with good practice;

6) the credit institution fails to comply with the secondary conditions specified in subsection 2 of § 14 of this Act;

7) the credit institution belongs to a consolidation group the structure of which prevents the receipt of information necessary for supervision on a consolidated basis, or if a company which belongs to the same consolidation group as the credit institution operates on the basis of legislation of a foreign state, which prevents the exercise of adequate supervision;

8) the credit institution has published materially incorrect or misleading information or advertising concerning its activities or members of its directing bodies;

9) the credit institution is unable to perform the obligations it has assumed or if, for any other reason, its activities significantly damage the interests of depositors or other clients, currency circulation or adversely affect the regular functioning of the money or capital markets;

10) the amount of own funds of the credit institution does not comply with the requirements provided for in this Act or legislation issued on the basis thereof or the credit institution fails to comply with the prudential requirements established by Regulation (EU) No 575/2013 of the European Parliament and Council, except for Articles 92a and 92b of the Regulation;

;

11) it becomes evident that the credit institution has chosen Estonia as the place for application for authorisation and registration in order to evade compliance with stricter requirements established for credit institutions in another contracting state where the credit institution mainly operates;

12) the credit institution engages in money laundering, or violates the procedure established by legislation for the prevention of money laundering or terrorist financing;

13) the credit institution fails to pay contributions to the Deposit Guarantee Sectoral Fund and Investor Protection Sectoral Fund prescribed in the Guarantee Fund Act for the specified term or in full, and has failed to implement a corresponding precept of the Financial Inspectorate within the term or to the extent prescribed;

14) the credit institution has failed to implement a precept of the Financial Supervision Authority within the term or to the extent prescribed;

15) according to information submitted to the Financial Supervision Authority by the financial supervision authority of a contracting state, the credit institution has violated conditions provided by the legislation of the contracting state or conditions set by the financial supervision authority of the contracting state in conformity to the requirements of subsection 6 of § 20¹ or subsection 6 of § 20⁴ of this Act.

16) the credit institution has failed to implement a precept of the Financial Supervision Authority and, as a result, a person who is not in compliance with the requirements provided for in this Act, has been appointed head of a credit institution or is continuing as member of the directing body of the credit institution;

17) the credit institution uses the authorization only for the activities specified in sub-clause b of clause 1 of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council and its average total assets are, for five consecutive years, lower than those set out in the specified Article.

18) The conditions specified in subsection 1 of § 39 of the Financial Crisis Prevention and Resolution Act or in clauses a–c of subsection 1 of Article 18 of Regulation (EU) No 806/2014 of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 225, 30.07.2014, pp 1–90) are satisfied.

(2) Prior to deciding on the revocation of authorisation pursuant to subsection 1 of this section, the Financial Supervision Authority may issue a precept to the credit institution and set a term for elimination of the deficiencies which are the basis for the revocation.

(3) The decision on revocation of authorisation shall be delivered to the credit institution without undue delay.

(4) The Financial Supervision Authority shall revoke the identification code specified in subsection 3¹ of § 13 of this Act and the right to use thereof upon revocation, termination of authorisation or for other good reason.

§ 18. Publication

(1) The Financial Supervision Authority shall disclose a decision on grant, amendment or revocation of authorisation on its website no later than on the working day following the date of making such decision.

(2) In addition to the provisions of subsection 1 of this section, the Financial Supervision Authority publishes a notice concerning revocation of authorisation in at least one national media release.

(3) If the authorisation has been revoked on the basis of clause 2 of subsection 1 of § 17 of this Act, the Financial Supervision Authority shall disclose the facts of the violation and the data of persons responsible for the violation.

(4) The Financial Supervision Authority shall disclose the data provided for in subsection 3 of this section with delay or in a depersonalised form if:

1) the punishment has been imposed on a natural person the disclosure of whose personal data has been estimated disproportionate compared to the violation of the person;

2) disclosure may endanger the stability of the financial sector or the pending criminal investigation, or

3) disclosure may create unreasonable damage to the credit institution or person related to the violation.

§ 19. Consequences of termination of authorisation

(1) After the termination of its authorisation, a credit institution shall not conclude the transactions and perform the acts specified in § 6 of this Act and shall terminate all payments to depositors, clients or creditors, unless otherwise provided for in this Act.

(1¹) The prohibition provided for in subsection 1 of this section shall not apply:

1) upon termination of the authorisation of a credit institution on the basis specified in clause 3 of § 16 of this Act;

2) if this is deemed to be necessary considering the circumstances of the dissolution of the credit institution or for ensuring the stability of the financial system and if the Financial Supervision Authority has granted authorisation to a credit institution to continue the performance, in full or in part, of the transactions and acts specified in § 6 of this Act also after the authorisation has expired.

3) to the covered bonds portfolio separated from other assets of a credit institution on the basis of the Covered Bonds Act.

(2) Except in the cases specified in clauses 1 or 2 of § 16 of this Act, termination of authorisation results in the dissolution of the credit institution pursuant to the procedure provided for in Chapter 11 of this Act.

§ 19¹. Bases of activities of credit institution in foreign state

(1) A credit institution founded in Estonia and holding an activity licence issued by the Financial Supervision Authority may provide services specified subsection 1 of § 6 of this Act in a foreign state by establishing branches or providing cross-border services.

(2) Upon provision of services in a foreign state, a credit institution shall comply with the requirements provided for in this Act, legislation issued on the basis thereof and legislation of the foreign state.

(3) Cross-border services are services of a credit institution which the institution provides in a state where the credit institution or a branch thereof is not registered.

(4) The provisions of subsections 7 and 8 of § 20, §§ 20¹–20⁵ and § 97¹ of this Act apply to the provision of services by credit institutions of Estonia in another contracting state. The provisions specified in this subsection also apply to the provision of investment services by credit institutions of Estonia in another contracting state.

(5) The provisions of § 20, subsections 1 and 7–9 of § 20⁴, and § 97¹ of this Act apply to the provision of services in foreign states not specified in subsection 4 of this section.

(6) If a credit institution wishes to provide investment services and ancillary services in a foreign state through an investment agent, the provisions of Chapter 8 Subchapter 2 of the Securities Market Act concerning investment firms shall be applied thereto.

§ 20. Foundation of subsidiary credit institutions, branches and representative offices of credit institutions in foreign states

(1) If a credit institution wishes to establish a subsidiary credit institution or branch in a foreign state or acquire a holding in a foreign credit institution such that the latter would become a subsidiary thereof, the credit institution shall submit an application for the corresponding authorisation to the Financial Supervision Authority setting out the following data:

1) the name of the foreign state;

2) the business name and address of the subsidiary credit institution or the address of the branch;

3) the last three annual reports of the foreign credit institution in which the credit institution wishes to acquire a qualifying holding;

4) the action plan of the subsidiary credit institution or the branch together with a detailed description of the intended activities, a description of the organisational structure, and the relationship with the credit institution being founded;

5) data on the manager of a subsidiary credit institution or the director of a branch in accordance with the provisions of subsections 6 and 7 of § 48¹ of this Act;

6) pursuant to the requirements established in § 30 of this Act, data relating to shareholders who have qualifying holdings in the subsidiary credit institution.

(2) The Financial Supervision Authority may demand additional documents or information in order to specify or verify the data specified in subsection 1 of this section.

(3) The Financial Supervision Authority shall inform the foreign financial supervision authority of a submitted application within three months as of the receipt of the application or additional information and documents specified in subsection 2 of this section.

(4) The Financial Supervision Authority may refuse to grant authorisation if:

1) the financial situation of the credit institution being founded or acquired or the financial situation of the acquiring credit institution is not adequately sound, or

2) the organisational structure of the subsidiary credit institution or branch being founded or acquired is not suitable for the intended activities, or

3) the managers of the subsidiary credit institution or the director of the branch being founded or acquired do not meet the requirements of §§ 48, 53, 56 and 57 of this Act, or

4) the legislation of the foreign state prevents the exercise of adequate supervision, including supervision on a consolidated basis, or the receipt of information necessary therefor.

(5) A written reasoned decision on the grant of or refusal to grant authorisation shall be sent to the credit institution by the Financial Supervision Authority within three months as of the receipt of the application specified in subsection 1 of this section or the submission of additional data specified in subsection 2 of this section. If the grant of authorisation is refused, the provisions of subsection 3 of this section do not apply.

(5¹) The Financial Supervision Authority shall inform the foreign financial supervision authority of grant of an authorisation and shall co-ordinate the principles of supervision and liability.

(6) A credit institution which has a subsidiary credit institution or a branch in a foreign state is required to notify the Financial Supervision Authority and the financial supervision authority of the host country of all intended alterations in the data specified in clauses 2, 4 or 5 of subsection 1 of this section at least one month before such alterations are made.

(6¹) The Financial Supervision Authority may revoke authorisation granted to a credit institution to open a branch in a foreign state if:

1) the credit institution or its branch in the foreign state does not meet the requirements provided by legislation with which compliance was necessary to obtain the authorisation;

2) the credit institution fails to submit reports on its branch as required;

3) the credit institution has submitted misleading information or documents, or incorrect information or falsified documents concerning its branch to the Financial Supervision Authority upon application for authorisation or at another occasion;

4) the credit institution has materially or repeatedly violated requirements provided for in legislation of the foreign state which may damage the interests of its clients;

5) the credit institution has failed to implement a precept of the Financial Supervision Authority within the term or to the extent prescribed;

6) the risks arising from the activities of the branch are significantly greater than risks arising from the activities of the credit institution;

7) circumstances provided in subsection 4 of this section become evident;

8) the credit institution, a manager of the credit institution or the director of a branch of the credit institution has been punished for an economic offence, official misconduct, offence against property or offence against public trust and information concerning the punishment has not been expunged from the criminal records database pursuant to the Criminal Records Database Act.

(6²) The Financial Supervision Authority shall immediately notify the financial supervision authority of the host country of the branch about the revocation of authorisation specified in subsection 6¹ of this section.

(6³) After becoming aware of revocation of an authorisation for the foundation of a branch, the credit institution shall terminate provision of its services through the branch founded in the foreign state not later than by the due date specified by the Financial Supervision Authority.

(7) A credit institution shall notify the Financial Supervision Authority of the opening, closing or change of address of a representative office of the credit institution in a foreign state at least ten days before such opening, closing or change of address. This information must be submitted in writing, and it shall contain the following data:

1) the country of location of representative office;

2) the business name of the representative office in Estonian and the official language or languages of the country of its location;

3) the address of the representative office;

4) the telecommunications numbers of the representative office;

5) the date of the opening, closing or change of address of the representative office;

6) in the case of change of address, the new address of the representative office.

(8) The Financial Supervision Authority shall maintain a list of the subsidiary credit institutions, branches and representative offices of Estonian credit institutions in foreign states.

§ 20¹. Specifications for foundation of branch of credit institution in contracting state

(1) A credit institution which wishes to establish a branch in another contracting state shall inform the Financial Supervision Authority of its intention and submit the following information and documents to the Financial Supervision Authority:

1) the name of the contracting state where the credit institution wishes to open a branch;

2) the action plan of the branch which shall contain data on all the financial services which the branch proposes to offer in the contracting state, and a description of the organisational structure of the branch;

3) the address of the branch in the contracting state;

4) data on the director of a branch in accordance with the provisions of subsections 6 and 7 of § 48¹ of this Act.

(2) The documents specified in subsection 1 of this section shall be submitted in Estonian together with an official translation into one or several official languages of the contracting state in which the credit institution wishes to establish a branch.

(3) Based on § 20³ of this Act, the Financial Supervision Authority shall make a decision to forward or refuse to forward the information and documents specified in subsection 1 of this section to the financial supervision authority of the corresponding contracting state within three months after receipt of all the required information and documents. The Financial Supervision Authority shall promptly inform a credit institution of a decision to forward or refuse to forward the information and documents.

(4) The Financial Supervision Authority may refuse to review the information and documents specified in subsection 1 of this section if:

1) the information or documents submitted for forwarding do not comply with the requirements provided for in this Act or legislation established on the basis thereof;

2) the information or documents submitted for forwarding are incomplete;

3) the documents or information which the Financial Supervision Authority requests for forwarding have not been submitted within the prescribed term.

(5) Upon forwarding the information and documents specified in subsection 1 of this section, the Financial Supervision Authority shall also inform the financial supervision authority of the contracting state of the size of the own funds and capital adequacy of the credit institution.

(6) The credit institution may open a branch in the contracting state after receiving the conditions set by the financial supervision authority of the location of the proposed branch for establishing the branch in such contracting state. If, within two months after the receipt of the documents and information specified in subsection 1 of this section, the financial supervision authority of the location of the branch has not established any conditions, the credit institution may open a branch in the contracting state.

(7) A credit institution shall inform the Financial Supervision Authority and the financial supervision authority of the contracting state of the location of the branch office of amendment of the information or documents specified in clauses 2–4 of subsection 1 of this section for at least one month before amendments enter into force.

(8) The Financial Supervision Authority may forbid, by its precept, a credit institution to provide services through a branch opened in another contracting state if:

1) the basis for refusal to forward information and documents provided in § 20³ of this Act exists;

2) the financial supervision authority of a contracting state has informed the Financial Supervision Authority that a credit institution has committed a violation of the conditions provided for in the legislation of the contracting state or established by the financial supervision authority of the contracting state.

(9) The Financial Supervision Authority shall promptly deliver a decision specified in subsection 8 of this section to the credit institution. The credit institution is required to discontinue, not later than by the deadline given by the Financial Supervision Authority, the provision of its services through the branch opened in the relevant contracting state.

§ 20³. Bases for refusal to forward documents and information

The Financial Supervision Authority may make a decision to refuse to forward the information and documents specified in subsection 1 of § 20¹ of this Act if:

1) the information or documents submitted upon application do not meet the requirements provided for in this Act or legislation established on the basis thereof or are inaccurate, misleading or incomplete;

2) the financial situation, organisational structure or other resources of the credit institution are inadequate for the provision of services specified in the action plan in a contracting state;

3) opening of the branch or implementation of the action plan submitted by the credit institution may damage the interests of its clients, the financial situation or reliable activities of the credit institution;

4) a financial supervision authority of a contracting state has no legal basis or possibilities for cooperation with the Financial Supervision Authority due to which the Financial Supervision Authority cannot exercise adequate supervision over the branch located in the contracting state.

§ 20⁴. Provision of cross-border services

(1) A credit institution which intends to provide cross-border services in a foreign state shall inform the Financial Supervision Authority thereof and shall submit the following information and documents to the Financial Supervision Authority:

1) the name of the state in which the credit institution proposes to offer cross-border services;

2) a description of the proposed cross-border services including the list specified in subsection 1 of § 6 of this Act which shall set out the transactions and activities which the credit institution wishes to perform in the foreign state.

(2) If a credit institution intends to provide cross-border services in a contracting state, the documents specified in subsection 1 of this section shall be submitted in Estonian together with an official translation into one or several official languages of the contracting state.

(3) If a credit institution intends to provide cross-border services in a contracting state, the Financial Supervision Authority shall make a decision to forward or refuse to forward the information and documents specified in subsection 1 of this section to the financial supervision authority of the corresponding contracting state within one month after receipt of the information specified in subsection 1 of this section. The Financial Supervision Authority shall promptly inform a credit institution of a decision to forward or refuse to forward the information and documents.

(4) The Financial Supervision Authority may refuse to review the information and documents specified in subsection 1 of this section if they:

1) do not meet the requirements provided by this Act or are incomplete;

2) have any of the deficiencies specified in clause 1 of this subsection and the additional information or documents required by the Financial Supervision Authority have not been submitted within the prescribed term.

(5) The Financial Supervision Authority may make a decision to refuse to forward the information and documents specified in subsection 1 of this section if:

1) the submitted information or documents do not meet the requirements provided by this Act or the information or documents are incorrect, misleading or incomplete;

2) the financial situation, organisational structure or other resources of the credit institution are inadequate for the provision of cross-border services;

3) the provision of cross-border services is likely to damage the interests of the clients, the financial situation or financial soundness of the credit institution;

4) a financial supervision authority of a contracting state has no legal basis or possibilities for cooperation with the Financial Supervision Authority due to which the Financial Supervision Authority cannot exercise adequate supervision over the provision of cross-border services in the contracting state.

(6) After the information and documents specified in subsection 1 of this section have been forwarded to the financial supervision authority of the relevant contracting state, the credit institution may commence provision of cross-border services in the contracting state having regard to the conditions provided for in the legislation of the contracting state and established by the financial supervision authority of the contracting state.

(7) A credit institution is required to inform the Financial Supervision Authority and, in case of provision of cross-border services in a contracting state, also the financial supervision authority of the contracting state of amending the document specified in clause 2 of subsection 1 of this section not later than after one month before such amendments enter in force.

(8) The Financial Supervision Authority may prohibit, by a precept, a credit information to provide cross-border services if:

1) the basis for refusal to forward information and documents provided in subsection 5 of this section exists;

2) the financial supervision authority of a contracting state has informed the Financial Supervision Authority that a credit institution has committed a violation of the conditions provided for in the legislation of the contracting state or established by the financial supervision authority of the contracting state.

(9) The Financial Supervision Authority shall promptly deliver a decision specified in subsection 8 of this section to the credit institution. The credit institution is required to discontinue, not later than by the deadline given by the Financial Supervision Authority, the provision of the cross-border services in that foreign state.

§ 20⁵. Branch of financial institution belonging to consolidation group of credit institution and provision of cross-border services in contracting state

(1) The provisions of §§ 20¹–20⁴ and § 97¹ of this Act apply regarding a financial institution of Estonia which is a subsidiary of a credit institution or jointly controlled by two or more credit institutions and the articles of association of which permit the conclusion of transactions and performance of acts specified in clauses 2–12 of subsection 1 of § 6 of this Act, and which wishes to establish branch and provide cross-border services in a contracting state, unless otherwise provided for in this section.

(2) A parent credit institution of a financial institution specified in subsection 1 of this section which wishes to establish a branch in a contracting state or offer cross-border services shall apply for a written confirmation from the Financial Supervision Authority regarding the financial institution and the written confirmation shall indicate that the financial institution meets the following requirements:

1) the parent undertaking or undertakings hold an activity licence issued by the Financial Supervision Authority for acting as a credit institution;

2) the financial institution concludes the transactions and performs the acts specified in clauses 2–12 of subsection 1 of § 6 of this Act in a contracting state;

3) the parent undertaking or undertakings hold at least 90 per cent of the votes represented by shares or units of the financial institution;

4) the parent undertaking or undertakings ensure the prudent management of the financial institution;

5) the parent undertaking or undertakings have stated that they solidarily guarantee performance of the obligations assumed by the financial institution;

6) together with the parent undertaking or all its parent undertakings, the financial institution is subject to supervision on a consolidated basis, in particular regarding the transactions and acts specified in clauses 2–12 of subsection 1 of § 6 of this Act and concerning limitations on investments, capital adequacy and limitations on concentration of exposures.

(3) In addition to the provisions of subsections 1 and 2 of § 20¹ of this Act, the Financial Supervision Authority shall forward, after provision of a confirmation specified in subsection 2 of this section, the confirmation and information concerning the composition and size of own funds of the financial institution and the total amount of exposures of a parent credit institution or credit institutions to the financial supervision authority of another contracting state in compliance with Article 87 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(4) If a financial institution of Estonia no longer meets the requirements provided for in subsection 2 of this section, the Financial Supervision Authority shall inform the financial supervision authority of the other contracting state thereof.

§ 20⁶. Bases for activities of foreign credit institution

(1) A person who pursuant to the legislation of the home state has the right to receive money from the public for the purposes of depositing or to receive repayable funds in any other manner may, on the basis of the activity licence issued in the home state, conclude the same transactions and perform the same acts in Estonia by establishing branches or providing cross-border services in Estonia. Upon providing financial services in Estonia, a person of a foreign state shall adhere to the requirements established for credit institutions by this Act and on the basis thereof as well as to other requirements arising from Estonian legislation established for operating in Estonia.

(2) The provisions of §§ 21⁴–21⁶ and 97² of this Act are applied to a person specified in subsection 1 of this section which is founded in another contracting state and complies with the requirements established regarding credit institutions in Directive 2013/36/EU of the European Parliament and of the Council.

(3) The provisions of §§ 21–21³ and subsections 1–3 of § 97² of this Act apply to a person specified in subsection 1 of this section who does not comply with the requirements provided in subsection 2 of this section. Such persons may provide services in Estonia only through a branch entered in the Estonian Business Register.

3¹) The provisions of subsection 3 of this section are not applied where a foreign credit institution provides a product or service to a client or counterparty established or located in the European Union.

(3²) For the purposes of subsection 3¹ of this section, a client or counterparty established or located in the European Union means:

1) a retail client, eligible counterparty or professional investor for the purposes of subsection 2 of § 6 and § 46 of the Securities Market Act, who is established or located in the European Union, provided that such client or counterparty approaches the foreign company on their own initiative for the purpose of receiving any service specified in subsection 2² of § 2 of this Act;

2) a credit institution;

3) an undertaking belonging to the same consolidation group as the credit institution established in a foreign state.

(3³) An approach made on the own initiative of the client or counterparty for the purposes of clause 1 of subsection 3² of this section is not deemed to have occurred where the foreign credit institution provides products or services to a retail client, eligible counterparty or professional investor through a third party acting in their own name, or through a third party closely linked to the foreign credit institution, or through any other person acting on behalf of such foreign credit institution. The provisions of the first sentence of this subsection are without prejudice to the application of clause 3 of subsection 3² of this section.

(3⁴) An approach made by a client or counterparty to a foreign credit institution as specified in clause 1 of subsection 3² and subsection 3³ of this section do not entitle the foreign undertaking to market products or services other than those in respect of which the client or counterparty has expressed interest. The provision of such products and services is subject to the provisions of subsection 2 of § 2¹ of this Act, unless the provision of such products or services is necessary for, or closely linked to, the provision of the product or service originally requested by the client or counterparty, including where the product or service is provided subsequently.

(3⁵) For the purpose of exercising supervision, the Financial Supervision Authority may request information from a foreign credit institution and a branch established in Estonia concerning its clients or counterparties established or residing in Estonia, provided that services are rendered to the clients or counterparties by an undertaking which belongs to the same consolidation group as the foreign credit institution and is established in a foreign state.

(4) For the purposes of this section, cross-border services are services provided in Estonia by a person who is not or whose branch is not registered in Estonia. The provisions concerning cross-border services apply also if cross-border services are provided through a third party.

(5) If a credit institution of another Contracting State wishes to provide investment services and ancillary services through an investment agent, the provisions of Chapter 8 Subchapter 3 of the Securities Market Act concerning investment firms shall be applied thereto.

§ 20⁷. Bases for activities of credit institution of third-country consolidation group

(1) If a credit institution established in Estonia belongs to a third country consolidation group, it is actually managed from Estonia or its principal activity takes place in Estonia and another credit institution belongs to the same third country consolidation group in the European Union, an intermediary parent undertaking shall be founded in the European Union, complying with the requirements established for a credit institution in Directive 2013/36/EU of the European Parliament and of the Council or which is a financial holding company or mixed financial holding company approved in accordance with Article 21a of that Directive or is a financial holding company or a mixed financial holding company approved in accordance with Article 21a of that Directive.

(2) A financial supervisory authority may allow a credit institution specified in subsection 1 of this section to have two parent undertakings acting as intermediaries in the European Union if it establishes that the founding of a single parent undertaking acting as an intermediary in the European Union:

1) would be contrary to the requirement of compulsory separation of activities if such a requirement is established by the laws and regulations of the third country or by the supervisory authority, where the head office of the third country consolidation group is located, or

2) would make the resolution capacity lower than in the case of two parent companies acting as intermediaries in the European Union, based on the assessment provided by the resolution authority of the parent company acting as an intermediary in the European Union.

(3) Subsections 1 and 2 of this section shall not be applied if the total value of the assets located in the European Union of a third country consolidation group is less than 40 billion euros.

(4) Upon application of this section the total value of the assets located in the European Union of a third country consolidation group are deemed to be the sum of the following assets:

1) the total value of the assets of all the financial institutions, including investment firms, of a third country consolidation group located in the European Union on the basis of the consolidated balance sheet or on the basis of their individual balance sheets, where the balance sheets are not consolidated and

2) the total value of the assets of each branch of a financial institution, including an investment firm, belonging to a third country consolidation group which is registered or authorized in the European Union pursuant to this Act, 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 (OJ L 173, 12.6.2014, pp 84–148) and Directive 2014/65 / EU.

§ 21. Establishment of branch of third-country credit institution in Estonia

(2) A third-country credit institution which wishes to establish their branch in Estonia is required to apply for an authorisation from the Financial Supervision Authority and submit an application to which the following information and documents are appended:

1) the action plan of the branch being founded together with a detailed description of the intended activities, a description of the organisational structure, and the relationship with the credit institution being founded;

1¹) a description of the activities specified in subsection 2² of § 2 of this Act;

1²) the procedure for the management of the branch;

2) the address of the branch;

3) data relating to the director of the branch, pursuant to subsection 7 of § 48 of this Act;

4) the data and documents required by subsection 3 of § 30 of this Act relating to shareholders who have qualifying holdings in the credit institution founding the branch;

5) the data and documents specified in clauses 1, 3 and 5 of subsection 2 of § 386 of the Commercial Code;

6) a copy of the articles of association of the company or of the partnership agreement certified in accordance with the laws of the country of location, in case the articles of association or the partnership agreement must also be submitted to the register in the country of location of the company.

(3) The consent of the financial supervisory authority of the home state of the credit institution for the establishment of a branch in Estonia, and a confirmation that the credit institution holds a valid authorisation, as well as data concerning the amount of own funds and the capital adequacy of the credit institution and the deposit guarantee system of the home state, must also be submitted to the Financial Supervision Authority.

(3¹) The Financial Supervision Authority shall verify if the deposits of the depositors in a branch of a credit institution are protected pursuant to the deposit guarantee scheme of the home state of the credit institution at least at the level and to the extent provided for in the Guarantee Fund Act.

(4) The foreign-language data and documents specified in this section are submitted by a third-country credit institution together with a translation into Estonian.

(5) In addition to the provisions of subsection 1 of § 15 of this Act, the Financial Supervision Authority may refuse to grant an authorisation if:

1) according to the opinion of the Financial Supervision Authority, the financial situation of the third-country credit institution is not adequately sound;

2) the organisational structure of the branch of a third-country credit institution does not correspond to the content of the intended activities;

3) the legislation of the home state of the credit institution does not require or the financial supervision authority of the home state does not exercise adequate supervision, including supervision on a consolidated basis;

4) the third-country financial supervisory authority lacks the legal basis, capabilities or willingness for adequate and effective cooperation with the Financial Supervision Authority.

5) According to the deposit guarantee scheme of the home state of the third-country credit institution, the deposits of the depositors at the Estonian branch of the specified credit institution are not protected at the level and to the extent provided in the Guarantee Fund Act, and the third-country credit institution has not assumed an obligation to join the Guarantee Fund or an obligation to pay contributions.

6) the parent undertaking of a third-country credit institution or its consolidation group fails to comply with the prudential requirements applicable to it under the law of the third country, or there is a reasonable suspicion that it fails to comply with or will breach such requirements within the next 12 months.

(5¹) A branch of a third-country credit institution notifies the Financial Supervision Authority without delay of the occurrence of the circumstance specified in clause 6 of subsection 5 of this section.

(5²) The Financial Supervision Authority grants an authorisation to a branch of a third-country credit institution provided that the conditions specified in subsections 2 and 3 of this section and all the following criteria are satisfied:

1) the branch complies with the requirements provided in §§ 95² and 95³ of this Act;

2) the activity for which the third-country parent undertaking applies for authorisation is covered by the authorisation granted to the parent undertaking in the third country where it is established and where it is subject to supervision;

3) the authority exercising supervision over the third-country parent undertaking has been notified of the establishment of the branch and has been granted access to the documents certifying compliance with the conditions specified in clauses 1–1² of subsection 2 of this section;

4) the branch is granted authorisation to operate exclusively in Estonia and is expressly prohibited from providing cross-border services in another Member State of the European Union, with the exception of intragroup funding conducted jointly with other branches of third-country credit institutions of the same third-country parent undertaking, and transactions concluded in accordance with subsections 3² and 3³ of § 20⁶ of this Act;

5) the Financial Supervision Authority is able to obtain access to all necessary information regarding the head office at the disposal of the supervisory authority exercising supervision over the third-country parent undertaking, in order to exercise supervision and effectively coordinate such supervisory activities with the specified supervisory authority, particularly in the event of a crisis or financial distress affecting the head office, its consolidation group, or the financial system of the third country;

6) there is no reasonable ground to suspect that the branch is being used for money laundering or terrorist financing for the purposes of §§ 4 and 5 of the Money Laundering and Terrorist Financing Prevention Act.

(5³) The Financial Supervision Authority consult the Financial Intelligence Unit for the purpose of assessing the condition specified in clause 6 of subsection 5 of this section.

(6) A reasoned decision on the grant of or refusal to grant an authorisation shall be made by the Financial Supervision Authority within two months as of the receipt of an application and all the data and documents specified in subsection 2 of this section.

(7) The applicant shall be promptly notified of the decision.

(7¹) In the absence of a cooperation agreement with the relevant competent authority of a third country, the Financial Supervision Authority make every effort to conclude such an agreement with the specified competent authority prior to the commencement of activities by the branch of the third-country credit institution, on the basis of the model administrative arrangement of the European Banking Authority specified in subsection 5 of Article 33 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council. The Financial Supervision Authority immediately notifies the European Banking Authority of the cooperation agreement agreed upon.

§ 21². Processing of application for authorisation for foundation of branch and revocation of authorisation

(1) The provisions of §§ 13–15, 17 and 18 of this Act apply to the processing of applications for authorisation for the foundation of a branch, verification of information, the grant and revocation of authorisation, and the issue and revocation of the identification code of a branch and the right to use thereof, unless otherwise provided for in this section.

(3) The Financial Supervision Authority may revoke the authorisation to establish a branch where:

1) the circumstances provided in § 17 or subsection 5 of § 21 of this Act become apparent;

2) there is a reasonable suspicion that an attempt of money laundering or terrorist financing is occurring or has occurred, or that such a risk exists, due to the branch, its parent company, or the consolidation group, for the purposes of §§ 4 and 5 of the Money Laundering and Terrorist Financing Prevention Act;

3) the branch does not meet the conditions provided in Chapter 8¹ of this Act.

(4) The Financial Supervision Authority may refuse to revoke an authorisation for the foundation of a branch if the clients of the branch have claims against the branch or the foreign credit institution.

§ 21³. Amendment of authorisation for foundation of branch

(1) A foreign credit institution which wishes to provide services in Estonia which are not specified in the action plan submitted upon application for an authorisation for the foundation of a branch shall submit an application for amendment of the authorisation for the foundation of the branch to the Financial Supervision Authority.

(2) In order to amend an authorisation for the foundation of a branch, a foreign credit institution shall submit to the Financial Supervision Authority an application to which the information and documents specified in clauses 1–3 of subsection 2 of § 21 of this Act are appended.

(3) The provisions of §§ 14-15 of this Act apply to the processing of applications for the amendment of authorisations for the foundation of a branch, verification of information and deciding on amendment of the authorisations.

§ 21⁴. Specifications for foundation of branch of credit institution of contracting state in Estonia

(1) A credit institution of a contracting state that wishes to establish a branch in Estonia for provision of financial services specified in subsection 1 of § 6 of this Act, provided that the authorisation of the credit institution of the contracting state includes provision of such services, shall inform the Financial Supervision Authority thereof through the financial supervision authority of the contracting state. The following information and documents shall be submitted to the Financial Supervision Authority:

1) the action plan of the branch which shall contain data on all the financial services which the branch proposes to offer in Estonia, and a description of the organisational structure of the branch;

2) the address of the branch;

3) data relating to the managers of the branch, in accordance with the provisions of subsections 6 and 7 of § 48¹ of this Act;

(2) The Financial Supervision Authority shall promptly inform the financial supervision authority of the contracting state of the receipt of the information and documents specified in subsection 1 of this section. The Financial Supervision Authority may make, where necessary, within two months after receipt of the information specified in subsection 1 of this section, a decision which determines the requirements implemented in public interest which the credit institution must comply with in Estonia. The Financial Supervision Authority shall promptly inform the financial supervision authority of the contracting state of its decision.

(3) A credit institution of a contracting state may establish a branch and commence activities after receiving, through the financial supervision authority of its home country, the decision specified in subsection 2 of this section, or two months after the date on which the Financial Supervision Authority receives the documents and information specified in subsection 1 of this section.

(3¹) On the basis of the application of the credit institution of the contracting state the Financial Supervision Authority shall issue to the branch the identification code specified in subsection 3¹ of § 13 of this Act and the right to use thereof from the term provided for in subsection 3 of this section. If the period of time remaining between the receipt of the application and the term provided for in subsection 3 of this section is shorter than 30 calendar days, the Financial Supervision Authority may decide on the issue of the identification code and the right to use thereof within 30 calendar days as of the receipt of the corresponding application.

(4) The Financial Supervision Authority shall be informed of changes in the information and documents specified in subsection 1 of this section at least one month in advance. Within one month as of becoming aware of the changes, the Financial Supervision Authority may amend the decision specified in subsection 2 of this section or make the aforementioned decision unless it has been made earlier.

(5) Confirmation from the Financial Supervision Authority concerning receipt of the information and documents specified in subsection 1 of this section and the decision of the Financial Supervision Authority specified in subsection 2 of this section, if it exists, shall be submitted upon entry of a branch in the commercial register. If the Financial Supervision Authority makes a decision specified in subsection 4 of this section, the Authority shall send a copy of the decision to the commercial register.

§ 21⁵. Provision of cross-border services in Estonia by credit institution of contracting state

(1) A credit institution of a contracting state which wishes to provide cross-border services in Estonia shall inform the Financial Supervision Authority thereof through the financial supervision authority of the contracting state and indicate which transactions and acts listed in subsection 1 of § 6 of this Act the credit institution intends to conclude and perform.

(2) A credit institution of a contracting state may commence the provision of cross-border services in Estonia after the notice specified in subsection 1 of this section has been forwarded to the Financial Supervision Authority.

(3) After receipt of the notice specified in subsection 2 of this section, the Financial Supervision Authority may make a decision in which it determines the conditions according to which the credit institution of the contracting state must provide its services. The Financial Supervision Authority shall promptly inform the credit institution of the contracting state of the decision.

§ 21⁶. Foundation of branch of financial institution belonging to consolidation group of credit institution of contracting state and provision of cross-border services in Estonia

(1) The provisions of §§ 21⁴, 21⁵ and 97² of this Act apply to the establishment of a branch and the provision of cross-border services in Estonia by a financial institution of a contracting state which is a subsidiary of a credit institution or in which two or more credit institutions hold a joint dominant influence, and the articles of association of which permit the performance of the transactions and operations specified in clauses 2–12 of subsection 1 of § 6 of this Act, unless otherwise provided in this section.

(2) The parent credit institution of a financial institution of a contracting state specified in subsection 1 of this section which wishes to establish a branch in Estonia or provide cross-border services shall inform the Financial Supervision Authority thereof through the financial supervision authority of the contracting state and shall submit the information and documents specified in subsection 1 of § 21⁴ of this Act concerning the financial institution, information concerning the amount of own funds of the financial institution and the capital adequacy indicator of the credit institution or credit institutions which are parent undertakings on a consolidated basis and a confirmation issued by the financial supervision authority of the contracting state which indicates that the financial institution meets the following requirements:

1) the parent undertaking or undertakings are authorised as credit institutions in the contracting state by the law of which the activities of the financial institution is governed;

2) the financial institution concludes the transactions and performs and acts specified in clauses 2–12 of subsection 1 of § 6 of this Act in Estonia;

3) the parent undertaking or undertakings holds at least 90 per cent of the votes represented by shares or units of the financial institution;

4) the parent undertaking or undertakings ensure the prudent management of the financial institution;

5) the parent undertaking or undertakings have stated that they solidarily guarantee performance of the obligations assumed by the financial institution;

6) together with the parent undertaking or all its parent undertakings, the financial institution is subject to supervision on a consolidated basis, in particular regarding the transactions and acts specified in clauses 2–12 of subsection 1 of § 6 of this Act and concerning limitations on investments, capital adequacy and limitations on concentration of exposures.

§ 23. Restrictions on foundation of banks

A bank shall not be founded by public share subscription.

§ 24. Payment for shares of banks

(1) Upon the foundation of a bank, shares shall be paid for in money. This restriction does not apply to the case specified in subsection 2 of § 65 of this Act.

(2) Monetary contributions shall be paid to the bank being founded into an account opened in Eesti Pank or an account opened in an Estonian credit institution.

§ 25. Transactions concluded before entry in commercial register

Before the entry of a bank in the commercial register, the founders of the bank may, in the name of the bank being founded, only conclude transactions which are directed at the creation of the organisational structure of the bank being founded and the acquisition or acquisition for use of necessary technical equipment or security systems or assets necessary to conclude transactions for which the bank has been authorised.

§ 26. Requirements for articles of association of banks

The articles of association of a bank shall, in addition to data provided for in the Commercial Code, set out the procedure for formation of the structural units specified in this Act and for provision of the competence thereof, and the reporting principles of the structural units.

§ 27. Amendment of articles of association

(1) Before entry of amendments to the articles of association in the commercial register, a credit institution is required to submit all such amendments to the Financial Supervision Authority in order to obtain the consent thereof.

(2) In order to obtain consent for amendments to the articles of association, a credit institution is required to submit an application and the following documents to the Financial Supervision Authority within ten days as of the adoption of the resolution by the general meeting of shareholders:

1) the resolution of the general meeting on amendment of the articles of association;

2) the minutes of the general meeting;

3) the new text of the articles of association.

(3) The Financial Supervision Authority shall refuse to grant consent to amendments to articles of association if such amendments do not comply with current legislation.

(4) The Financial Supervision Authority shall make a reasoned decision with regard to the amendment of the articles of association on the grant of or refusal to grant consent within two months as of the submission of the application.

(5) The consent of the Financial Supervision Authority to amendments to the articles of association of a credit institution shall be annexed to the application submitted to the commercial register.

§ 28. Shares of banks and registrar of share register

(1) A bank may have only registered shares.

(2) Pursuant to the procedure provided by law and with the consent of the Financial Supervision Authority, a bank may issue non-voting shares which grant the pre-emptive right to receive dividends and to participate in the distribution of the remaining assets of the bank upon dissolution (preferred shares).

(3) The sum of the nominal values or estimated values of preferred shares shall not be greater than one-tenth of the share capital.

(4) A bank may issue registered convertible bonds, the sum of the nominal values of which shall not be greater than one-tenth of the share capital.

(5) The shares of a bank shall be freely transferable. The pre-emptive right of a shareholder provided for in subsection 2 of § 229 of the Commercial Code does not apply to the transfer of shares of a bank.

§ 29. Holding

(1) The holding in the share capital of a company is direct or indirect.

(2) A holding is deemed to be direct if the holding belongs to a person personally, or a person personally exercises the rights related thereto.

(3) A holding is deemed to be indirect if:

1) it is held or exercised by a person together with one or several controlled companies;

2) it is held or exercised by one or several companies controlled by a person;

3) it is held or exercised by a person or a company controlled thereby based on an agreement with a third person;

4) the voting right arising therefrom is deemed to belong to the person.

(5) Determination of the qualifying holding and the company controlled shall be based on Article 4(1) (35)-(38) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council.

§ 29¹. Requirements for persons acquiring and having a qualifying holding

A qualifying holding in a bank may be acquired, held and increased and control over a bank may be achieved, held and increased by any person conforming to the following requirements (hereinafter in this section person):

1) who has an impeccable business reputation and is acting in the course of the acquisition according to the principles of sound and prudent management of a bank;

2) after the holding has been acquired or increased, is electing, naming or assigning the director of the bank to be only such a person who conforms to the requirements specified in § 48 of this Act;

3) whose financial situation is adequately strong and sustainable to ensure the reliable and regular operation of the bank, and in the case of a legal person its annual reports, if such exist, are required to allow appropriate assessment of its financial situation;

4) who is able to ensure that the bank is capable of following the prudential requirements specified in this Act, in case of a legal person primarily the requirement that the consolidation group a part of which the bank becomes has a structure that allows the exercise of adequate supervision, exchange of information and cooperation between financial supervision authorities;

5) with respect to whom there is no justified suspicion that the acquisition, possession or increase of the holding or the control over the bank is connected to money laundering or terrorist financing or any attempts thereof or increases such risks.

§ 30. Notification of acquisition of holding and information to be submitted

(1) A person who intends to acquire a qualifying holding in a bank directly or indirectly or to increase a holding so that the proportion of the share capital or votes in the bank held by the person exceeds 20, 30 or 50 per cent or so that the bank would become a company controlled by the person as a result of the transaction (hereinafter acquirer) is required to inform the Financial Supervision Authority of such intention beforehand and submit the information and documents specified in subsection 3 of this section.

(2) The provisions of this Subchapter also apply in cases where a person acquires, due to any other event or as a result of another transaction, a qualifying holding in a bank or increases a holding so that the proportion of the share capital or votes in the bank held by the person exceeds 20, 30 or 50 per cent or so that the bank becomes a company controlled by the person as a result of such event or transaction. In such case, the person is required to notify the Financial Supervision Authority promptly after the bank becomes a company controlled by the person or after becoming aware of the acquisition of qualifying holding or increase of holding in the bank.

(2¹) The Financial Supervision Authority notifies the acquirer in writing immediately but at the latest on the tenth working day as of the receipt of the notice specified in subsection 1 or 2 of this section or of the receipt of additional information and documents specified in subsection 4 of this section and about the possible end-date of the time-limit for proceedings provided in § 30¹ of this Act.

(3) The Financial Supervision Authority shall be informed of the name of the company in which the qualifying holding is being acquired or increased or is made a company controlled by the acquirer as well as the size of the acquired holding in this company and the following information and documents shall be submitted to the Financial Supervision Authority:

1) the description of the acquired company that includes an extract of the share register, information of the type and number of votes of the shares being acquired by and belonging to the acquirer and other information where necessary;

2) in a case of a natural person the curriculum vitae of the acquirer that includes among others the acquirer’s name, place of residence, current educational, work and service history and the personal identification code or in the absence thereof the date of birth;

2¹) data regarding the holdings of the acquirer who is a natural person in other legal persons or pools of assets and data regarding the persons over which the acquirer has control;

3) if the acquirer or manager of the pool of assets is a legal person, the acquirer's name, seat, registry code, an authenticated copy of the registry certificate and the articles of association, if they exist, data regarding the holding in other legal persons or pools of assets and data regarding persons over which the acquirer has control;

4) if the acquirer is a legal person, the list of its owners or members, which shall set out, for each owner or member, the number of shares or the size of the share belonging to him or her in all legal persons or pools of assets and the number of votes granted by such shares, and data regarding the persons who have control over the owners or members of the acquirer that is a legal person;

5) if the acquirer is a legal person, the list of its members of the management board and supervisory board which shall set out, for each member, his or her given name and surname, personal identification code or, in the absence thereof, date of birth, history of education, employment and services, and documents which certify the trustworthiness, experience, competence and impeccable business reputation of such persons;

6) the confirmation that a stakeholder or a person becoming the director of the bank as a result of acquisition is in compliance with the requirements provided for in this Act or the legislation issued on the basis thereof and has not been punished for an offence or economic, official misdemeanour, offence against property or public trust, whereby in the case of a citizen or pool of assets of a foreign state a certificate from the criminal records database or an equal document issued by a competent court or administrative institution of his or her home state is considered acceptable on condition that no more than three months has passed from the issue thereof;

7) description of the acquirer’s engagement in enterprise and the description of the economic and non-economic interests of the persons connected to the acquirer;

8) confirmation that there are no circumstances related to the person specified in exclude his or her right to be a manager of a bank pursuant to the law;

9) where available, the annual reports of the acquirer for the three preceding financial years;

10) if possible, the ratings and public reports necessary for assessing the financial situation of the acquirer and the financial situation of companies related to him or her if the acquirer is a natural person, or credit ratings issued to the acquirer and its consolidation group if the acquirer is a legal person;

11) if the acquirer is a company belonging to a consolidation group, a description of the structure of the group, data relating to the sizes of the holdings of the companies belonging to the group, and the last three annual reports of the consolidation group together with the sworn auditor's reports;

12) if the acquirer is a natural person, documents certifying the financial status of the person for the last three years;

13) information and documents concerning the sources of the monetary and non-monetary funds for which the acquirer intends to acquire or increase the qualifying holding or to gain control;

14) the circumstances related to the acquisition of the holding pursuant to § 29 of this Act and §§ 10 and 72¹ of the Securities Market Act;

15) the size of the qualifying holding after acquiring the holding, and the circumstances pertaining to acquisition thereof pursuant to § 29 of this Act and § 10 and 72¹ of the Securities Market Act;

16) in the case of becoming a company which is controlling the bank, a business plan and other circumstances related to gaining and executing of control pursuant to § 29 of this Act and § 10 of the Securities Market Act;

17) in the case of the bank not becoming a controlled company, an overview of the strategy to be implemented in the bank;

(3²) Information and documents shall be submitted to the Financial Supervision Authority in Estonian. With consent of the Financial Supervision Authority, the information and documents may also be submitted in some other language;

(3³) In the case specified in clause 9 of subsection 3 of this section, the annual report must be accompanied by a sworn auditor's report provided that the preparation thereof is prescribed by legislation. In case more than nine months have passed since the end of the preceding financial year, an interim report is submitted for the first half of the financial year. The interim report must be audited and an auditor's report by a sworn auditor must be annexed thereto in case an audit of the report for the ended financial year is prescribed by legislation.

(4) The Financial Supervision Authority may request in written form additional information or documents in order to specify or verify the information or documents specified in subsection 3 of this section. Such requests shall specify what additional information is to be submitted to the Financial Supervision Authority.

(5) The Financial Supervision Authority has the right to waive, in full or in part, the request for the information or documents specified in subsection 3 of this section.

(6) A third country credit institution, insurance undertaking, investment firm, management company, investment fund, e-money institution or another person subject to financial supervision which wishes to acquire a qualifying holding shall, in addition to the information and documents specified in subsection 3 of this section, submit a certificate issued by the supervisory authority of the third country which proves that the person of the third country holds valid authorisation and complies with the requirements in force, to the Financial Supervision Authority.

§ 30¹. Procedure and time-limits of proceedings

(1) The Financial Supervision Authority shall assess the conformity of the acquirer to the requirements specified in § 29¹ of this Act and shall decide to refuse or allow the acquisition of holding not later than within 60 working days (hereinafter the period of proceedings) after the Financial Supervision Authority has issued the notice confirming the reception of the information and documents necessary for assessment as provided in subsection 2¹ of § 30 of this Act.

(1¹) The Financial Supervision Authority may refuse to review the notice if the notice or the documents appended thereto have significant deficiencies, for instance, the data specified in subsection 3 of § 30 of this Act are not set out in the notice.

(2) The Financial Supervision Authority has the right to request the additional information and documents specified in subsection 4 of § 30 of this Act not later than within 50 working days after the beginning of the period of proceedings.

(3) The period of proceedings shall be suspended for the duration of the time from the first request of the Financial Supervision Authority for the additional information and documents specified in subsection 2 of this section to the moment of receiving the requested additional information and documents from the acquirer. Such suspension shall not exceed 20 working days.

(4) The period of proceedings shall not be suspended for any subsequent requests of additional information and documents.

(4¹) When assessing compliance with the requirement provided in clause 5 of § 29¹ of this Act, the person exercising the financial supervision function of the Financial Supervision Authority consults the person exercising the money laundering control function. The person exercising the money laundering control function of the Financial Supervision Authority submits their opinion within 30 working days as of the date of receipt of the relevant request.

(5) If no financial supervision is exercised over the acquirer or if financial supervision over acquirer is exercised by a financial supervision authority of a third country, the Financial Supervision Authority may extend the suspension of the period of proceedings specified in subsection 3 of this section up to 30 working days.

(6) Upon assessment of an acquisition or increase of a qualifying holding or turning a bank into a company controlled by an acquirer, the Financial Supervision Authority shall cooperate with a financial supervision authority of a contracting state if the acquirer is one of the following persons:

1) an insurance undertaking, credit institution, management company, investment fund, investment firm or other person under financial supervision, having authorisation issued by the contract state;

2) a parent company of an insurance undertaking, credit institution, management company, investment fund, investment firm or other person under financial supervision, having authorisation issued by the contract state; or

3) a person controlling a company which is an insurance undertaking, credit institution, management company, investment fund, investment firm or other person under financial supervision, having authorisation issued by the contract state.

(7) Regarding the cooperation specified in subsection 5 of this section, the Financial Supervision Authority shall consult with other financial supervision authorities. The Financial Supervision Authority shall immediately forward to other financial supervision authorities all data relevant to the assessment of the acquisition or increase of a qualifying holding or turning a bank into a company controlled by the acquirer.

(8) If multiple persons simultaneously intend to acquire a qualifying holding, then the Financial Supervision Authority shall treat them equally in equal circumstances.

§ 31. Requirements for acquisition of holdings, bases for prohibition of acquisition of holdings and decision on acquisition of holdings

(1) The Financial Supervision Authority has the right to establish a term for the acquirer during which the acquirer has the right to acquire or increase a qualifying holding, or to turn the bank into a company controlled thereby. The Financial Supervision Authority may extend the prescribed term, but the term shall not exceed twelve months. During such term, the acquirer is required to promptly inform the Financial Supervision Authority of a decision to perform or not to perform the transaction to acquire or increase a qualifying holding, or to turn the bank into a company controlled thereby.

(2) A qualifying holding may be acquired, increased or converted into a company controlled by the bank provided that the Financial Supervision Authority does not, by its precept, prohibit the acquisition of the qualifying holding, the increase thereof or the conversion of the qualifying holding into a company controlled by the bank, proceeding from the provisions of § 30¹ of this Act and subsection 3 of this section and the opinion received from the person exercising the money laundering control function based on subsection 4¹ of § 30¹ of this Act.

(3) The Financial Supervision Authority may prohibit, by a precept, the acquisition or increase of a qualifying holding or turning a bank into a controlled company if:

1) the acquirer fails to comply with the requirements provided in this Act, including where the acquirer is established in a high-risk third country specified in clause 18 of § 3 of the Money Laundering and Terrorist Financing Prevention Act or in such a third country that is subject to restrictive measures of the European Union, and where this affects the ability of the prospective acquirer to implement the practices and processes requisite for compliance with the requirements of the money laundering and terrorist financing prevention regime;

2) the acquirer has failed to submit on due date to the Financial Supervision Authority the information or documents prescribed in this Act or required by the Financial Supervision Authority on the basis of this Act;

3) information or documents submitted to the Financial Supervision Authority are not in compliance with the requirements provided by legislation, or the information or documents are incorrect, misleading or incomplete, or on the basis of the information or documents submitted the justified suspicion of the Financial Supervision Authority that the acquisition is improper or that the acquisition does not conform to the requirements provided for in this Act cannot be eliminated;

4) the bank would be turned into a company controlled by a person residing or located in a third state and there is no adequate supervision over such person in the home state or country of location thereof or the financial supervision authority of the third state has no legal basis or possibilities to cooperate with the Financial Supervision Authority.

5) a person not specified to the Financial Supervision Authority has control over the acquirer.

(4) The Financial Supervision Authority shall issue its decision allowing or precept prohibiting the acquisition of a qualifying holding to the acquirer not later than within two working days after making the relevant decision and before the end of the period of proceedings. If financial supervision over the acquirer is exercised by a financial supervision authority of a contract state, then the decision must also specify its assessment regarding the acquisition or increase of the qualifying holding or turning the bank into a controlled company.

(5) If circumstances specified in subsection 3 of this section become evident after the acquisition or increase of the qualifying holding or turning the bank into a controlled company, then the Financial Supervision Authority may issue a precept deeming the acquisition of the qualifying holding or turning the bank into a controlled company to be in violation of this Act.

(6) Upon existence of the circumstances provided in subsection 3 or 5 of this section, the Financial Supervision Authority has the right to specifically prohibit or restrict, by a precept, the acquirer or a person who has a qualifying holding in a bank or who is the person controlling a bank to exercise voting rights or other rights guaranteeing control in the bank. The Financial Supervision Authority may issue such precept regardless of having issued the precept provided in subsection 3 or 5 of this section. The Financial Supervision Authority may publish the precept on its website, and the acquirer may request the publishing of the precept.

(7) Upon issue of the precept specified in subsection 5 or 6 of this section, the Financial Supervision Authority shall inform the financial supervision authority of the relevant contracting state if the credit institution, management company, investment fund, investment firm, insurance undertaking, e-money institution, other person subject to financial supervision registered in a contracting state or a person belonging to the same consolidation group with an aforementioned person is the acquirer or a person who has a qualifying holding in a bank or who is the person controlling a bank.

(8) A bank, the registrar of its share register and other persons organising the exercise of voting rights are also required to comply with the precepts issued by the Financial Supervision Authority specified in subsections 3, 5 and 6 of this section.

§ 32. Consequences of illegal acquisition of holdings

(1) As a result of a transaction by which a qualifying holding is acquired or increased, the person shall not acquire the voting rights determined by the shares and the votes represented by the shares shall not be included in the quorum of the general meeting if:

1) the transaction is contrary to a precept issued by the Financial Supervision Authority;

2) the Financial Supervision Authority has issued a precept specified in subsection 5 or 6 of § 31 of this Act;

3) the Financial Supervision Authority has not been informed of the transaction pursuant to the procedure provided for in § 30 of this Act;

4) the transaction is performed after the expiry of the date specified in subsection 1 of § 31 or before the acquisition of the qualifying holding was permitted on the basis of this Act.

(2) No right shall arise for a person to turn a bank into a company controlled by the person as a result of a transaction in relation to which any of the circumstances specified in subsection 1 of this section exists.

(3) If voting rights representing a holding acquired or increased by a transaction, in the case of which any of the circumstances specified in subsection 1 of this section exists, are included in the quorum of the general meeting and influence the adoption of a resolution of the general meeting, the resolution of the general meeting is void. A court may declare the resolution of the general meeting invalid on the basis of a petition of the Financial Supervision Authority, a shareholder or a member of the management board or supervisory board of the company, if the petition is submitted within three months as of the adoption of the resolution of the general meeting.

(4) In the case of exercise of the rights guaranteeing control which arise from a transaction whereby the bank was to be turned into a company controlled by the person and in respect of which any of the circumstances specified in subsection 1 of this section exists, a court may declare the exercise of such rights invalid on the basis of a petition of the Financial Supervision Inspectorate, a shareholder or member of the management board or supervisory board of the company, if the petition is submitted within three months as of the time of exercise of the rights.

§ 33. Giving notification of changes in holding and related circumstances

(1) If a person intends to transfer shares in an amount which would result in the person losing a qualifying holding in a bank or if the person reduces the holding thereof such that it falls below one of the limits specified in subsection 1 of § 30 of this Act or foregoes control over the bank, the person is required to promptly inform the Financial Supervision Authority of such intention and indicate the number of shares which the person owns and transfers and holds after the transaction.

(2) The provisions of subsection 1 of this section also apply if a person loses control over a bank or qualifying holding in a bank as a result of any other event or transaction or if the holding of the person is reduced such that it falls below one of the limits specified in subsection 1 of § 30 of this Act. In such case, the person is required to inform the Financial Supervision Authority promptly after becoming aware of the loss of qualifying holding or control or the reduction of holding.

(3) Upon becoming aware of transactions specified in subsections 1 and 2 of § 30 of this Act or subsections 1 or 2 of this section, a bank is required to promptly inform the Financial Supervision Authority thereof.

(4) Together with its annual report, a bank shall submit to the Financial Supervision Authority information concerning persons who, as of the end of the financial year, have qualifying holding in the bank and shall set out the size of holding owned by each person and the circumstances relating thereto pursuant to § 29 of this Act and §§ 10 and 72¹ of the Securities Market Act.

(5) A person that has a qualifying holding shall promptly inform the Financial Supervision Authority about encumbering its shares with the right of third party, thereby setting out the information connected to the pledge, including the names, personal identification codes, or in the absence of them, the dates of birth of the pledgor and the pledgee and the number of shares pledged for the benefit of the pledgee. The information requirement shall not be applied if the encumbrance of the shares is registered in the register kept by the Estonian Central Securities Depository.

§ 34. Acquisition or taking as security of own shares

(1) A bank may acquire its own shares and take its own shares as security in the conduct of ordinary business provided that the shares of the bank are traded on a regulated market.

(2) The provisions of clause 1 of subsection 2 of § 283 of the Commercial Code do not apply to a bank taking its own shares as security.

(3) The grant of a loan for the purchase of own shares is prohibited.

§ 35. Share and initial capital of bank

(1) Upon foundation of a bank as a new company the paid in share capital of the bank shall be equivalent to at least 5 million euros. Only the amounts actually paid in may be reflected as share capital.

(2) In the case of an operating company the initial capital of the bank shall make up at least five million euros. The initial capital consists of the capital and reserves specified in Article 26 (1) (a)-(e) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council.

§ 36. Methods of increase of share capital

(1) Upon a resolution of the general meeting, the share capital of a bank may be increased by supplementary monetary contributions or, without supplementary contributions, out of the retained profits or share premium accounts of the bank (bonus issue) or by the conversion of convertible bonds to shares or by the settlement of a financial claim arising out of a subordinated debt agreement and the issue price of the shares.

(2) By a resolution of the general meeting, shares of the bank may be paid for by a non-monetary contribution upon an increase of the share capital of the bank in the course of the merger of banks.

(3) Prior written consent from the Financial Supervision Authority is required to increase the share capital of a bank by the conversion of convertible bonds to shares or by the settlement of a claim arising out of a subordinated debt agreement and the issue price of the shares.

(3¹) The Financial Supervision Authority may refuse to grant consent if increasing the share capital of a bank by the method specified in subsection 3 of this section would damage the interests of depositors, other clients and creditors of the credit institution.

(4) The provisions of § 349 of the Commercial Code also apply to a bank; however, the supervisory board shall not increase the share capital by more than 10 per cent of the share capital which existed at the time the supervisory board acquired the right to increase the share capital.

(5) A bank is required to notify the Financial Supervision Authority of the conditions of an intended increase in share capital at least seven days before the adoption of the corresponding resolution.

§ 37. Reduction of share capital

(1) Share capital may be reduced in order to cover a loss (simplified reduction of share capital) unless otherwise provided for by this Act. After the adoption of a resolution to reduce share capital, the Tier 1capital of the bank shall be no less than that provided for in subsection 2 of § 35 of this Act.

(2) Prior written consent from the Financial Supervision Authority is required to reduce share capital for other purposes.

(3) The Financial Supervision Authority may refuse to grant the consent provided for in subsection 2 of this section if the reduction of share capital would damage the solvency of the bank or the interests of depositors, clients or other creditors of the bank in other way.

(4) § 358 and the term provided for in the first sentence of subsection 1 of § 359, and subsection 2 of § 359 of the Commercial Code do not apply to banks. The management board shall publish a notice concerning the new amount of share capital in a national daily newspaper within fifteen days as of adoption of the resolution on the reduction of the share capital.

§ 37¹. Notification of shareholding by credit institution, financial holding company and mixed financial holding company and data to be submitted

(1) A credit institution and a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act (hereinafter in this Chapter collectively proposed acquirer) who intend to acquire a holding directly or indirectly or increase the holding so that it exceeds 15 per cent of the accepted capital of the proposed acquirer (hereinafter in this Chapter the proposed acquisition) notify the Financial Supervision Authority of their intention in advance.

(2) Where the proposed acquirer is a credit institution, the threshold provided in subsection 1 of this section is applied both individually and based on the consolidated indicators of the consolidation group.

(3) Where the threshold provided in subsection 1 of this section is exceeded only individually, the proposed acquirer notifies the financial supervisory authority of the Contracting State in which the acquirer is established.

(4) Where the threshold provided in subsection 1 of this section is exceeded both individually and based on the consolidated indicators of the consolidation group, the proposed acquirer also notifies the authority exercising consolidated financial supervision that assesses the proposed acquisition.

(5) Where the proposed acquirer is a financial holding company approved based on § 13⁶ of this Act or a mixed financial holding company, the threshold specified in subsection 1 of this section is applied based on the consolidated indicators and the proposed acquirer notifies the financial supervision authority exercising consolidated financial supervision of their intention in advance.

(6) The proposed acquirer notifies the Financial Supervision Authority of the name of the company in which the holding is acquired or increased (hereinafter in this Chapter the entity to be acquired), as well as the size of the holding in the entity to be acquired, and submits the following data and documents (hereinafter in this chapter the application):

1) a description of the entity to be acquired, including an extract from the share register, information on the type of shares to be acquired and held by the proposed acquirer and the number of votes, and, where appropriate, other information;

2) a description of the business activities of the entity to be acquired and a description of the economic and non-economic interests of the persons related thereto;

3) the reports of the last three financial years of the entity to be acquired, where available;

4) in the case of an entity to be acquired belonging to a consolidation group, a description of the structure of the consolidation group together with data on the size of the shareholding of the companies belonging thereto, as well as the annual reports of the last three financial years of the consolidation group and the reports of the sworn auditor;

5) information and documents on the origin of the financial and non-financial resources for which the acquisition or increase of the holding is intended;

6) circumstances related to the proposed acquisition;

7) the size of the shareholding held after the proposed acquisition and the circumstances related to the ownership thereof;

8) information on the obligations related to the proposed acquisition and the obligations arising from the holding and their impact on the financial capacity of the proposed acquirer and the fulfilment of the requirements provided in the law;

9) information on whether the acquisition of holdings takes place between entities within the same group in accordance with subsection 6 of Article 113 of Regulation (EU) No 575/2013 of the European Parliament and of the Council or between entities belonging to the same protection scheme in accordance with subsection 7 of Article 113 of that Regulation.

(7) In the case specified in clause 3 of subsection 6 of this section, the annual report must be accompanied by a sworn auditor's report provided that the preparation thereof is prescribed by legislation. Where more than nine months have passed since the end of the last financial year, an interim report is submitted for the first half of the financial year. An audit must be carried out on the interim report and appended to the sworn auditor's report provided that the performance of an audit on the completed annual report is prescribed by legislation.

§ 37². Requirements for proposed acquirer

The proposed acquirer must satisfy the following requirements:

1) their firm and reliable management is ensured;

2) they consistently comply with the prudential requirements provided in this Act, Regulation (EU) No 575/2013 of the European Parliament and of the Council and, where applicable, in other European Union legislation, and they are able to continue to comply with them;

3) there is no reasonable suspicion in respect of them that the acquisition, ownership or increase of the shareholding or control over the entity to be acquired is related to money laundering or terrorist financing or attempt thereof or increases such risks.

§ 37³. Procedure and procedural deadlines for the assessment of the proposed acquisition

(1) The Financial Supervision Authority notifies the proposed acquirer in writing without delay, yet no later than on the tenth working day as of receipt of the application or the supplementary data and documents specified in subsection 6 of this section as well as the potential expiry date of assessment period.

(2) The Financial Supervision Authority assesses the compliance of the proposed acquirer with the requirements set out in § 37² of this Act and decides on the prohibition or authorisation of the acquisition of a holding within 60 working days as of the submission of the notice provided in subsection 1 of this section.

(3) The assessment provided in subsection 2 of this section is not required where holdings are acquired between entities belonging to the same consolidation group in accordance with subsection 6 of Article 113 of Regulation (EU) No 575/2013 of the European Parliament and of the Council or between entities belonging to the same protection scheme of credit institutions in accordance with subsection 7 of Article 113 of the same Regulation.

(4) The Financial Supervision Authority may leave the application without consideration where the application or the documents appended thereto contain material deficiencies.

(5) Where the proposed acquisition concerns the acquisition of a qualifying holding in a credit institution in accordance with the provisions of Subchapter 2 of Chapter 3 of this Act, the notification requirement and assessment provided in the specified Subchapter also apply to the proposed acquirer. In such a case, the time limit within which the Financial Supervision Authority must carry out both the assessment provided in this section and the assessment provided in § 30¹ of this Act will expire only when the later of the two relevant assessment periods expires.

(6) The Financial Supervision Authority may, within 50 working days as of the commencement of the procedural period, request in writing additional data and documents for the purpose of clarifying and verifying the documents specified in subsection 6 of § 37¹ of this Act.

(7) The procedural period is suspended for the period between the first request by the Financial Supervision Authority for the additional information and documents specified in subsection 6 of this section and the receipt of such requested additional information and documents from the proposed acquirer. The suspension does not exceed 20 working days.

(8) The Financial Supervision Authority may extend the suspension of the procedural period specified in subsection 7 of this section for to up to 30 working days, provided that:

(1) the entity to be acquired by the proposed acquirer is located in a third country or is subject to the law of a third country;

2) in the course of the assessment provided in this section, it is necessary to cooperate with the competent authority of another Contracting State in the field of the prevention of money laundering and terrorist financing.

(9) Where a financial holding company or a mixed financial holding company submits an application for approval to the Financial Supervision Authority in accordance with § 13⁴ of this Act concurrently with the application, the Financial Supervision Authority, where appropriate, cooperates with the authority exercising consolidated financial supervision and the competent authority of the Contracting State in which the financial holding company or mixed financial holding company is established. In such case, the procedural time limit is suspended until the end of the approval procedure.

(10) When assessing the compliance with the requirement provided in clause 3 of § 37² of this Act, the person performing the financial supervision function of the Financial Supervision Authority consults the person performing the money laundering control function. The latter submits their opinion within 30 working days as of the receipt of the relevant request.

(11) Where more than one person simultaneously intends to acquire a holding, the Financial Supervision Authority must treat the proposed acquirers equally under identical circumstances.

§ 37⁴. Conditions for acquisition of holding, bases for prohibition and decision on acquisition

(1) A proposed acquirer may acquire or increase the holding provided in subsection 1 of § 37¹ of this Act provided that the Financial Supervision Authority has granted authorisation therefor based on the relevant decision.

(2) The Financial Supervision Authority may prohibit the acquisition or increase of a holding where:

1) the proposed acquirer does not comply with the requirements provided in § 37² of this Act;

2) the proposed acquirer has failed to submit to the Financial Supervision Authority the data or documents prescribed by this Act or requested by the Financial Supervision Authority on the basis of this Act by the specified due date;

3) the proposed acquisition may create a systemic risk.

(3) The Financial Supervision Authority may set a time limit within which the proposed acquisition must be completed.

(4) Upon making a decision, the Financial Supervision Authority takes into account the opinions obtained in accordance with subsection 10 of § 37³ and § 37⁶ of this Act.

(5) When deciding on a proposed acquisition, the Financial Supervision Authority may not take into account the impact that the proposed acquisition may have on other participants in the financial market.

(6) The Financial Supervision Authority notifies the proposed acquirer of a decision on authorising or prohibiting the acquisition of a holding within two working days after the decision is made.

§ 37⁵. Consequences of the illegal acquisition of holding

As a result of a transaction to acquire or increase a holding, the proposed acquirer does not acquire the voting rights attached to the shares, and the votes represented by them are not included in the quorum of the general meeting, where:

1) the Financial Supervision Authority has not been notified of the transaction in accordance with the procedure provided in § 37¹ of this Act;

2) the transaction has been concluded before the acquisition of the holding was permitted under this Act;

3) the transaction conflicts with a precept issued by the Financial Supervision Authority.

§ 37⁶. Cooperation with other competent authorities

(1) The Financial Supervision Authority cooperates with the financial supervision authority of the relevant Contracting State in assessing the acquisition or increase of the holding by the proposed acquirer where the entity to be acquired is:

(1) a credit institution, insurance undertaking, investment firm or management company which has obtained an authorisation in another Contracting State, or which operates in a sector other than that of the proposed acquirer;

(2) the parent undertaking of a credit institution, insurance undertaking, investment firm or management company which is authorised in another Contracting State, or which operates in a sector other than that of the proposed acquirer, or

3) a person who has control over a credit institution, insurance undertaking, investment firm or management company that has been authorised in another Contracting State or in a sector other than the sector of the proposed acquisition.

(2) In the course of the cooperation specified in subsection 1 of this section, the Financial Supervision Authority consults with the financial supervision authority of another Contracting State. The Financial Supervision Authority immediately transmits to the financial supervisory authority of the other Contracting State all the information that is relevant to the assessment of the proposed acquisition.

(3) Where the proposed acquirer is a credit institution and the threshold provided in subsection 1 of § 37¹ of this Act is exceeded only individually, the Financial Supervision Authority notifies the authority exercising consolidated financial supervision of the proposed acquisition within ten working days as of the receipt of the application from the proposed acquirer in case the proposed acquirer belongs to a consolidation group and the Financial Supervision Authority is not an institution exercising consolidated financial supervision. In addition, the Financial Supervision Authority transmits their assessment to the authority exercising consolidated financial supervision.

(4) Where the Financial Supervision Authority is a financial supervisory authority exercising consolidated supervision and the proposed acquirer is a financial holding company and a mixed financial holding company established in another Contracting State that has been approved under § 13⁶ of this Act, the Financial Supervision Authority notifies the financial supervision authority of the Contracting State in which the proposed acquirer is established of the proposed acquisition within ten working days as of the receipt of a notification from the proposed acquirer. In such a case, the Financial Supervision Authority also transmits their assessment of the proposed acquisition to the financial supervisory authority of the other Contracting State.

(5) Where the proposed acquirer is a credit institution and the threshold provided in subsection 1 of § 37¹ of this Act is exceeded both individually and on the basis of the consolidated indicators of the consolidation group, the financial supervision authority assessing the proposed acquisition and the financial supervision authority exercising consolidated supervision endeavour to coordinate their assessments, in particular with a view to consultation with the relevant authorities listed in subsection 1 of this section.

(6) Where the proposed acquisition is subject to assessment by the financial supervision authority exercising consolidated supervision specified in subsection 4 of § 37¹ of this Act, and such authority is not the competent financial supervisory authority of the Contracting State in which the proposed acquirer is established, both authorities cooperate and consult with each other to the full extent. The financial supervision authority exercising consolidated supervision draws up an assessment of the proposed acquisition and transmit it to the financial supervision authority of the Contracting State where the proposed acquirer is established. The specified authorities issue a joint reasoned decision within two months as of the date of receipt of the assessment. The financial supervision authority exercising consolidated supervision communicates the joint decision to the proposed acquirer.

(7) Where the joint decision specified in subsection 6 of this section has not been made within two months as of receipt of the assessment, the financial supervision authority exercising the consolidated supervision or the financial supervision authority of the Contracting State in which the proposed acquirer is established refrains from making a decision and transmits 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 specified authorities take a joint decision in accordance with the decision of the European Banking Authority.

§ 37⁷. Notification of transfer

A credit institution and a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act notify the Financial Supervision Authority in writing in advance of their intention to transfer, directly or indirectly, the holding specified in subsection 1 of § 37¹ of this Act, indicating the amount of the holding to be transferred.

§ 38. Application of Acts

The provisions of this Act on a credit institution are applied upon the establishment, operation and dissolution of an association bank, with the specifications provided in this Chapter.

§ 39. Foundation of association banks

(1) An association bank must be founded by at least fifty persons.

§ 41. Foundation of association bank by merger of savings and loan associations

(1) An association bank may be founded by a merger of savings and loan associations pursuant to the procedure prescribed in the Savings and Loan Associations Act.

(2) The founders of an association bank are the merging savings and loan associations.

(3) Upon the foundation of an association bank by a merger of savings and loan associations, all merging savings and loan associations shall be audited by at least one common auditor who meets the requirements specified in subsection 1 of § 94 of this Act.

(4) The auditor shall prepare a report concerning the audit of the merger agreement and merger report and provide the auditor’s opinion of whether the share capital and net own funds of the association bank being founded are in compliance with the requirements of this Act and legislation issued on the basis thereof.

§ 42. Requirements for articles of association of association banks

(1) The articles of association of an association bank must set out:

1) a description of the organisational structure of the association bank and the procedure for the formation of structural units;

2) the competence of the directing bodies;

3) the body which establishes the procedure for making transactions with the members of the association bank and filing a claim against the member;

4) the reporting principles;

6) the conditions for admission to membership of an association bank and requirements applicable to members;

7) the amount of the entrance fee and the procedure for payment;

8) the amount of the contribution and the procedure for payment in case it is provided;

9) the amount of the share capital;

10) the amount of the legal reserve and other capital and the procedure for their formation;

11) other mandatory conditions provided in this Act.

§ 42¹. Members of association banks

(2) The management board of the association bank decides on the acceptance and exclusion of a person as a member of the association bank upon request by the person within 30 days as of the receipt of the relevant application. The aforementioned right may be granted to the supervisory board by the articles of association. Upon making a decision on the acceptance to the membership of an association bank and exclusion of a member, the compliance of the member with the requirements of this Act and the articles of association must be verified.

(3) If a member leaves or is excluded from an association, the member has the right to the refund of the paid contribution if the member does not have any unperformed and enforceable obligations to the association bank.

(4) The contribution must be paid out within three years as of the termination of membership unless a shorter term is prescribed by the articles of association. The supervisory board may set, as an exception, a longer term for the payout of contributions than previously established, which may not be longer than seven years, in case the own funds of the association bank would not be sufficient after the payout to comply with the prudential ratios provided in this Act and for compliance with other requirements established in this Act and on the basis thereof.

(5) The provisions of subsection 4 of this section also apply to the successors of the deceased member unless the successors become members of the association.

(6) Provisions of §§ 33-37 of the Commercial Associations Act do not apply to the members of the association bank.

§ 42². Members of management board of association bank

(1) The management board of an association bank consists of three members, unless the articles of association provide a greater number of members or unless otherwise provided in this section.

(2) The management board of an association bank may consist of two members in case the share capital of the association bank is less than five million euros in accordance with the provisions of subsection 2 of § 44 of this Act.

(3) A member of the management board of an association bank is not required to be a member of the association bank, unless otherwise provided in the articles of association.

§ 44. Initial and share capital of association bank

(1) The initial capital of an association bank consists of the capital and reserves specified in clauses a-e of subsection 1 of Article 26 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2) In case an association bank does not provide investment services specified in subsection 1 of § 43 of the Securities Market Act or cross-border services in accordance with this Act, its share capital may be smaller than that provided in subsections 1 and 2 of § 35 of this Act but must be at least one million euros.

(3) The members of an association bank decide on the change in the size of the share capital within 12 months as of the occurrence of the situation that constitutes the basis for the change in the size of the share capital.

(4) In addition to the provisions of § 51 of this Act, the management board of an association bank calls an extraordinary general meeting to change the share capital of the association bank in case the share capital of the association bank decreases by at least five percent.

(5) The management board of an association bank immediately submits to the commercial register the resolution of the general meeting by which the change in the share capital of the association bank is decided.

§ 44¹. Provision of investment services and services abroad by association bank

(1) An association bank has the right to provide investment services specified in subsection 1 of § 43 of the Securities Market Act and services specified in subsection 1 of § 6 of this Act in a foreign state to the extent provided in the licence, establishing a branch for this purpose or by providing cross-border services in case the share capital of the association bank is at least five million euros.

(2) An association bank notifies the Financial Supervision Authority in case it wishes to start providing services specified in subsection 1 of this section, taking into account the provisions of subsection 4 of § 2 and § 19¹ of this Act.

(3) The Financial Supervision Authority has the right to prohibit an association bank from providing investment services or providing services abroad in case the share capital of the association bank falls below five million euros.

§ 44². Qualifying holding in association bank

(1) In the case of an association bank, upon determining the qualifying holding of a member, the financial and non-financial contribution of the member to the association bank, including loans granted or contributions made to the association bank or other significant support for the activities of the association bank, are additionally taken into account. Upon determining a qualifying holding, the influence of the member on the management of the association bank as a whole, which may arise from the role and social image of the member or other similar circumstances, must also be considered.

(2) Upon determining a qualifying holding specified in subsection 1 of this section, the association bank must immediately notify the Financial Supervision Authority of all the circumstances that may bring along the qualifying holding of the member or control over the association bank.

(3) The association bank must establish in its articles of association more specific conditions and procedures for assessing the qualifying holding of a member.

§ 45. Legal reserve of association bank

(1) In order to guarantee the obligations of an association bank, a legal reserve shall be formed in the amount of at least one-tenth of the share capital unless the articles of association prescribe a higher level.

(2) During each financial year, at least one-twentieth of net profit shall be entered in the legal reserve. If the legal reserve reaches the amount prescribed in the articles of association, the increase of legal reserve from net profit shall be terminated.

§ 46. Distribution of profit of association bank

(1) The profit of an association bank shall be calculated pursuant to accounting rules and distributed according to the resolution of the general meeting.

(2) Upon a resolution of the general meeting, the shares of profit prescribed for payment to members in the profit distribution proposal submitted by the management board shall not be increased.

(3) Payments shall not be made to members if the annual report of the association bank approved at the end of the previous financial year shows that the amount of own funds of the association bank does not comply with the provisions of this Act.

§ 48. General requirements to managers and staff members

(1) The members of the supervisory board and management board of a credit institution and of a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act are deemed to be managers.

(2) A credit institution, as well as any financial holding company and mixed financial holding company approved on the basis of § 13⁶ of this Act, ensure that the members of their management body possess the requisite knowledge, skills, experience, education, professional suitability, and an impeccable business reputation necessary for the management of the specified credit institution, financial holding company or mixed financial holding company. A person is deemed to lack an impeccable reputation where the Financial Supervision Authority has established circumstances that call into question the existence thereof or confirm its absence. In assessing a person’s reputation, the Financial Supervision Authority takes into account, among other things, whether the prior acts or omissions of the person, or of a company managed or controlled by them, have resulted in the initiation of bankruptcy or reorganization proceedings; or whether the person has been convicted of an offense, is an accused or suspect in criminal proceedings, or is otherwise implicated in an offense; or whether the person has committed, or been involved in, an unlawful, fraudulent, or breach-of-trust act, money laundering or terrorist financing, or has been subject to an investigation or supervision proceedings related thereto.

(2¹) As a result of the election or appointment of the directors specified in subsection 1 of this section, the composition of the supervisory board and the management board must be sufficiently diverse, comply with the principles of diversity of the composition of the management body established by the credit institution and the financial holding company and the mixed financial holding company approved on the basis of § 13⁶ of this Act, and promote gender balance. When electing or appointing managers, it must be ensured that the management body is capable of working and that persons with different competences and professional backgrounds are represented therein. Managers must have sufficient knowledge, skills and experience to understand the activities of credit institutions, including the principal risks to which the institution is exposed, and the impact of the decisions they take in the short, medium and long term, taking into account, among other things, environmental, social and governance factors.

(2²) Managers must have sufficient time to carry out their duties in a specific post and must be compatible with the management body in terms of their knowledge, skills and experience.

(2³) The managers of a credit institution and of a financial holding company and a mixed financial holding company approved based on § 13⁶ of this Act must act honestly and reliably and be free in making their decisions.

(2⁴) A credit institution and a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act verify, ensure and are responsible for ensuring that their managers comply at all times with the requirements established for managers under this Act by conducting an internal suitability assessment and documenting the respective process.

(2⁵) Where a credit institution, or a financial holding company and mixed financial holding company approved on the basis of § 13⁶ of this Act, becomes aware of facts due to which their manager or candidate for the post of a manager fails to comply with the established requirements:

1) the candidate for the post of a manager may not be appointed to office;

2) the appointed manager is recalled immediately; or

3) where appropriate, measures are implemented to ensure that the manager is suitable for the post or that the candidate for the post of a manager becomes suitable for the post.

(3) A person whose earlier activities have caused the bankruptcy or compulsory liquidation or revocation of the activity licence of a company, or from whom the right to engage in economic activity has been taken away pursuant to law, or whose earlier activities as a manager of a company have shown that he or she is not capable of organising the management of a company such that the interests of the shareholders, members, creditors and clients of the company are adequately protected, or whose earlier activities have shown that he or she is not suitable to manage a company for other good reasons shall not be elected or appointed manager of a credit institution or a member of the supervisory board or management board of the parent company of a credit institution or a company belonging to the same consolidation group as the parent company.

(4) The managers and staff members of a credit institution are required to act with the prudence and competence expected of them and according to the requirements for their posts in line with the interests of the credit institution and the clients thereof. The knowledge, skills and experience of the managers of credit institutions and staff members engaged in granting loans shall be in compliance with the provisions of subsections 2–5 of § 40 of the Creditors and Credit Intermediaries Act upon granting a loan to consumers.

(4¹) A credit institution and a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act must establish a procedure and ensure adequate resources for the induction of and professional development of the appointed managers in a specific field in accordance with the requirements for the post, including environmental, social and governance risks and impacts, and the ICT risk as defined in clause 52c of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(5) The managers and staff members of a credit institution are required to give priority to the economic interests of the credit institution and the clients thereof over their own personal economic interests.

(5¹) The organisational structure and organisation of management of a credit institution shall ensure sound and prudent management of the credit institution, including separation of functions in the organisation and prevention of the conflict of interests.

(5²) A credit institution as well as a financial holding company or mixed financial holding company approved on the basis of § 13⁶ of this Act assess the compliance of managers with the requirements prior to their election and in the event that new facts or other circumstances appear which may affect the suitability of a manager. A credit institution as well as a financial holding company or mixed financial holding company approved on the basis of § 13⁶ of this Act also regularly carry out suitability assessments of managers.

(5³) Where the majority of the members of the management body are to be replaced by the appointment of new members at the same time, and the outgoing members would be required to conduct the suitability assessment of the incoming members, the credit institution carries out the internal suitability assessment subsequent to the commencement of the mandates of the newly elected or appointed members.

(5⁴) A credit institution as well as a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act are required to keep the information on the suitability of the manager up to date.

(5⁵) A key person is a person who has a significant influence on the management of a credit institution as well as a financial holding company and a mixed financial holding company approved based on § 13⁶ of this Act, but who is not a member of the management body. A key person is, in particular, the chief financial officer and the head of a compliance, risk control, or internal audit unit.

(5⁶) In addition to the provisions in this Act concerning employees, subsections 2, 2³–2⁵, 3, 4¹, 5² and 5³ of this section are applied to a key person.

(5⁷) A credit institution as well as a financial holding company and a mixed financial holding company approved based on § 13⁶ of this Act implement measures to ensure the proper fulfilment of the functions of a key person.

§ 48¹. Notification of manager and key personnel

(1) A credit institution notifies the Financial Supervision Authority of their intention to elect, appoint, or extend the term of office of a manager or a key function holder at least ten days prior to the resolution of the matter, and submits the information and data, as well as documents, listed in subsection 4 of this section. This time limit is not applied where the prior submission of documents is impossible or a valid reason.

(2) A person specified in clauses a–f of subsection 1d of Article 91of Directive (EU) 2024/1619 of the European Parliament and of the Council amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks (OJ L, 2024/1619, 19.06.2024) (hereinafter in this Chapter a significant credit institution) notifies the Financial Supervision Authority of their intention to elect or appoint a manager of the credit institution, and submits the data and documents, listed in subsection 4 of this section no later than 30 working days prior to the date of commencement of the term of office of the manager.

(3) In the event of the emergence of new facts or other circumstances that may affect the suitability of a manager or key function holder, the credit institution immediately notifies the Financial Supervision Authority thereof.

(4) In order to elect or appoint a manager or key function holder, the following data and documents are submitted to The Financial Supervision Authority:

1) the written consent of the person to their election or appointment to the office accompanied by a completed suitability questionnaire;

2) the curriculum vitae and general data of the person; in the case of a member of the management board, a description of their area of responsibility, an overview of the person's reputation, education, knowledge, skills, experience, and business undertakings;

3) data concerning the term of office and post of the person;

4) documents related to the suitability assessment carried out by the credit institution, except in the case provided in subsection 3 of this section;

5) data concerning companies in which the qualifying holding of the person exceeds 20 percent;

6) data regarding potential conflicts of interest and the time commitment dedicated by the person to the performance of their official duties;

7) the declaration of the person confirming the absence of any circumstances prescribed by this Act which would preclude the right to act as a manager of a credit institution;

8) in the case of a foreign national, an extract from the criminal records registry of their country of origin or residence, or an equivalent instrument issued by a competent judicial or administrative authority, which may not be older than three months prior to submission;

9) the date of appointment of the manager and the effective date of assumption of office.

(5) The data listed in subsection 4 of this section are submitted in the format and scope approved by the Financial Supervision Authority.

(6) Where new circumstances become evident during the suitability assessment conducted by a credit institution, due to which a manager fails to comply with the established requirements, the credit institution notifies the Financial Supervision Authority thereof immediately.

(7) A credit institution notifies the Financial Supervision Authority of the resignation of a manager or key person, or of the initiation of their recall prior to the expiry of their term of office, at least ten days before deciding on the matter. The time limit does not apply where prior notification is impossible for valid reason.

(8) The provisions of subsections 1 and 3–7 of this section concerning a credit institution are also applied to a financial holding company and mixed financial holding company approved on the basis of § 13⁶ of this Act.

§ 48². Suitability assessment procedure of Financial Supervision Authority

(1) The Financial Supervision Authority has the right to conduct the suitability assessment of a manager and key person of a credit institution at any time, including in the event of an increase in risks related to the credit institution and the emergence of new facts concerning the manager or key person.

(2) The Financial Supervision Authority may specify a time limit for conducting the suitability assessment upon the election or appointment of a manager or key person of a significant credit institution.

(3) In case there are deficiencies in the data or documents listed in subsection 4 of § 48¹ of this Act, the Financial Supervision Authority may require that the manager or key person does not take office prior to the submission of all relevant data and documents.

(4) The Financial Supervision Authority may require additional data, documents, and explanations to clarify and verify the data listed in subsection 4 of § 48¹ of this Act.

(5) The Financial Supervision Authority has the right to obtain personal data and other information from the criminal records database and other sources to verify the data listed in subsection 4 of § 48¹ of this Act.

(6) The Financial Supervision Authority may require a credit institution to implement appropriate measures to ensure the suitability for office and compliance with the requirements of a manager or key person.

(7) The Financial Supervision Authority is not required to conduct the suitability assessment where the term of office of a manager or key person is extended, unless the information concerning the specified person has changed and this may affect the suitability of the person for office.

(8) The provisions of this section concerning a credit institution are also applied to a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act.

§ 49. Prohibition on competition and declaration of economic interests

(1¹) A manager of a credit institution may be a member of the supervisory board or a management board of another company, including a related undertaking, in case it is in compliance with the obligations and competence of the manager, proportional to the nature, extent and level of complexity of the activities of the credit institution, and does not result in a conflict of interests. Where a credit institution is a significant entity subject to supervision for the purpose of clause 16 of Article 2 of Regulation (EU) No 468/2014 of the European Central Bank establishing a framework for cooperation between the European Central Bank and national competent authorities and national designated authorities under the SSM (Single Supervisory Mechanism Framework Regulation) (OJ L 141, 14.5.2014, pp 1-50), the manager may not hold more than:

1) one post of a management board member and two posts of supervisory board members, or

2) four posts of supervisory board members.

(1²) The following posts shall be considered one post for the purposes of restrictions specified in subsection 1¹ of this section:

1) posts of managers within the same consolidation group;

2) managerial positions in the credit institutions that are members of the respective institutional protection scheme that is in compliance with the requirements specified in subsection 7 of Article 113 of Regulation (EU) No 575/2013 of the European Parliament and of the Council or in an undertaking in which the credit institutions belonging to the institutional protection scheme have a qualifying holding;

3) posts of managers in companies in which the credit institution has a qualifying holding.

(1³) The restrictions specified in subsection 1¹ of this section shall not extend to the managers in the following cases:

1) appointment to a post of a manager for representing the contracting state;

2) appointment or election to a post in an association, organization or another entity which is not established for the purpose of making profit through economic activities;

3) The Financial Supervision Authority has granted authorisation for assumption of a post of an additional member of the supervisory board.

(1⁴) The provisions of § 48¹ of this Act are applied to the application of the authorisation specified in clause 3 of subsection 1³ of this section. The Financial Supervision Authority notifies the credit institution and a member of the supervisory board and the European Banking Authority of the granting or refusal of the authorisation.

(2) The following persons shall not be members of the management board of a credit institution:

2) a procurator or auditor of another company.

(3) It is prohibited for a member of the management board of a credit institution to enter into contracts with other persons, pursuant to which his or her task is to invest, prepare or mediate loan and investment projects or other similar activities. The provisions of this subsection shall not be applied to pedagogical or research activities.

(4) A credit institution shall ensure the submission to the credit institution of written declaration of economic interests and proprietary obligations of its managers, key personnel, managers of a subsidiary credit institution located in a foreign state and of the head of a branch of a credit institution located in a foreign state. The declaration shall be submitted before taking up the corresponding post and at least once a year when the relevant information is updated. The risks arising from economic interests and property liabilities to the credit institution shall be hedged.

(5) The staff members of a credit institution specified in subsection 3 of § 57¹ of this Act are required to submit the declaration of economic interests in accordance with the internal provisions established in the credit institution. At the request of the management board of the credit institution the staff members not specified in the first sentence of this subsection are also required to submit the declaration if it is proportional to the nature, extent and level of complexity of the operation of the credit institution and necessary based on the organisational structure of the credit institution, services provided and organisation of risk management.

§ 50. Non-election or non-appointment and removal of manager or key person of credit institution

(1) The Financial Supervision Authority has the right to require by a precept that a manager or key person of a credit institution not be elected or appointed, or that such person be removed, where:

1) the person does not comply with the requirements established for a manager or a key person of a credit institution, or

2) the person has submitted misleading or inaccurate information or falsified documents in connection with his or her election or appointment;

3) the activities of the person upon managing the credit institution or performing his or her duties have shown that he or she is unable to organize the management of the credit institution or perform his or her duties in such a way that the interests of depositors, other customers and creditors are adequately protected, inter alia, if the Financial Supervision Authority has a reasonable suspicion that money laundering or terrorist financing has taken place or an attempt to do so has been made in the credit institution or that risks have increased relating to money laundering or terrorist financing or other activities related to the activities of the credit institution.

4) the data or documents prescribed by law or required by the Financial Supervision Authority based on this Act for the purpose of conducting a suitability assessment of a person have not been submitted to the Financial Supervision Authority, or such data or documents contain material deficiencies.

(1¹) The provisions of this section concerning a credit institution are also applied to a financial holding company and a mixed financial holding company approved on the basis of § 13⁶ of this Act.

§ 51. General meeting

(1) The management board shall call a special general meeting if:

1) the amount of own funds of the credit institution is lower than required pursuant to Regulation (EU) No 575/2013 of the European Parliament and of the Council and the credit institution has failed to increase its own funds to the required level during the term specified in the precept of the Financial Supervision Authority, or

2) in other cases, provided for by law;

(1¹) The provisions of subsection 1 of this section shall not be applied if the Financial Supervision Authority implements the crisis resolution measures or rights provided for in the Financial Crisis Prevention and Resolution Act.

(2) In the case specified in clause 1 of subsection 1 of this section, the general meeting shall decide on:

1) the increase of share capital or implementation of other measures to bring the own funds of the credit institution into accordance with the requirements of this Act, or

2) the merger or division of the credit institution, or

3) the dissolution of the credit institution or submission of the bankruptcy application;

(2¹) In case the management board does not call the extraordinary general meeting within ten days as of the receipt of the demand from the shareholders, members, supervisory board or auditor or of the precept of the Financial Supervision Authority or the management board does not call the meeting in other cases provided by law, the shareholders, members, supervisory board, auditor as well as the Financial Supervision Authority have the right to call the general meeting themselves.

(3) The provisions of clause 1 of subsection 1, subsection 3 of § 292 and § 301 of the Commercial Code are not applied to the bank.

(4) The management board, or shareholders whose shares represent at least one-tenth of the share capital, or one-tenth of the members, or the Financial Supervision Authority may demand the inclusion of a certain issue on the agenda. A demand shall be submitted before the notice summoning the general meeting is sent to shareholders or members or is published.

(5) The management board shall send a notice of the general meeting to the Financial Supervision Authority pursuant to the same procedure as to the shareholders or members of the credit institution.

§ 52. Supervisory board of credit institution

(1) The supervisory board of a credit institution is a directing body of the credit institution which plans the activities of the credit institution, gives instructions to the management board for organisation of the management of the credit institution, and supervises the activities of the credit institution and the activities of the management board in managing the credit institution.

(2) The members of the supervisory board shall ensure verification that the activities of the credit institution and the management board and staff members thereof are in accordance with legislation and the provisions of internal rules and other rules established by the directing bodies of the credit institution.

(3) The members of the supervisory board must comprehend the risks involved in the activities of the credit institution and shall ensure that the management board of the credit institution identify risks and monitor and control the extent thereof.

(4) The supervisory board is competent and required to:

1) approve the strategy and general principles of the activities of the credit institution;

2) approve the general principles of risk management of the credit institution;

2¹) approve the principles of remuneration of the members of the management board and staff members of the credit institution provided for in subsection 1 of § 57¹ of this Act and the evaluation of the implementation thereof.

3) approve the principles of the organisational structure of the credit institution;

4) approve the general principles of monitoring of the activities of the credit institution;

5) approve the statutes of the internal audit unit;

6) elect and remove the chairman and members of the management board of the credit institution;

7) appointment and removal from office of persons managing the performance of internal control functions of a credit institution, and appointment and removal from office of the employees of the internal audit unit at the proposal of the head of the internal audit unit;

8) approval on a consolidated basis of the main financial indicators based on the assessment of the internal capital and liquidity adequacy of the credit institution, including forecasts of income, expenses, profit and cash flows;

9) decide on the foundation or closure of branches in foreign states;

10) approval of the competence, rights, and principles of activity of the audit committee, credit committee, risk committee, nomination committee and remuneration committee;

11) decide on the conclusion of transactions which are beyond the scope of the everyday economic activities of the credit institution;

12) decide on the conclusion of transactions with members of the management board, and appoint the representative of the credit institution in such transactions;

13) file claims against members of the management board, and appoint the representative of the credit institution in such claims;

13¹) approve the financial recovery plan prepared on the basis of the Financial Crisis Prevention and Resolution Act;

14) decide on other matters placed in the competence of the supervisory board by the articles of association.

(4¹) The provisions provided for in clauses1–4 and 10 of subsection 4 of this section shall be reviewed regularly and where necessary updated.

(5) The provisions of subsection 1 of § 317 of the Commercial Code and the third sentence of subsection 7 shall not be applied to credit institutions.

§ 53. Members of supervisory board

(1) The supervisory board shall have five members unless the articles of association prescribe a greater number of members.

(2) In addition to persons provided in subsection 3 of § 48 of this Act, members of the management board of the credit institution or any other person authorised to operate in the name of the credit institution, a staff member exercising internal control, auditor of the credit institution and bankrupts may not be members of the supervisory board. The articles of association may also prescribe other persons who may not be members of the supervisory board.

§ 54. Meeting of supervisory board

(1) Meetings of the board shall be held when necessary but not less frequently than once every three months.

(2) A meeting of the supervisory board is called in case this is demanded by a member of the supervisory board, a member of the management board, an auditor, the head of the internal audit unit or the shareholders whose shares represent at least one-tenth of the share capital, one-tenth of the members, or other persons prescribed by law. An application for calling a meeting of the supervisory board must set out the matters to be resolved.

(3) An auditor or the head of the internal audit unit is required to participate in the meeting of the supervisory board in case this is demanded by at least one member of the supervisory board.

§ 55. Management board of credit institution

(1) The management board of a credit institution is a directing body of the credit institution, which directs the day-to-day activities thereof pursuant to the strategies and general principles of activities approved by the supervisory board and monitors the day-to-day activities of the staff members of the credit institution.

(2) Among other obligations, the management board is required to:

1) develop a business plan for implementation of the strategy approved by the supervisory board;

2) to establish and, at least once every two years, review the principles and procedures of the credit institution for risk-taking, management, monitoring and mitigation, covering both existing and potential risks, including risks arising from the macroeconomic environment related to the phase of the economic cycle, and risks resulting from the current and short-, medium-, and long-term impact of environmental, social, and governance factors in accordance with clause 52d of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2¹) determine the risk tolerance of the credit institution for each relevant business line and unit;

2²) establish the principles and procedures for the trading portfolio management of the credit institution;

2³) approve and submit to the Financial Supervision Authority the financial recovery plan prepared on the basis of the Financial Crisis Prevention and Resolution Act and be apprised of the relevant information on a regular basis;

3) identify and assess regularly all risks involved in the activities of the credit institution and ensure the monitoring and control of the extent of such risks;

3¹) ensure the existence of adequate financial instruments and staff members or third persons for management of all the significant risks of the credit institution and for evaluation of the assets related to these risks, and for implementation of external credit quality assessments and internal models;

4) develop the organisational structure of the credit institution on the basis of the principles provided for in the articles of association and approve the structure of the credit institution;

5) develop and implement systems for monitoring the activities of the credit institution, ensure adherence to such systems, assess the adequacy thereof regularly and improve them if necessary pursuant to the principles established by the supervisory board;

6) ensure that all staff members of the credit institution are aware of the provisions of legislation relating to their duties of employment and of the principles provided for in the documents approved by the directing bodies of the credit institution;

7) organise the effective functioning of the internal control system of the credit institution and ensure monitoring of the compliance of the activities of the credit institution and the managers and staff members thereof with legislation and the documents approved by the directing bodies of the credit institution and with the principles of sound banking management;

8) ensure the existence and functioning of systems to guarantee that information necessary for staff members of the credit institution to perform their duties is communicated thereto in a timely manner;

9) ensure the safety and regular monitoring of information technology systems used by the credit institution and systems used for the safekeeping of assets of clients;

10) inform the supervisory board to the extent and pursuant to the procedure established thereby of all discovered violations of legislation or of internal rules or other rules established by the directing bodies of the credit institution.

11) monitor that adequate separation of functions is guaranteed in all the activities of the credit institutions and avoid the creation of conflict of interests.

12) arrange the disclosure of the data by the credit institution.

(2¹) The management board shall guarantee that the organisational structure of the credit institution is transparent, the areas of responsibility are clearly delineated and procedures for the identifying, measurement, management, constant monitoring and reporting of risks have been established and that such procedures are proportional to the nature, extent and level of complexity of the operation of the credit institution. In addition to the provisions of subsection 2 of this section, the management board has the following additional obligations in connection with risk management and risk assessment:

1) in the case internal rating methods of credit risk are used, to approve of the general criteria for determination of ratings and for assessment of credit risk parameters;

2) in the case the standard approach to operational risk is used, approve of the general principles of mapping business lines;

3) in the case a method based on an advanced measurement approach to operational risk is used, to approve of the description and general principles of functioning of the models;

4) in the case the internal ratings based approach to credit risk is used, to ensure the conforming functioning of the rating system of the credit institution and regularly apprise of reports on the process of determining ratings which among other shall describe the profile of credit risk by rating class, changes in ratings, evaluation of the parameters of credit risks by rating class, areas of the rating system in need of improvement and elimination of deficiencies established before, and shall compare the actual indicators of credit risk parameters with the estimated credit risk parameters and results of stress tests;

5) ensure the conforming functioning of the organisation of the management of the operational risk of the credit institution and to regularly appraise of the corresponding information.

6) ensure the conforming functioning of the organisation of the liquidity risk management of the credit institution, including approval of the business continuity plan specified in subsection 10 of § 82¹ of this Act and to regularly appraise of the corresponding information.

(3) The management board shall present an overview of the activities and economic situation of the credit institution to the supervisory board at least once every three months.

(4) The management board shall immediately inform the members of the supervisory board of any deterioration in the economic situation of the credit institution, danger of such deterioration or deviation from prudential ratios.

(5) The management board of a small and non-complex credit institution as defined in clause 145 of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council (hereinafter small and non-complex credit institution) may review the principles and procedures for taking, managing, monitoring, and mitigating the risks specified in clause 2 of subsection 2 of this section less frequently than provided in the same clause of the same subsection of the same section.

§ 56. Members of management board

(1) The management board shall consist of three members unless the articles of association prescribe a greater number of members.

(2) A member of the management board shall have higher education and at least three years’ professional experience.

(3) In addition to persons provided in subsection 3 of § 48 of this Act, a member of the supervisory board, staff member exercising internal control, auditor or bankrupts may not be a member of the management board of a credit institution. The articles of association may prescribe other persons who may not be members of the management board.

§ 57. Increased requirements for chairman of management board of credit institution

In addition to the requirements provided for in this Act for members of the management board of a credit institution, the chairman of the management board of a credit institution shall have at least five years’ practical experience in the financial field in a management capacity.

§ 57¹. Remuneration of managers and staff members of credit institutions

(1) The bases and principles of determining the remuneration and other work-related benefits of management board members and staff members of the credit institution, whose activities significantly affect the risk profile of the credit institution, including severance payments, pension benefits and other incentives (hereinafter principles of remuneration) shall:

1) be clear and transparent and in compliance with prudent and efficient risk management and equal treatment principles;

2) take into consideration the business strategy and values of the credit institution in view of the economic performance of the credit institutions and the legitimate interests of the depositors and other clients;

3) take into consideration the long-term objectives of the credit institution in view of its ability to cope with the changes in the external environment.

(1¹) Remuneration principles shall determine the bases which clearly distinguish the basic wage paid to a manager or a staff member of a credit institution and remuneration on economic performance and transactions, as well as remuneration for additional work (hereinafter performance fee). The basis for determining the basic wage is, in particular, the professional experience of a person and the duties of the manager or staff member according to the contract.

(1²) Remuneration principles must include measures to avoid conflicts of interest, whereby the remuneration of a manager or employee responsible for assessing consumer creditworthiness solvency in a credit institution may not depend on the number or proportion of approved credit applications or number of credit agreements entered. The remuneration of a person performing an internal control function must be based on the achievement of the objectives of the control activities and may not depend on the performance results in the business area subject to their control.

(1³) If a credit institution provides consulting services upon the granting or intermediating of a loan, the remuneration principles shall not restrict the possibilities of a staff member related to consulting service to act in the interests of the consumer and the remuneration of the staff member may not be based on the number of credit agreements entered into or the volume of the action plan for provision of service.

(2) The credit institution shall comply in full or partially with the requirements for remuneration provided for in subsections 1–1³ of this section and subsections 2–2², 4 and 5 of § 57² and §§ 57³ and 57⁴ of this Act if implementation of the requirements is proportional taking into account the nature, extent and level of complexity of their activity.

(3) The staff members of the credit institution for the purposes of §§ 57¹ -57⁴ of this Act are staff members whose:

1) the performance of duties involves the management of a material business unit or an internal control function of a credit institution, or

3) the total annual amount of remuneration is 500,000 euros or more and it is equal to or higher than the average remuneration of the manager of the credit institution and his or her duties significantly affect the risk profile of an essential business unit of the credit institution.

(4) For the purposes of this Act, the fee paid to the head of a credit institution by the credit institution or another person related to him or her for the performance of duties in a credit institution shall be deemed to be remuneration and other contracts entered into with persons for working in a credit institution are deemed to be employment contracts.

(5) In accordance with the requirements specified in subsections 3 and 4 of § 71 of this Act, the principles of remuneration of credit institutions and their documentation and storage of documents shall enable the Financial Supervision Authority to verify compliance with the provisions arising from the legislation on a consolidated or sub-consolidated basis at any time. The remuneration requirements provided for in this section and in § 57², subsection 1 of § 57³ and § 57⁴ of this Act and the obligation to form a remuneration committee (hereinafter in this section remuneration requirements) shall not be applied on a consolidated basis regarding:

1) a subsidiary established in a Contracting State, if remuneration requirements are applied to it in accordance with other legislation of the European Union;

2) a subsidiary founded in a third country if remuneration requirements are applied to it in accordance with other legislation of the European Union.

(6) Remuneration requirements shall be applied to a subsidiary of a credit institution on an individual basis if:

1) the subsidiary is an asset management company or a company providing investment services specified in points (2) to (4), (6) and (7) of Part A of Annex I to Directive 2014/65 / EU of the European Parliament and of the Council;

2) the manager or staff member of the subsidiary performs tasks which have a direct significant effect on the risk profile or business activities of the credit institutions belonging to the consolidation group.

§ 57². Payment of performance fee in credit institution

(1) The bases for determining the performance fee shall be objective and reasoned, shall take account of the results of the long-term work of a manager or staff member based on the period of several years, risks and the sustainability of operation of the credit institution and predetermine the long-term work period for which the performance fee shall be paid and the period over which the payments shall be distributed.

(2) The following shall be taken into account upon determination and payment of the performance fee:

1) the proportion of the basic remuneration and performance fee shall be in reasonable correspondence to the duties of the manager or staff member, and the performance fee may not exceed the basic remuneration unless otherwise provided for in this Act;

2) the basic remuneration shall make up an adequately large part of the pay which makes it possible not to determine or pay out the performance fee, if necessary.

3) personal performance of a manager or staff member, taking into account monetary as well as other criteria arising from internal rules and procedures; including environmental, social and managerial risks, sustainable and risk-adjusted performance and tasks, which are fulfilled in addition to the tasks provided in the contract;

4) personal performance of the manager or staff member and the performance of the business unit in combination with the indicators of the whole credit institution;

5) the effect that payment for performance has on the level of own funds and liquidity of the credit institution and the related existent and potential risks.

(2¹) By the resolution of the general meeting of the credit institution the proportion of the performance fee of the manager or staff member may form up to 200% of the basic remuneration if adoption of the resolution and notification thereof is in compliance with the following conditions:

1) justification has been added to the draft resolution of the general meeting explaining the necessity and extent of increasing the proportion of the performance fee, including the number of persons to whom the increase of the proportion of the performance fee shall be applied, the duties of the persons and the expected impact of the resolution to increase the proportion of the performance fee on the performance of the requirement for maintaining the level of own funds;

2) at least 66% of the votes represented at the general meeting are given in favour of the resolution of the general meeting;

3) decision of the increase of the proportion of the performance fee is included on the agenda of the general meeting and information thereof has been forwarded to the shareholders or members by the notice of calling the general meeting;

4) the credit institution shall immediately notify the Financial Supervision Authority of the reasons specified in clause 1 of this subsection, including, of the planned larger proportion of the performance fee, and shall be capable of proving that the larger proportion of the performance fee is not in conflict with the obligations of the credit institution, including the obligations related to own funds arising from this Act and Regulation (EU) No.575/2013 of the European Parliament and of the Council;

5) the credit institution shall notify immediately the Financial Supervision Authority of the resolutions of the general meeting, including any approved larger proportion of the performance fee.

(2²) Upon adoption of the resolution at the general meeting to increase the proportion of the performance fee pursuant to subsection 2¹ of this section, the shareholder or member of the credit institution, with regard to whom the increase of the proportion of the performance fee is decided, shall not participate in voting.

(2³) The provisions of subsection 3 of § 293 of the Commercial Code shall not apply to taking the decision on increasing the proportion of the performance fee, specified in subsection 2¹ of this section, on the agenda pursuant to clause 3 of the same subsection.

(2⁴) The Financial Supervision Authority shall analyse the implementation of the requirements for the proportion of the basic remuneration and performance fee, based on the data submitted on the basis of subsection 2¹ of this section, and the respective practice in different credit institutions and submit this information to the European Banking Authority.

(3) Payment of the performance fee in a predetermined fixed amount may only be prescribed in the contract of a manager or a contract of employment of the manager in the first year of assumption of office or commencement of work if the level of own funds of the credit institution is in compliance with the established requirements.

(4) At least 50 per cent of the performance fee shall be made up of a balanced set of the shares of the credit institution, share options or other similar rights arising from the legal form of the credit institution, which are related to the acquisition of shares or, if they exist, other securities for the purposes of Articles 52 or 63 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, or other securities which are possible to change into Tier 1 capital for the purposes of Regulation (EU) No 575/2013 of the European Parliament and of the Council and are in compliance with the credit quality of the credit institution and are suitable for payment of the performance fee. Such set of rights shall be subject to transfer restrictions which are consistent with the long-term interests of the credit institution.

(5) The substantial portion of the performance fee shall not be less than 40 per cent of the performance fee. The economic cycle and business risks of the credit institution, duties of the managers and staff members who receive performance fee and risks related to payment of performance fee shall be taken account of upon payment of the substantial portion of the performance fee (hereinafter in this section deferred portion of the performance fee). Payment of the performance fee shall be allocated in balance over the time period of four to five years. If it is proportional to the nature, scope and complexity of the activities of the credit institution, the payment of the performance fee shall be spread over a period of at least five years. If the proportion of the performance fee in the total remuneration is substantial, the deferred portion of the performance fee shall be at least 60 per cent of the performance fee. The deferred portion of the performance fee may also be paid out in a lump sum at the end of the deferral period.

(6) The principles for determination of the performance fee specified in subsection 1 and clauses 3–5 of subsection 2 of this section shall also be applied to severance payments connected to termination of a contract of the manager or a contract of employment. It is required to deduct from the severance pay the expenses arising from damage created, violation of obligations or any other similar expenses resulting.

(7) The contract of a manager or a contract of employment of a credit institution shall prescribe the right of the credit institution to reduce the payable performance fee, suspend the payment of the performance fee or demand return of the paid performance fee in part or in full, taking account of the conditions provided for in this Act. A credit institution may apply the right mentioned above if:

1) the general economic performance of the credit institution has deteriorated to a significant extent as compared to the previous period;

2) a manager or staff member of a credit institution no longer complies with the performance criteria or is not in compliance with the requirements for a manager or staff member of the credit institution provided for in this Act, has participated in creating the damage to the credit institution or is liable for the damage incurred;

3) the credit institution does not meet the prudential ratios or the risks of the credit institution are not adequately covered with own funds, or

4) determination of the performance fee was based on information which was inaccurate or incorrect to a material extent.

(8) The limitation period of a claim arising from the performance fee is three years from the date when the payment of the performance fee to the manager or staff member of the credit institution was decided.

(9) In cases specified in clauses 1–4 of subsection 7 of this section the credit institution is required to change the principles of remuneration and keep additional own funds for covering risks, if necessary, in order to improve the situation and reduce risks.

(10) The requirements provided for in subsections 4 and 5 of this section and subsections 3 and 4 of § 57³ of this Act shall not be applied to:

1) a credit institution which is not a large credit institution in accordance with clause 146 of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council and the value of whose assets is, on average and on an individual basis, up to five billion euros during the four years immediately preceding the current financial year;

2) a person whose annual performance fee does not exceed 50,000 euros and is not larger than one third of the total annual remuneration of that person.

§ 57³. Specifications and supplementary conditions for payment of remuneration

(1) Managers and staff members of the credit institution are not allowed to conclude liability insurance contracts or introduce other similar measures which reduce the occurrence of the results that are the objective of the principles of remuneration.

(2) If the state or legal person governed by public law has given financial instruments or guarantees to the credit institution for maintenance or recovery of the liquidity or solvency of the credit institution it is required to:

1) restrict payment of the performance fee to a percentage rate of the revenue from the main activity, minus the relevant expenditure of the main activities starting from which payment of the performance fee is not in compliance with the adequate maintenance of the level of own funds and conditions for repayment of financial instruments or guarantees;

2) demand that credit institutions restructure the principles of payment and wages, including performance fee, in such a manner that would be in compliance with the reliable risk management and long-term improvement of the economic standing of the credit institution, including, where necessary, setting restrictions to the remuneration of the managers of the credit institution.

3) preclude payment of performance fee to the managers of the credit institution unless it is allowed under the conditions for giving financial instruments or guarantees;

(3) Provided that a supplementary procedure for payment of pension benefits in addition to the provisions of the Funded Pensions Act is prescribed in the credit institution, the payments of the pension shall be made upon creation of the pension right for the manager or staff member in the proportion and as instruments provided for in subsection 4 of § 57² of this Act and the pension payment period of at least five years shall be applied.

(4) If the contract of a manager or the employment relationship of a staff member with the credit institution is terminated before his or her right for pension has been created, the credit institution shall retain the pension contributions made on behalf of the person during five years as instruments specified in subsection 4 of § 57² of this Act.

§ 57⁴. Establishment and composition of committees within credit Institution

(1) The following committees are established within a credit institution:

1) an audit committee;

2) a credit committee.

(2) Where a credit institution is deemed significant based on its size, internal organization, and the nature, scope and complexity of its activities, the following committees must additionally be formed within the credit institution:

1) a risk committee;

2) a nomination committee;

3) a remuneration committee.

(3) The audit committee, risk committee, nomination committee and remuneration committee are formed from the members of the supervisory board, including independent members thereof, unless otherwise provided in this Act.

(4) Instead of members of the supervisory board, other persons appointed by the supervisory board may also serve as members of the audit committee, except for members of the management board and employees of the credit institution.

(5) The credit committee is formed from the members of the management board or employees of the credit institution. The chairman of the management board of the credit institution may not be the chairman of the credit committee, nor chair the meeting of this committee in the absence of its chairman of the committee. At least half of the members of the credit committee of a cooperative bank must be members of the cooperative bank or representatives of the members of the cooperative bank.

(6) Members of the risk committee must possess the requisite knowledge, skills, and expertise to comprehend and continuously monitor the risk management policies and risk appetite of the credit institution.

(7) Provided that the conflicts of interest are avoided, the following may be combined:

1) the nomination committee and the remuneration committee;

2) the risk committee and the audit committee, provided that the credit institution is not deemed significant in accordance with subsection 2 of this section.

(8) In the case specified in subsection 7 of this section, the members of the committee must have the knowledge, skills and expertise necessary to perform the duties of both committees. The credit institution must separately justify the combination of two committees to the Financial Supervision Authority.

(9) More specific bases for the formation of the committees provided in subsections 1 and 2 of this section are determined in the internal rules and procedures of the credit institution.

(10) The provisions of this section do not preclude the formation of other committees within the credit institution.

§ 58. Functions of committees

(1) The function of an audit committee is to monitor the activities of the management board of a credit institution.

(2) The function of a credit committee is to decide on the grant and extension of loans which exceed the limits established by the supervisory board of a credit institution. Prior to deciding on the grant or extension of a loan, the credit committee reviews all the documents and other information submitted for the application of the loan and, on the basis thereof, adopts a position concerning the creditworthiness and reliability of the loan applicant and the availability and sufficiency of the securities offered by the applicant. A credit committee is not required to justify a refusal to grant a loan.

(3) The functions of a risk committee are to:

1) advise the supervisory board and the management board on the risk management principles and risk appetite of the credit institution;

2) monitor that the management board implements risk management principles on the basis of the guidelines of the supervisory board;

3) verify that the fees established for the clients of the credit institution take into account the business model and risk management principles of the credit institution and, in the event of deficiencies, submit a corrective action plan to the supervisory board;

4) verify whether the remuneration principles, upon providing specific incentives, take into account various risks, including those arising from the impact of environmental, social, and governance factors, capital, liquidity and the probability and timing of the receipt of revenue.

(4) The duties of the nomination committee are:

1) to submit candidates for members of the management board of the credit institution to the supervisory board, along with a description of their duties and the length of their term of office, ensuring, among other things, a balance between the knowledge, skills, and experience of the candidates, and taking into account the diversity policies for the composition of management bodies established in the credit institution;

2) to set a target for the representation of the underrepresented gender on the management board, and to develop a policy on how to increase the number of such persons in order to reach the set target level, and to disclose information regarding the target level, policy, and its implementation specified in clause c of subsection 2 of Article 435 of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

3) to assess the composition, structure and activities of the management board at least once a year and, where necessary, to propose amendments;

4) to assess the suitability of the professional knowledge, skills and experience of the individual members of the management board and the management board as a whole at least once a year, and to inform the supervisory board of the results;

5) to develop the diversity policies for the composition of the management body and the procedure for electing the management board applicable in the credit institution, and to regularly assess their implementation and, where necessary, to propose amendments.

(5) In order to perform its duties, the nomination committee must continuously monitor and, insofar as possible, ensure that the decision-making process of the management board complies with the interests of the credit institution as a whole and is not unduly influenced by the interests of a single person or a small group of persons. The nomination committee has the right to use an external evaluator in the performance of its duties.

(6) The function/task of the remuneration committee is to assess the implementation of the remuneration principles within the credit institution and the impact of remuneration-related decisions on compliance with the requirements prescribed for risk management, own funds and liquidity. In its activities, the remuneration committee is guided by the long-term interests of the shareholders or members and clients of the credit institution, as well as by the public interest. In the course of the foregoing, the remuneration committee:

1) exercises supervision over the remuneration of managers and employees, including managers performing internal control functions;

2) assesses the implementation of remuneration principles at least once a year and, where necessary, proposes updates to them;

3) prepares draft decisions on matters of remuneration for the supervisory board of the credit institution.

§ 59. Internal control system

(1) A credit institution or a company belonging to the consolidation group of a credit institution must have a constantly functioning internal control system which is proportionate to the nature, extent and level of complexity of their activity, and which ensures adherence to the good practices of management of the company and internal audit.

(2) The internal control system of a credit institution must encompass all management and operational levels of the credit institution to ensure the efficiency of the operations of the institution, the reliability of financial reporting and compliance with laws and other legislation, as well as documents approved by the management bodies of the credit institution and good banking practices, and that decision-making is based on reliable and relevant information.

(3) An internal control system consists of internal audit, risk management and compliance functions. Internal control functions must be organizationally independent and separated from risk-taking activities

(4) Performers of internal control functions must:

1) ensure the proper identification, measurement and reporting of all material risks;

2) provide an overview of all risks to which the credit institution is exposed.

(5) The internal audit function may not be combined with any other business line or control function of the credit institution.

(6) The compliance function may be combined with the function of another internal control unit performing control functions, provided that this is proportionate to the nature, scope and complexity of the activities of the credit institution, and does not affect the independence and capability of the performer of the compliance function to perform their duties.

§ 59¹. Internal control functions

(1) The performer of the internal audit function must:

1) monitor the entire activities of the credit institution and provide an independent overview of the effective implementation of the risk strategy of the credit institution;

2) ensure that an internal audit plan is established to assess the appropriateness and effectiveness of the processes and systems of the credit institution, including the entire internal control system and operations;

3) verify and assess the compliance of the remuneration principles for the managers and employees of the credit institution with the requirements provided in this Act at least once a year, unless a remuneration committee has been formed in the credit institution;

4) analyse deficiencies discovered in the activities of the credit institution and its managers and employees, as well as the cases of non-performance of duties and instances of exceeding authority, and make proposals for elimination of deficiencies and measures for prevention of errors;

5) assess the suitability and effectiveness of measures taken to eliminate deficiencies occurring in the performance of the obligations of the credit institution;

6) submit regular overviews of their activities to the supervisory board and the management board of the credit institution.

(2) The performer of risk control function must:

1) be actively involved in the determination of the risk management principles or strategy of the credit institution and in the adoption of all material risk management decisions;

2) monitor the effective implementation of the aforementioned principles or strategy;

3) have a comprehensive understanding of all risks of the credit institution;

4) regularly submit reports to the supervisory board of the credit institution and, where necessary, immediately notify the supervisory board of risks that may have a material impact on the operations of the credit institution.

(3) The performer of compliance function must:

1) regularly verify the compliance of the activities of the credit institution, its managers, and employees with legislation, precepts of the Financial Supervision Authority, decisions of the governing bodies, internal rules, contracts concluded by the credit institution, and good practice, and assess the compliance of the internal rules and decisions established in the credit institution with legislation (hereinafter compliance risk);

2) ensure that compliance risk is taken into account in the risk strategy of the credit institution and, as appropriate, in all material risk management decisions;

3) ensure that the managers and employees of the credit institution are advised on matters concerning the performance of the obligations provided in this Act, which includes, among other things, training on compliance risk and the provision of an independent opinion on new products or the approval of material amendments to existing products, processes, and systems;

4) regularly submit overviews to the management board and the supervisory board, including overviews of risks arising from amendments to legislation.

(4) The performer of the internal audit function or another equivalent independent person must verify and assess, once every three years, the compliance of the functioning of the operational risk management organization and, in the case of using the standardized approach for operational risk, the process of determining business lines with the requirements of this Act and legislation established on the basis thereof.

(5) The compliance of the activities of the credit institution specified in clause 1 of subsection 3 of this section and its managers and employees with the precepts of the Financial Supervision Authority may be verified by the performer of the internal audit function instead of the performer of the compliance function.

§ 60. Requirements for performer of internal control function

(1) The person directing the performance of the internal control function of a credit institution may be a person who is independent in the performance of their duties and who, in addition to the requirements prescribed for a key person in this Act, has a higher education as well as the expertise and experience necessary to direct this function. A person directing the performance of the internal control function is deemed to be the person responsible for managing the day-to-day operation of the internal control function of the credit institution who holds the highest position in this field within the hierarchy of the credit institution.

(1¹) The areas of responsibility of the persons directing the performance of the internal control functions of a credit institution must be clearly defined based on the internal audit, compliance, and risk control functions.

(1²) By way of exception, and where proportionate to the nature, scope and level of complexity of the activities of the credit institution, and subject to prior approval by the Financial Supervision Authority, a separate person need not be appointed to direct the performance of the risk and compliance control functions. In the case specified above, another key person of the credit institution performing other duties within the institution, excluding the person directing the internal audit function, may be responsible for the performance of the compliance or risk control function, provided that there is no conflict of interest and that the specified person:

1) meets the suitability criteria prescribed in subsection 1 of this section and has the necessary expertise, skills and experience in those fields;

2) has sufficient time to properly perform both internal control functions.

(2) A person performing the internal control function of a credit institution must be a natural person with full legal capacity, possessing an impeccable reputation as well as the education, expertise and professional suitability requisite for the execution of internal control operations.

(3) The persons directing the performance of the internal control function and the employees of the internal audit unit are appointed to and removed from office based on a resolution of the supervisory board of the credit institution.

(3¹) The persons performing the internal control function must have the opportunity to contact the members of the supervisory board of the credit institution directly. Therefore, the persons performing the internal control function must remain independent in the performance of their duties of the core business activities of the credit institution and of the members of the management board of the credit institution responsible for such activities, and must, above all, be capable of notifying and alerting the supervisory board of the credit institution, where necessary, of identified deficiencies or risks which affect or may affect the credit institution.

(4) The number of persons performing the internal control function must be sufficient for the performance of that function.

(5) Persons performing internal control functions are obliged to keep secret information that has become known to them as a result of their activities. This requirement does not apply to information that is forwarded to the Financial Supervision Authority, the management board and supervisory board of a credit institution pursuant to the procedure provided for by law, the articles of association of a credit institution or the statutes of internal control units.

§ 61. Rights of persons performing internal control functions

(1) The managers of a credit institution must ensure that the persons performing internal control functions are provided with the rights, resources and appropriate conditions requisite for the performance of their duties.

(2) Persons performing internal control functions have the right to examine all documents of the credit institution, to monitor the operations of the credit institution in all areas without restriction, and to participate in the meetings of the management board and of the committees formed on the basis of the articles of association of the credit institution.

(3) Persons performing internal control functions have the right to demand written explanations from the employees of the credit institution concerning deficiencies and errors identified in their activities and demand the elimination of such identified deficiencies.

(4) The internal audit unit shall cooperate with the Financial Supervision Authority.

§ 63. Internal rules and rules of procedure of credit institutions

(1) Internal rules and rules of procedure, which are adequate and proportional to the nature, scope and level of complexity of the operation of the credit institution, shall be established in a credit institution in order to regulate the activities of the managers and staff members of the credit institution. The internal rules and rules of procedure shall ensure the compliance with the legislation regulating the activities of the credit institution and with the resolutions of the directing bodies of the credit institution.

(2) The internal rules and procedures of a credit institution must, among other matters, determine:

1) the procedure for prevention of conflicts between the interests of the credit institution and the personal economic interests of the managers and staff members of the credit institution;

2) the procedure for exchange of information and documents within the credit institution;

3) the procedure for conclusion of transactions and acts at the expense of the credit institution and in the name of and at the expense of the client including, for the grant of credit to the consumer, the procedure for assessment of the solvency of the consumer, monitoring the performance of the terms of the credit agreement and amending the credit agreement and, where applicable, for implementing the debt restructuring remedies provided in § 416¹ of the Law of Obligations Act; and the procedure for provision of information to the consumer and assessment of the property being collateral for the credit agreement, as well as the procedure for the provision of consulting services and consumer disputes settlement;

3¹) the procedure of making transactions and acts with the mixed-activity holding undertaking and another subsidiary of such parent undertaking and the internal control procedures for management of risks arising from transactions and actions and submission of reports.

3²) the drawing up of an overview and the data to be specified therein concerning the duties of all members of the supervisory board and the management board, as well as key personnel, including detailed data on reporting and accountability procedures, as well as the persons falling within the governance arrangements provided in clause 4 of this section and their duties;

4) a clear organizational structure, transparent and consistent lines of responsibility and reporting, as well as procedures for submission of reports and delegation of authority, providing for the segregation of functions in incurring liabilities on behalf of the credit institution, making payments, recording transactions in accounting and reporting, and assessing transaction risks;

4¹) the procedure for outsourcing of operations of a credit institution;

4²) procedures for the identification, management, monitoring and reporting of risks, inclusive of environmental, social and governance risks that can be implemented over the short, medium and long term, and addressing risks to which the credit institution is or may be exposed;

4³) policies for the identification, mitigation or prevention of legal risks arising from non-compliance with statutory obligations and other risks related thereto;

5) procedures governing the operation of the internal control system, which must include, among other things, sound governance arrangements and internal accounting rules of the credit institution;

5¹) remuneration principles for the managers and employees of the credit institution, which are consistent with sound and effective risk management and include the bases for the payment of performance pay, measures to mitigate and prevent conflicts of interest related to remuneration, and the procedure for verifying compliance with these principles, taking into account, among other things, the potential exposure of the credit institution to environmental, social and governance risks;

5²) the procedure for assessing the suitability of managers and key personnel;

5³) the procedure for the functioning of the network and information systems infrastructure, established and implemented 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, pp 1–79);

6) internal rules of procedure for imposition of international sanctions established on the basis of the International Sanctions Act and the code of conduct and the internal audit rules to monitor compliance with the code of conduct provided in subsection 1 of § 14 of the Money Laundering and Terrorist Financing Prevention Act.

(2¹) The principles specified in clause 5¹ of subsection 2 of this section must be gender-neutral.

(2²) A credit institution regularly assesses the functioning of internal rules and their compliance with reality, and amends such rules as necessary.

(2³) The risks specified in clause 4² of subsection 2 of this section also include concentration risk arising from exposures to central counterparties, taking into account the conditions provided in Article 7a 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, 27.07.2012, pp 1–59).

(3) A person acting in the name of a credit institution shall not represent the credit institution in transactions or legal disputes with a third party with regard to whom the person acting in the name of the credit institution or a person with an economic interest equivalent to that of such person has personal economic interests.

(4) The provisions of § 46 of the Creditors and Credit Intermediaries Act shall be applied to the outsourcing to a third party of operations related to the grant of a loan to a consumer by a credit institution.

(5) A credit institution which intends to provide consulting services for the purposes of § 7 of the Creditors and Credit Intermediaries Act shall prior notify the Financial Supervision Authority thereof.

(6) The credit institution establishes procedures for the notification of its employees of violation of the requirements provided in this Act and establishes a whistleblower protection channel in accordance with § 8 of the Act on Protection of Persons Who Report Work-Related Breaches of European Union Law, which allows for the internal reporting of the offence. Reporting of the offence is subject to whistleblower protection within the meaning of the Act on Protection of Persons Who Report Work-Related Breaches of European Union Law, and the legislation established on the basis thereof.

§ 63¹. Internal capital and liquidity adequacy assessment process

(1) A credit institution must establish sound, effective and comprehensive strategies and corresponding procedures to maintain the adequate level, structure and distribution of own funds and liquidity buffers between business units and activities, based on the risks taken or potential risks faced by the credit institution. Upon addressing environmental, social and governance risks, the credit institution must take into account short-, medium-, and long-term perspectives.

(1¹) In accordance with the strategies and procedures specified in subsection 1 of this section, a credit institution is required to have sufficient internal capital to cover all the risks to which the credit institution is exposed and sufficient own funds to cover potential losses estimated as a result of stress testing and scenario analysis.

(4) The corresponding strategies and procedures shall be regularly updated in order to ensure their continued proportionality with the nature, extent and level of complexity of the activities of the credit institution.

(5) The credit institution shall submit to the Financial Supervision Authority an annual review of the internal capital and liquidity adequacy assessment process. The report shall be prepared on the basis of financial data as at the end of the financial year and shall be submitted not later than three months after the end of the financial year.

(6) The Financial Supervision Authority may establish the frequency of submission of overviews other than those provided for in subsection 5 of this section and the date on which the financial statements shall be compiled.

§ 64. Specifications for merger, division and transformation of credit institutions

(1) The transformation of credit institutions is prohibited.

(2) The merger and division of credit institutions takes place in accordance with the procedure provided in the Commercial Code, taking into account the specifications provided in this Chapter and in the Competition Act.

(4) The provisions of § 399 as well as the term prescribed in subsections 1 and 2 of § 400 of the Commercial Code do not apply to the merger of credit institutions.

§ 65. Methods and conditions for merger of credit institutions

(1) A credit institution may only merge as an acquiring company with a credit institution of a Contracting State. A credit institution may merge as an acquiring company:

1) with a credit institution of a Contracting State;

2) with a financial institution or an ancillary undertaking within the meaning of subsection 2 of § 6 of this Act if the abovementioned undertaking belongs to the same consolidation group with the credit institution and the purpose of merger with the ancillary undertaking is to transfer the assisting or supplementary activities specified in subsection 3 of § 6 of this Act to the credit institution.

(1¹) A merger of a credit institution takes place in the following cases:

1) the company being acquired transfers all or part of its assets and liabilities to the acquiring company, and the owners of its equity securities specified in subsection 5 of § 2 of the Securities Market Act (hereinafter equity securities) receive equity securities of the company being acquired and, where appropriate, additional cash payment in return;

2) the company being acquired transfers all or part of its assets and liabilities to the acquiring company without the acquiring company issuing new equity securities, provided that one person directly or indirectly owns all equity securities of the merging companies, or the owners of the equity securities own the equity securities of the merging companies in the same proportion;

3) the company being acquired transfers all or part of its assets and liabilities to a company founded thereby (hereinafter in this Chapter the company being founded), and the owners of the equity securities receive equity securities of the company being founded and, where appropriate, a cash payment in return;

4) the company being acquired transfers all or part of its assets and liabilities to a company that manages all equity securities included in the capital of the company being acquired.

(1²) The provisions of subsection 2 of § 392 of the Commercial Code are applied to the amount of the cash payment specified in clauses 1 and 3 of subsection 1¹ of this section.

(2) The company being founded, specified in clause 3 of subsection 1¹ of this section, must apply for the authorisation in accordance with the procedure provided in Chapter 2 of this Act or on the basis of the law of another Contracting State. In the case of applying for the authorisation, the obligation to apply for a merger authorization provided in subsection 1 of § 68 of this Act and the term provided in subsection 3 of § 69 are not applied to the company being founded.

(2¹) Where companies belonging to the same consolidation group merge, including companies belonging to a consolidation group of credit institutions which are permanently affiliated with a central body and subject to supervision as a consolidation group, they notify the Financial Supervision Authority immediately after the entry into the merger agreement. On the basis of the notice specified in the first sentence of this subsection and the fact that the merging companies belong to the consolidation group, the Financial Supervision Authority decides whether the companies specified in the first sentence of this subsection are required to apply for a merger authorization in accordance with subsection 1 of § 68 of this Act.

(2²) The Financial Supervision Authority makes the decision to require the application for a merger authorization specified in the second sentence of subsection 2¹ of this section within one month as of the receipt of the notice specified in subsection 2¹ of this section.

(3) Upon the merger of a credit institution being acquired or an undertaking specified in clause 2 of subsection 1 of this section with a credit institution, activities are continued on the basis of the authorisation of the acquiring credit institution in accordance with clause 1 or 2 of subsection 1¹ of this section.

§ 66. Merger agreement and merger report

(1) A merger agreement between credit institutions may not be entered into with a suspensive or resolutive condition unless the condition is to obtain authorisation for merger from the Financial Supervision Authority.

(2) Merging companies must immediately after entry into the merger agreement notify the Financial Supervision Authority thereof and submit a merger plan concerning the acts related to the merger. The merger plan includes the time schedule for the merger, the processes and activities planned within the framework of the merger, and the post-merger structure of the credit institution.

(3) A merger report and a final balance sheet shall be prepared in compliance with the requirements for merger report and annual report which may not be prepared at the date earlier than three months before preparation of the merger report.

§ 67. Appointment of auditor and auditor’s report

(1) Upon the merger of credit institutions, the Financial Supervision Authority shall appoint on the proposal of the merging credit institutions at least one common auditor for all the merging credit institutions. Upon merger of a credit institution with an undertaking specified in clause 2 of subsection 1 of § 65 of this Act, the Financial Supervision Authority shall appoint to them at least one common auditor on the proposal of the credit institution.

(2) The auditor draws up a report on the examination of the merger agreement and merger report, specifying the valuation methods applied in the determination of the exchange ratio of the shares or contributions.

§ 68. Application for and procedure of merger authorization (järg)

(1) In order to apply for authorisation for merger, an acquiring credit institution shall submit an application and the following documents to the Financial Supervision Authority:

1) the merger agreement or a notarised or officially certified transcript thereof;

2) the merger report;

3) the merger resolutions if the passing thereof is required;

4) the auditor’s report;

5) the business plan for the first three years;

6) a draft of the accounting policies and procedures and data relating to the information systems to be used;

7) a description of the organisational structure of the credit institution;

8) documents concerning the managers of the credit institution and the head of the internal audit unit, which confirm the reliability and compliance of these persons with the requirements of this Act;

8¹) the last annual report of the financial institution or ancillary financial institution being acquired;

8²) a detailed description and analysis of the business activities of the financial institution being acquired over the past three years and the permissibility of the activity to be transferred upon merger of the credit institution;

8³) a detailed description of the activities of the ancillary undertaking being acquired over the past three years, together with information on the nature and proportion of the ancillary or supplementary activity in terms of volume of activity and analysis of the acceptability of the activity transferred to the credit institution upon merger in terms of the credit institution;

8⁴) an audited interim report of a financial institution or ancillary undertaking being acquired for the first half of the financial year, if more than nine months have passed since the end of the last financial year;

8⁵) information on whether the financial institution or ancillary undertaking being acquired is subject to financial supervision in the Contracting State;

8⁶) An assessment of the business reputation of the company being acquired required to hold a holding in a credit institution or to manage a credit institution, and a description of the circumstances that may negatively affect it;

9) a letter of confirmation from the members of the management board concerning the correctness of the information contained in the documents submitted pursuant to this section.

10) The decision of the Competition Authority granting authorization for a concentration, where the obligation to apply for such authorisation arises from the Competition Act, or a confirmation by the acquiring credit institution that it has applied for authorization for the concentration to the Competition Authority and has obtained it based on subsection 5 of § 27 of the Competition Act;

11) The decision of the Consumer Protection and Technical Regulatory Authority concerning the grant of the foreign investment authorization, where the obligation to apply for such the authorisation arises from the Foreign Investment Reliability Assessment Act, or a confirmation by the acquiring credit institution certifying that it has applied for the foreign investment authorization to the Consumer Protection and Technical Regulatory Authority and has obtained it in accordance with subsection 1 of § 11 of the same Act.

(2) The Financial Supervision Authority may request in writing the submission of additional documents and information where at least one of the following circumstances exists:

1) the documents listed in subsection 1 of this section require clarification and verification;

2) based on the submitted documents and information, it is not possible to ascertain that there are no grounds for refusal to grant authorization for a merger as specified in subsection 1 of § 69 of this Act;

3) there is a need to verify other circumstances related to the merger, and to review additional documents and information.

(2¹) The Financial Supervision Authority notifies the credit institution in writing of the receipt of the application specified in subsection 1 and the documents and information specified in subsection 2 of this section without delay, but no later than on the tenth working day.

(2²) Where only credit institutions belonging to the same consolidation group merge, the Financial Supervision Authority may request additional documents and information within 50 working days as of the receipt of the application for a merger authorization. The procedural time limit is suspended for the period between the initial request for the specified additional documents and information and the receipt of the requested additional documents and information from the credit institution. Such suspension may not last longer than 20 working days.

(2³) The Financial Supervision Authority may extend the suspension of the procedural time limit specified in subsection 2² of this section up to 30 working days where:

1) at least one of the credit institutions belonging to the same consolidation group is established in a third country or is subject to the law of a third country;

2) for the assessment of the provisions of clause 6 of subsection 1 of § 69 of this Act, the financial supervision function of the Financial Supervision Authority is required to exchange information with the performer of anti-money laundering compliance function.

(2⁴) In the event of a request for additional documents and information, the procedural time limit is not suspended.

(3) Where the shareholders of the credit institution being acquired obtain a qualifying holding in the acquiring credit institution in the amounts provided in § 30 of this Act, the provisions of §§ 30–33 of this Act apply to the acquisition of the holding.

(4) The Financial Supervision Authority may carry out on-site inspections in the merging and the acquiring company in order to verify the facts presented in the application for a merger permit.

§ 69. Authorisation for merger

(1) The Financial Supervision Authority may refuse to grant a merger authorisation where:

1) the merging companies do not have sufficient financial resources, taking into account the nature of the business activities of the company being founded;

2) the merger fails to comply with the requirements of this Act, including, among other things, where the reputation of the company being acquired is not suitable for holding a holding or for the management of a credit institution;

3) the documents or data submitted to the Estonian Financial Supervision Authority as required under subsections 1 and 2 of § 68 of this Act are incomplete;

4) there are reasonable grounds to suspect that the company being founded is unable to continuously comply with the prudential requirements provided in this Act, Regulation (EU) No 575/2013 of the European Parliament and of the Council, and, where applicable, in the Insurance Activities Act and the Payment Institutions and E-money Institutions Act;

5) the merger plan is neither feasible nor viable from the perspective of the reliability of the company;

6) there are reasonable grounds to suspect that money laundering, or an attempt thereof, for the purposes of § 4 or § 5 of the Money Laundering and Terrorist Financing Prevention Act, is taking place or has taken place in connection with the merger, or that the risks related to money laundering or terrorist financing or other risks have intensified;

7) the merger may give rise to a systemic risk.

(1¹) The Financial Supervision Authority monitors compliance with the merger plan specified in clause 5 of subsection 1 of this section until the completion of the merger.

(1²) The performer of the financial supervision function of the Financial Supervision Authority consults, upon assessment of the merger provided in clause 6 of subsection 1 of this section, with the performer of the anti-money laundering control function. The latter submits their opinion within 30 working days as of the receipt of the relevant request.

(1³) Upon deciding on the grant of or refusal to grant a merger authorization, the Financial Supervision Authority may not take into account the impact that the merger may have on other financial market participants.

(2) Upon granting a merger authorization, the Financial Supervision Authority may impose mandatory secondary conditions, including limiting the period of validity of the merger authorization.

(3) The Financial Supervision Authority shall make a decision on the grant or refusal of the authorisation for merger of credit institution within three months as of receipt of all the necessary data and documents, but not later than six months after the submission of the application for authorisation. The applicant shall be notified of the decision in writing within three days as of the date of making the decision.

(4) Where only credit institutions belonging to the same consolidation group merge, the Financial Supervision Authority does not apply the provisions of subsection 3 of this section and instead:

1) makes a decision on the grant of or refusal to grant a merger authorization within 60 working days as of the date of receipt of all necessary and compliant data and documents;

2) notify the applicant of the final date for making the decision;

3) communicates the decision to the applicant in writing within two working days.

§ 69¹. Cooperation with other competent authorities

(1) The Financial Supervision Authority coordinates a decision to refuse an application for a merger authorisation provided in subsection 1 of § 69 of this Act with the financial supervision authority of the relevant Contracting State where, in addition to the credit institution, any of the following undertakings participates in the merger:

1) such credit institution, insurance undertaking, investment firm or asset management company that has been granted an authorization in another Contracting State or in a sector other than that in which the merger takes place;

2) such parent undertaking of a credit institution, insurance undertaking, investment firm or asset management company that has been granted an authorization in another Contracting State or in a sector other than that in which the merger takes place;

3) a legal person exercising control over a credit institution, Insurance undertaking, investment firm or asset management company that has been granted an authorization in another Contracting State or in a sector other than that in which the merger takes place.

(2) The Financial Supervision Authority transmits without delay /immediately necessary or relevant information to the supervisory authority specified in subsection 1 of this section upon the request of the relevant supervisory authority or on its own initiative. The information transmitted must be appropriate and comprehensive. The Financial Supervision Authority makes every effort to coordinate the decision to refuse to grant the merger authorisation specified in subsection 1 of § 68 1 of this Act with the supervisory authority specified above and to ensure the consistency of the decision.

§ 70. Notification of merger

(1) Merging credit institutions shall promptly give notice of obtaining authorisation for merger in at least one daily national newspaper and on websites of all the merging credit institutions.

(2) A credit institution may submit an application for entry of a merger in the commercial register promptly after publication of the notice specified in subsection 1 of this section.

§ 70¹. Bases and conditions for division of credit institution

(1) A credit institution being divided is required to immediately after entering into a division agreement notify the Financial Supervision Authority thereof and submit all relevant documents and data related to the division. The specified documents and data must include the schedule of the division, the processes and operations planned in the course of the division, and the post-division organisational structure of the credit institution.

(2) The Financial Supervision Authority has the right to require a credit institution the resolution of the issue of division and submission of the application for getting an authorisation for the division provided that the following circumstances exist:

1) there is sufficient data concerning the payment difficulties arising from the financial situation of the credit institution, or a material risk exists that the credit institution is unable to satisfy the legitimate claim of even any single customer;

2) it is probable that following the division, the level of prudential ratios of the credit institution bound by such obligations complies the with the requirements provided by law.

(2¹) A division of a credit institution is deemed to occur where:

1) the credit institution being divided transfers all its assets and liabilities to more than one acquiring company, and the holders of the equity securities of such credit institution receive equity securities and, where appropriate, a cash payment in return;

2) the credit institution being divided transfers all its assets and liabilities to more than one company founded (hereinafter in this Chapter the company being founded), and the holders of the equity securities of the credit institution being divided receive equity securities of the companies founded and, where appropriate, a cash payment in return;

3) the transfer of the assets and liabilities of the credit institution being divided is a combination of those described in clauses 1 and 2 of this subsection;

4) the credit institution being divided transfers a part of its assets and liabilities to more than one acquiring company, and the holders of the equity securities of the credit institution being divided receive equity securities of the acquiring companies and, where appropriate, a cash payment in return.

5) a credit institution being divided transfers a part of its assets and liabilities to at least one acquiring company in exchange for securities.

(2²) The acquiring company specified in clauses 1, 2 and 5 of subsection 2¹ of this section must be a credit institution that has been granted an activity licence in accordance with the procedure provided in Chapter 2 of this Act or under the law of another Contracting State.

(2³) The provisions of subsection 2 of § 435 of the Commercial Code apply to the amount of the additional payment specified in clauses 1, 2 and 4 of subsection 2¹ of this section.

(2⁴) A company being founded specified in clause 2 of subsection 2¹ of this section must apply for an activity licence in accordance with the procedure provided in Chapter 2 of this Act or under the law of another Contracting State. Upon applying for an activity licence, a credit institution being founded is exempt from the obligation to apply for a division authorization provided in subsection 1 of § 70² of this Act and the time limit provided in subsection 3 of § 70³.

(2⁵) Upon a division specified in clauses 1 and 2 of subsection 2¹ of this section, the activity license of the credit institution being divided is revoked.

(2⁶) Where the shareholders of a credit institution being divided acquire a qualifying holding in an acquiring credit institution in the amounts provided in § 30 of this Act, the provisions of §§ 30–33 of this Act apply to the acquisition of the holding.

(3) Upon division of the credit institution the requirement for term provided in subsections 1 and 2 of § 443 and provisions of subsections 2¹ and 2² of § 447 of the Commercial Code shall not be applied.

(4) Upon auditing the division agreement and division report of a credit institution, the auditor prepares a report specifying which valuation methods have been applied in determining the exchange ratio of the shares or contributions.

§ 70². Application for and proceedings of authorisation for division

(1) In order to apply for authorisation for division a credit institution being divided shall submit to the Financial Supervision Authority an application and the following data and documents:

1) the division agreement or its notarised or officially certified copy;

2) the division report;

3) the division resolution if the passing thereof is required;

4) the auditor’s report;

5) the operations plan related to division of the credit institution being divided and other companies involved in the division;

6) the information about the acquiring company specified in subsection 3 of § 30 of this Act;

7) the circumstances related to division, concerning the depositors and other clients;

8) other information provided by law, particularly if there are changes resulting from division among the circle of persons who have a qualifying holding in the credit institution being divided or among managers;

9) written confirmation from the members of the management board certifying the correctness of the data in the documents submitted pursuant to this section.

(2) The Financial Supervision Authority may request additional documents and information in writing where at least one of the following circumstances exists:

1) it is necessary to specify and verify the documents listed in subsection 1 of this section;

2) based on the submitted documents and information, it is impossible to verify that there are no grounds for refusal to grant a division authorization specified in subsection 2 of § 70³ of this Act;

3) there is a need to verify other circumstances, additional documents and information related to the division.

(2¹) The Financial Supervision Authority notifies the credit institution in writing of the receipt of the application specified in subsection 1 of this section and of the documents and information specified in subsection 2 immediately, but no later than on the tenth working day.

(2²) Where only credit institutions belonging to the same consolidation group participate in the division, the Financial Supervision Authority may request additional documents and information within 50 working days as of the receipt of the application for an authorization for division. The procedural term is suspended for the period between the initial request for the specified additional documents and information and the receipt of the requested additional documents and information from the credit institution. The suspension may not last longer than 20 working days.

(2³) The Financial Supervision Authority may extend the suspension of the procedural term specified in subsection 2² of this section for up to 30 working days where:

1) at least one of the credit institutions belonging to the same consolidation group is located in a third country or the legislation of a third country is applied thereto;

2) for the assessment of the provisions of clause 6 of subsection 2 of § 70³ of this Act, the performer of the financial supervision function of the Financial Supervision Authority must exchange information with the performer of anti-money laundering compliance control function.

(2⁴) Upon a request for additional documents and information, the procedural term is not suspended.

§ 70³. Authorisation for division

(1) Upon the grant of authorisation for division the Financial Supervision Authority shall particularly consider the protection of the interests of depositors, clients and other creditors, giving preference to the interests of the depositors and taking account of the need to ensure the stability of the Estonian financial system.

(2) The Financial Supervision Authority may refuse to grant authorisation where:

1) the companies participating in the division do not have sufficient financial resources, considering the nature of the business activities of the company being founded;

2) the division does not comply with the requirements of this Act, including, among other things, the reputation of the acquiring company is not suitable for holding a share in a credit institution or for managing a credit institution;

3) the documents or data submitted to the Financial Supervision Authority, as required under subsections 1 and 2 of § 70² of this Act, are deficient;

4) there is a justified suspicion that the company being founded is unable to permanently comply with the prudential requirements provided in this Act, in Regulation (EU) No 575/2013 of the European Parliament and of the Council and, where applicable, in the Insurance Activities Act and the Payment Institutions and E-money Institutions Act;

5) the division plan is not feasible or reasonable from the perspective of the reliability of the company;

6) there is a justified suspicion that money laundering for the purposes of § 4 or 5 of the Money Laundering and Terrorist Financing Prevention Act, or an attempt thereof, is taking place or has taken place in connection with the division, or that risks related to money laundering or terrorist financing or other risks have increased;

7) the division may create a systemic risk.

(2¹) The Financial Supervision Authority monitors compliance with the division plan specified in clause 5 of subsection 2 of this section until the completion of the division.

(2²) Upon assessing a division specified in clause 6 of subsection 2 of this section, the performer of the financial supervision function of the Financial Supervision Authority consults with the performer of the anti-money laundering control function. The performer of the anti-money laundering control function of the Financial Supervision Authority submits their opinion within 30 working days as of the receipt of the relevant request.

(2³) Upon deciding on the grant of or refusal to grant an authorization for division, the Financial Supervision Authority may not take into account the impact that the division may have on other financial market participants.

(2⁴) Upon granting an authorization for division, the Financial Supervision Authority may impose mandatory secondary conditions, including limiting the period of validity of the authorization for division.

(3) The Financial Supervision Authority shall make a decision on the granting of or refusal to grant authorisation for division of the credit institution within thirty days after receipt of all the necessary documents or information specified in subsections 1 and 2 of § 70² of this Act. The applicant shall be notified of the decision in writing within three days as of the date on which the decision is made.

(4) Where only credit institutions belonging to the same consolidation group participate in the division, the Financial Supervision Authority does not apply the provisions of subsection 3 of this section and instead:

1) makes a decision on the grant of or refusal to grant an authorization for division within 60 working days as of the receipt of all necessary conforming information and documents;

2) notify the applicant of the final date for making the decision;

3) communicate the decision to the applicant in writing within two working days.

§ 70⁴. Notification of division

(1) The credit institution being divided shall promptly give notice of obtaining authorisation for merger in at least one daily national newspaper and its website.

(2) A credit institution is required to submit a petition for entry of a division in the commercial register promptly after the receipt of the authorisation for division provided in subsection 1 of § 70³ of this Act and publication of the notice specified in subsection 1 of this section.

§ 70⁵. Cooperation with other competent authorities

(1) The Financial Supervision Authority coordinates a decision to refuse the granting of an authorisation for division provided in subsection 2 of § 70³ (2) of this Act with the financial supervision authority of the relevant Contracting State where, in addition to the credit institution, any of the following undertakings participates in the division:

1) such credit institution, insurance undertaking, reinsurance undertaking, investment firm or asset management company that has obtained an activity license in another Contracting State or in a sector other than that in which the division takes place;

2) a parent undertaking of such credit institution, insurance undertaking, reinsurance undertaking, investment firm or asset management company that has obtained an activity license in another Contracting State or in a sector other than that in which the division takes place;

3) a legal person exercising control over such credit institution, insurance undertaking, reinsurance undertaking, investment firm or asset management company that has obtained an activity license in another Contracting State or in a sector other than that in which the division takes place.

(2) The Financial Supervision Authority transmits immediately the necessary or relevant information to the supervisory authority specified in subsection 1 of this section upon the request of the relevant supervisory authority or on its own initiative. The information transmitted must be relevant and complete. The Financial Supervision Authority makes its every effort to coordinate the decision to refuse the granting of an authorization for division specified in subsection 2 of § 70³ of this Act with the aforementioned supervisory authority and to ensure the consistency of the decision.

§ 70⁶. Bases for and notification of transfer of material assets and liabilities

(1) Credit institutions, as well as such credit institutions that belong to the same consolidation group and are the sole parties to the transaction, notify the Financial Supervision Authority in writing of the transfer of material assets and liabilities (hereinafter the transfer) prior to the sale or the conclusion of any other transaction. All parties participating in the transfer perform the notification obligation individually.

(2) For the purposes of application of subsection 1 of this section, a transfer is deemed material where the transaction covers at least ten per cent of the total assets or liabilities of the credit institution. Where the transfer takes place between credit institutions belonging to the same consolidation group, the transfer is deemed material where the transaction covers at least 15 per cent of the total assets or liabilities of the credit institution.

(3) The following is not taken into account upon the calculation of the percentages specified in subsection 2 of this section: non-performing assets:

1) non-performing assets;

2) assets transferred for the pool of cover assets specified in subsection 6 of § 2 of the Covered Bonds Act;

3) transferable securitised assets;

4) assets or liabilities transferred in the course of using the resolution tools, powers and procedures provided in Subchapter 2 of Chapter 2 and Chapters 4–6 of the Financial Crisis Prevention and Resolution Act.

(4) The Financial Supervision Authority notifies the credit institution of the receipt of the notice specified in subsection 1 of this section in writing without delay, but no later than on the tenth working day as of the receipt of the notice.

§ 71. Prudential ratios

(1) In order to guarantee the financial soundness of a credit institution, the credit institution is required, at all times, to adhere to prudential ratios provided in Subchapter 2¹ of this Chapter and Regulation (EU) No 575/2013 of the European Parliament of the Council.

(2) If a credit institution belongs to a consolidation group, the requirements for capital buffers provided for in Subchapter 2¹ of this Chapter shall be observed both individually with regard to each credit institution and for the consolidation group as a whole.

(3) The systems for management, internal control and compliance systems of a credit institution and the undertakings belonging to its consolidation group, the organization of accounting, and the policies, procedures and systems for the documentation and retention of all the transactions and operations must enable the Financial Supervision Authority to verify, at any time, the compliance with requirements arising from legislation and ensure the proper calculation of prudential ratios and the accuracy of the relevant data and reporting, including, where appropriate, on a consolidated or sub-consolidated basis. A subsidiary of a credit institution that is not considered a credit institution, investment firm, financial holding company or mixed financial holding company must comply with the operational requirements specific to its field of activity on an individual basis.

(4) Parent companies and subsidiaries, belonging to the same consolidation group with the credit institution to which this Act is applied, shall ensure that the requirements specified in subsection 3 of this section shall also apply to a subsidiary of the credit institution belonging to the consolidation group, including a subsidiary established in a non-cooperative tax jurisdiction, to which the requirements of Directive 2013/36 / EU of the European Parliament and of the Council or Regulation (EU) No 575/2013 of the European Parliament and of the Council are not applied, unless the EU parent credit institution proves to the Financial Supervision Authority that the application of legal requirements is in conflict with the legislation of the country of location of the subsidiary.

(5) The management board of a credit institution is required to notify the Financial Supervision Authority immediately of any violations of prudential ratios or requirements for the mandatory reserve of a credit institution.

(6) A credit institution is required to deposit its liquid assets in Eesti Pank at least to the extent provided for by the European Central Bank unless otherwise provided for by current law.

(6¹) The Financial Supervision Authority encourages credit institutions that are significant in terms of their size, internal organization, and the nature, scope and complexity of their activities to develop internal credit risk assessment capabilities and to increase the use of the internal ratings-based approach for calculating own funds requirements for credit risk, where their exposures are material in absolute terms and where their exposures are material in absolute terms and where they have at the same time a large number of material counterparties, without prejudice to the fulfilment of the criteria provided in Subchapter 1 of Chapter 3 of Division I of Part III of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(6²) The Financial Supervision Authority encourages credit institutions, taking into account their size and internal organization as well as the nature, scope and complexity of their activities, to develop internal market risk assessment capabilities and to increase the use of internal models for calculating own funds requirements for trading book positions, together with internal models used to calculate own funds requirements for default risk, where their exposures to default risk are material in absolute terms and they have a large number of material positions in tradable debt or equity instruments of different issuers. The foregoing is without prejudice to the fulfilment of the criteria provided in Chapter 1b of Division IV of Part III of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(6³) A credit institution is required to notify the Financial Supervision Authority and the European Banking Authority of the results of its calculations concerning exposures or other positions included in the benchmark portfolios of the European Banking Authority where:

1) the credit institution has been granted the right to use internal methods for calculating risk-weighted exposure amounts or own funds requirements;

2) the credit institution uses the alternative standardized approach provided in Chapter 1a of Division IV of Part III of Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that the size of its on- and off-balance-sheet business subject to market risk is equal to or greater than 500 million euros in accordance with clause b of subsection 1 of Article 325a of the same Regulation.

(6⁴) A credit institution that has obtained the right to use internal methods in accordance with Chapter 3 of Division II of Part III of Regulation (EU) No 575/2013 of the European Parliament and of the Council, and a credit institution that uses the standardized method in accordance with Chapter 2 of the same Division of the same Part of the same Regulation, notifies the Financial Supervision Authority and the European Banking Authority of the results of the calculations Carried out on the basis of the aforementioned methods when determining the amount of expected credit losses or in respect of positions included in benchmark portfolios.

(6⁵) A credit institution submits the results of the calculations specified in subsections 6³ and 6⁴ of this section together with an explanation of the methods used and the qualitative information required by the European Banking Authority explaining the impact of these calculations on own funds requirements. The aforementioned information is submitted to the Financial Supervision Authority and the European Banking Authority at least once a year, using the reporting format developed on the basis of subsection 8 of Article 78 of Directive 2013/36/EU of the European Parliament and of the Council.

(7) The Financial Supervision Authority may develop indicative portfolios of internal models, but this shall be done in cooperation with the European Banking Authority.

(8) Credit institutions shall report separately the indicative portfolios specified in subsection 7 of this section and the indicative portfolios developed by the European Banking Authority.

(9) The Financial Supervision Authority monitors the ranges of risk-weighted exposure amounts or own funds requirements calculated in accordance with subsections 6³ and 6⁴ of this section on the basis of the information submitted by credit institutions regarding exposures or transactions in benchmark portfolios that result from the methods applied by those credit institutions. The Financial Supervision Authority assesses the quality of those methods at least as frequently as the European Banking Authority is required to do so, paying particular attention to:

1) methods which exhibit material differences in own funds requirements for the same exposure;

2) methods where particularly high or low diversity is exhibited in the assessment of own funds requirements and where own funds requirements are significantly and systematically underestimated.

(10) Where a credit institution diverges significantly from the majority of its peer credit institutions, or where such methods are insufficiently harmonized, resulting in a wide discrepancy in outcomes, the Financial Supervision Authority investigates the grounds thereof and implements corrective measures, provided it can be unambiguously determined that the method applied by the credit institution results in an underestimation of own funds requirements which cannot be attributed to differences in the risks related to the exposures or positions.

(11) Upon the implementation of the measures specified in subsection 10 of this section, the Financial Supervision Authority is required to base its actions on the general objectives of the internal model methods and ensure that such measures do not:

1) lead to standardization or prefer certain methods;

2) create wrong incentives, or

3) cause herd behaviour.

(12) For the purposes of this Act, an internal method means the internal ratings-based method specified in subsection 1 of Article 143 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, the internal models method specified in Article 221, the internal models method specified in Article 283, the alternative internal model method specified in Article 325az, and the internal assessment method specified in subsection 2 of Article 265 thereof.

§ 72

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§ 80. Liquidity

(1) A credit institution shall invest its assets such that the satisfaction of justified claims of creditors, i.e. the liquidity, is guaranteed at all times. For that purpose, a credit institution shall maintain the necessary ratio of liquid assets and current liabilities.

(2) The managers of a credit institution are required to structure the assets of the credit institution such that financing is not based on funds which are too short-term or inadequate. The managers are also required to monitor the terms of claims and commitments on a regular basis. The activities of the credit institution shall not be endangered by the expiry of terms for the conclusion of commitments. A credit institution shall monitor its liquidity on the basis of cash-flows.

§ 81. Limitations on participation of credit institutions in companies

(1) A credit institution shall not participate as a partner in a general partnership or as a general partner in a limited partnership.

§ 82. General requirements for risk management and monitoring

(1) A credit institution and the companies belonging to the same consolidation group as the credit institution shall not, in their activities, take risks which could endanger the solvency of the credit institution or the consolidation group.

(2) Upon establishment, measurement and management of risks a credit institution and companies belonging to the same consolidation group shall have adequate and uniform strategies, procedures and systems proportionate to the nature, extent and level of complexity of their activities, which shall be regularly reviewed and updated and which are determined in the corresponding internal rules of procedure and are in effect in the credit institution or the companies belonging in the same consolidation group.

(2¹) The procedures, strategies, systems and corresponding internal rules specified in subsection 2 of this section shall guarantee adequate possibilities for identifying and checking transactions carried out between a credit institution and its parent company which is a mixed-activity holding company, and between a credit institution and other subsidiaries of its parent company which is a mixed-activity holding company. A credit institution is required to inform the Financial Supervision Authority immediately of any significant transaction with its parent company, which is a mixed-activity holding company, or with another subsidiary of such parent company.

(2²) The credit institution is required to establish an obligation to submit regularly reports that comprise all the existing and potential risks, risk management principles and amendments thereof, including external expert assessments, to the supervisory board of the credit institution and Risk Committee. The supervisory board and the Risk Committee shall determine the contents, format and frequency of submission of the reports.

(3) The credit risk strategy of a credit institution and the internal procedure rules based on such strategy must determine the objectives of the credit policy, the main principles of calculating the credit exposures, the criteria for evaluating credit risk, the principles for establishing a rating to debtors, the principles for taking and evaluating securities, the principles or granting and refinancing of loans, the competence to grant loans and organisation of making the corresponding decisions, and the functioning of the management of the credit risk.

(3¹) A credit institution must use effective procedures for the management and adequate evaluation of credit exposures, including for determining and write-down of receivables regarded as doubtful.

(3²) A credit institution must establish, in writing, objectives and rules of procedure for:

1) management and control of the risks in respect of which the methods for managing credit risks used by the credit institution have less effect than estimated;

2) management and control of the concentration of risks, including in respect of a client, a group of mutually connected clients of a central counterparty, an economic sector, a geographic region, an issuer of collateral, an activity, a product or a crypto-asset, and for the management and control of implementation of credit risk mitigation methods in case of the concentration of exposures;

3) the correct reflection, evaluation, management and control of the economic content of risks arising from securitization transactions, including the reputation risk, with regard which the credit institution is an investor, originator of loans or organiser of a transaction;

3¹) liquidity plans for handling the effect of planned and early amortization associated with the securitization transactions with the right of early amortisation arising from the revolving claims, with regard to which the credit institution is the originator of the claim;

4) management and control of interest risk, including the interest risk unrelated to trading in financial instruments;

4¹) identification, assessment and management of market risk, including handling a potential liquidity shortage when the short exposure falls due before long exposure;

5) management and control of operational risk, including model risk as defined in clause 52b of subsection 1 of Article 4 of Regulation (EU) No 575/2013 of the European Parliament and of the Council, risks arising from outsourcing, direct and indirect crypto-asset exposures and exposures related to crypto-asset service providers, and cases involving low probability high potential for damage;

6) management and control of liquidity, and financing and identification, measurement, management and monitoring of a liquidity risk in order to ensure continuous planning for liquidity and alternative sources of financing.

(3³) A credit institution must have a system with clearly delineated areas of responsibility for managing the operational risk, and implemented processes for determining, measuring and managing the operational risk.

(3⁷) A credit institution is required to assess credit risks both at the level of individual counterparts, securities and securitized positions and also at the portfolio level.

(3⁸) Internal methods of credit risk assessment shall not be based on external credit quality assessments only or be built on automatic relationships with external credit quality assessments.

(3⁹) Upon assessment of credit risk and internal capital need a credit institution is required to take account of all the relevant information also in the case the calculation of capital need of the credit risk is based on the credit quality assessment of a rating agency or the lack of external credit quality assessment.

(3¹⁰) a credit institution is required to diversify loan portfolios adequately, taking account of its target markets and credit strategy.

(3¹¹) A credit institution must assess the crypto-asset exposure it intends to take, as well as the adequacy of existing processes and procedures for managing both counterparty risk and specific market risk and notify the Financial Supervision Authority of such assessments. Where a crypto-asset does not have an identifiable issuer, the credit institution must, when calculating the concentration risk, base its approach on the treatment of crypto-asset exposures with similar characteristics.

(3¹²) The Financial Supervision Authority reviews the conditions for approving the use of an internal model and establishes appropriate measures to improve the model where the results of testing for a credit institution utilizing an internal market risk model, or the results of the profit and loss attribution test, indicate that the internal model is no longer sufficiently accurate.

(3¹³) A credit institution must develop specific plans and measurable targets in accordance with the requirements of Article 7a of Regulation (EU) No 648/2012 of the European Parliament and of the Council to monitor and address concentration risk arising from exposures to central counterparties that offer systemically important services in one or more Member States.

(4) The management board of a credit institution is required to notify the Financial Supervision Authority promptly of all facts that may materially affect the financial situation of the credit institution or the companies belonging to the same consolidation group as the credit institution.

(5) A credit institution shall develop a business continuity plan for all relevant business processes to ensure the restoration and continuity of economic activities. This business continuity plan needs to be regularly reviewed, tested and, if necessary, updated.

(6) For the purposes of this Act, A crypto-asset means a crypto-asset as defined in clause 5 of subsection 1 of Article 3 of Regulation (EU) 2023/1114 of the European Parliament and of the Council, which is not a central bank digital currency.

§ 82¹. Requirements for liquidity risk management

(1) A credit institution is required to have a strategy, policy, procedures and systems for identification, measurement, management and monitoring of the liquidity risk at different predictable periods, including intraday periods in order to ensure the existence of an adequate liquidity buffer. For the purposes of this Act liquidity buffer is cash or other unencumbered liquid assets that will enable a credit institution or its subsidiary to meet the obligations in stress situations.

(1¹) A credit institution is required to update regularly its liquidity risk management strategies, policies, procedures and limits and develop operating business continuity plans to ensure liquidity (hereinafter in this section a liquidity continuity plan) taking account of the results of the stress test specified in subsection 9 of this section.

(2) The strategy, policy, procedures and systems specified in subsection 1 of this section shall be:

1) in compliance with the business lines, foreign currency used and business units of a credit institution and also take account of the existence of subsidiaries and reflect the effect of the activities of credit institution on the financial system of each contracting state where it is operating;

2) include relevant systems of distribution of liquidity risk management expenses into other units earning profit;

3) be in correspondence with the extent, complexity, risk profile and risk tolerance of the activities of a credit institution determined by the management board, where the credit institution is required to notify all the business units concerned of the risk tolerance;

4) take account of the importance of credit institution in each state where it is operating.

(3) A credit institution is required to develop methods for identification, measurement, management and monitoring of the financing positions where the cash flows that are known and forecast, arising both from the balance sheet and off-balance sheet assets and liabilities as well as a possible effect of the reputation risk are taken account of.

(4) A credit institution is required to differentiate the assets encumbered with collateral from unencumbered assets that are liquid and applicable at any time, primarily in cases where the financial position or solvency of a credit institution is at risk. Also, the persons who are holders of assets and the state where the assets are registered shall be taken account of.

(5) A credit institution is required to take into account the legal, supervision and commercial restrictions that apply to the provision of additional capital to its business units to provide liquidity and to potential transfers of unsecured assets both within and outside the European Economic Area.

(6) A credit institution is required to introduce different risk management measures, including the system of limitations and liquidity buffers that enable to cope with different stress events, to possess adequately dispersed resource structure and unhindered access to the sources of financing. Such measures shall be updated regularly.

(7) A credit institution is required to determine its maintenance period on the basis of liquidity buffers. The maintenance period is a period of time during which the credit institution is required to be able to act in a sustainable manner without using the financing sources from outside of the credit institution.

(8) Upon deciding to manage liquidity risk, involve resources and use financing sources a credit institution is required to use scenario analyses, sensitivity analyses and other stress tests (hereinafter stress test) and business continuity plans, the assumptions of which need to be updated regularly.

(9) Upon conducting stress tests of liquidity risk different scenarios related to both the credit institution itself and the whole market or the combination of the two shall be used in different forecast periods and stress conditions. The scenarios shall also take account of off-balance sheet liabilities and other contingent liabilities, including the liabilities of special securitization entities or other special purpose entities or persons, specified in Regulation (EU) no.575/2013 of the European Parliament and of the Council, with regard to whom the credit institution is acting as the organizer of the transaction or grantor of liquidity support in a substantial amount.

(10) In order to operate in a liquidity crisis situation, a credit institution is also required to have a liquidity continuity plan covering the branches of the credit institution located in another Contracting State, together with an appropriate strategy and comprehensive measures to be taken in the event of a potential liquidity shortage. A credit institution is required to test the liquidity business continuity plan at least annually, update it based on the results of the scenarios used in the stress test specified in subsection 8 of this section and report thereon to the management board of the credit institution. The management board of a credit institution must approve the liquidity business continuity plan and adjust the internal policies of the institution and processes based thereon accordingly.

(11) A credit institution is required to proactively take the necessary measures to ensure the immediate implementation of the liquidity business continuity plan. These measures must include keeping collateral immediately available for central bank financing. This includes holding the collateral in the currency of another Contracting State or in the currency of the third country to which the credit institution has an exposure, where necessary. Where necessary, the collateral must be held in the territory of the Contracting State where the credit institution has a branch or provides services, or in the territory of a third state against the currency of which the credit institution has an exposure.

§ 82². Excessive leverage risk management requirements

(1) Risk of excessive leverage is a risk that results from too fast growth of liabilities of the credit institution.

(2) A credit institution is required to establish the procedure and measures for assessment, management and control of excessive leverage. The non-compliance of exposure and assets and liabilities calculated pursuant to Regulation (EU) No.575/2013 of the European Parliament and of the Council shall be taken account of upon assessment of risk of excessive leverage.

(3) A credit institution is required to cope with stress events which are related to risk of excessive leverage and take account of the potential decrease of own funds of the credit institution due to losses.

(4) Own funds used to cover the additional own funds requirement established to deal with the risk of excessive leverage, which is not adequately covered by point (d) of Article 92 (1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, may not be used to meet any of the following conditions or requirements:

1) the own funds requirement set out in point (d) of Article 92 (1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) the leverage ratio buffer requirement specified in Article 92 (1a) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

3) the guidance on additional own funds specified in subsection 1 of § 104³ of this Act to the extent of covering the risks of excessive leverage.

§ 82³. Interest rate risk arising from non-trading book activities

(1) A credit institution shall implement internal systems or use the standardised method or the simplified standardised approach to identify, assess, manage and hedge risks arising from potential changes in interest rates that affect both the economic value of equity and net interest income from the non-trading book activities of the credit institution.

(2) A credit institution shall implement systems for assessing and monitoring the risks arising from potential changes in the credit risk margin that affect both the economic value of equity and the net interest income from the non-trading book activities of the credit institution.

(3) If the internal systems implemented by a credit institution for the assessment of the risks specified in subsection 1 of this section are unsatisfactory, the Financial Supervision Authority may require the credit institution to use the standardised method specified in subsection 1.

(4) If the Financial Supervision Authority considers that the simplified standardised approach does not sufficiently take into account the interest rate risk arising from the non-trading book activities of a credit institution, it may require that small and non-complex credit institutions as defined in point (145) of Article 4 (1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council use the standardised method.

§ 82⁵. Mitigation of environmental, social, and governance risks

(1) As part of its governance arrangements, and, among other things, based on the provisions of clause 2 of subsection 2 of § 55 of this Act, a credit institution must establish robust strategies, policies, processes, and systems to identify, measure, manage and monitor environmental, social and governance risks over the short-, medium- and long-term perspective.

(2) The strategies, policies, processes and systems specified in subsection 1 of this section must be proportionate to the scale, nature and complexity of the business model containing the environmental, social, and governance risks of the credit institution, and must be established taking into account a short-term, medium-term, and at least a ten-year perspective.

(3) A credit institution must test its resilience to long-term adverse impacts resulting from environmental, social, and governance risks within a specific timeframe, taking into account the baseline and potential negative scenarios, and starting with climate-related factors. The credit institution must test multiple scenarios related to environmental, social, and governance risks in which environmental and social changes manifest simultaneously, as well as the potential impact of relevant public policy on the long-term business environment. The testing process specified above must utilize reliable scenarios, which in turn are based on scenarios developed by international organizations.

(4) Where applicable to the credit institution, the methods and the underlying prerequisites, liabilities, and strategic decisions disclosed in the sustainability report specified in §§ 24 and 31 of the Accounting Act, or in any other similar publicly disclosable document, must be consistent with the guidelines of the European Banking Authority established in accordance with clause a of subsection 5 of Article 87a of Directive 2013/36/EU of the European Parliament and of the Council, and with the criteria, methods, and targets specified therein, as well as with the prerequisites and obligations contained in the plan specified in § 82⁶ of this Act.

§ 82⁶. Drawing up plan for management of risks arising from environmental, social, and governance factors

(1) The management board of a credit institution must draw up a specific plan that includes measurable targets and processes for monitoring and addressing financial risks arising from environmental, social, and governance factors in the short, medium, and long term, and monitor its implementation.

(2) The plan specified in subsection 1 of this section must also include the monitoring and addressing of risks arising from the adjustment process and transition trends relating to the relevant regulatory objectives and legislation of the European Union and its Member States related to environmental, social and governance factors, in particular objectives for achieving climate neutrality. Where appropriate, the credit institution must also take into account relevant regulatory objectives set by third countries. For the purposes of this Act, climate neutrality means the general objective of achieving climate neutrality by 2050 as provided in subsection 1 of Article 2 of Regulation (EU) 2021/1119 of the European Parliament and of the Council establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (European Climate Law) (OJ L 243, 09.07.2021, pp 1–17).

(3) The quantifiable objectives and processes for addressing environmental, social, and governance risks included in the plan specified in subsection 1 of this section take into account the latest reports compiled and measures developed by the European Scientific Advisory Board on Climate Change specified in Regulation (EU) 2021/1119, particularly in the area of achieving the climate objectives of the European Union.

(4) Where a credit institution draws up and discloses a sustainability report in accordance with §§ 24 and 31 of the Accounting Act, the plan specified in subsection 1 of this section must be consistent with that report. The measures and activities related to the business model and strategy of the credit institution contained in the plan must also be consistent with those presented in the sustainability report.

(5) A credit institution must ensure that its governance and risk management processes related to environmental, social, and governance risks are aligned with the objectives set out in the plan specified in subsection 1 of this section.

(6) The provisions of subsections 1–4 of this section do not apply to a small and non-complex credit institution.

§ 83. Requirements for loans

(1) For the purposes of this Act, a loan is deemed to be the assets or off-balance sheet items of a credit institution arising from contracts under which the lender grants or undertakes to grant money or other assets to the recipient of the loan or another entitled person pursuant to the contract and the recipient of the loan undertakes to return the money or other assets to the lender under the prescribed conditions.

(2) The minister in charge of the policy sector may establish by a regulation the requirements for granting and monitoring loans.

(2¹) For the purposes of macroprudential supervision, Eesti Pank may establish requirements for all credit institutions operating in Estonia, their parent companies and subsidiaries located in Estonia and the subsidiaries and branches of foreign credit institutions operating in Estonia for:

1) loan amount and loan collateral value ratio;

2) loan amount and the borrower’s income ratio;

3) periodic loan and interest payments and the borrower’s income ratio;

4) term of loan;

5) loans and deposits ratio.

(3) Upon granting loans, a credit institution is required to observe the main internal crediting principles of the credit institution, the principles of sound banking management and responsible lending. For observance of the principle of responsible lending, a credit institution is required to collect and store information on the size of the financial obligations of and performance of payment obligations by the clients and to use such data to calculate a reasonable loan load for the clients.

(3¹) Upon granting of a loan to a consumer or provision of consulting service specified in §§ 7 and 51 of the Creditors and Credit Intermediaries Act to a consumer, a credit institution is required to follow the provisions of §§ 47–53¹ of the Creditors and Credit Intermediaries Act. The credit institution is required to ensure that the activities of a subsidiary belonging to the same consolidation group as the credit institution engaged in the granting or intermediating of a loan to consumers, specified in subsection 8 of § 2 of the Creditors and Credit Intermediaries Act, is in compliance with the requirements provided in §§ 38, 40, 43, subsections 2–4 of § 44 and §§ 46–53¹, 57, 57¹ and 58 of the Creditors and Credit Intermediaries Act.

(4) The procedure for granting loans to the staff members of a credit institution shall be approved by the supervisory board of the credit institution.

§ 83¹. Obligations of credit institution related to credit servicers, credit purchasers and debtors in arrears and dealing with credit servicing

(1) A credit institution is required to provide information to a credit servicer or a credit purchaser in accordance with the provisions of the first sentence of subsection 3 of § 44 and § 61 of the Credit Servicers and Credit Purchasers Act.

(2) In case a credit institution itself carries out credit servicing, the requirements prescribed in § 58 of the Credit Servicers and Credit Purchasers Act are applied thereto, or in case the credit purchaser has entered into a credit service agreement with the credit institution, the provisions of § 45 of the Credit Servicers and Credit Purchasers Act are applied. In case the credit institution itself carries out credit servicing concerning consumer credit agreements, the provisions of § 60 of the Credit Servicers and Credit Purchasers Act are also applied thereto.

(3) Where a credit institution itself collects a financial obligation or a claim arising therefrom related to a consumer credit agreement, they provide the recipient of the credit with at least the following information on paper or on another durable medium:

1) the total amount of the claim due and whether the claim includes only the principal amount of the claim or also includes interest, default interest, or service or other charges due;

2) information on the competent authorities, including their contact details and address to which the recipient of the credit may lodge a complaint.

(4) The information specified in subsection 3 of this section is always provided prior to the collection of the first financial obligation relating to the credit agreement in arrears or a claim arising therefrom. The recipient of the credit has the right at any time to request submission of the information specified in clause 1 of subsection 3 of this section and the submission of the supporting documents for the corresponding claim.

§ 84. Loans to persons related to credit institutions

(1) Persons related to a credit institution are:

1) the managers of the credit institutions;

2) persons with economic interests equivalent to those of the persons specified in clause 1 of this subsection;

3) shareholders who are natural persons and have qualifying holdings in the credit institution;

4) members of management boards or of substituting bodies of shareholders who are legal persons and have qualifying holdings in the credit institution.

(2) Persons with equivalent economic interests are the spouse or registered partner, children and parents of the head of the credit institution.

(3) The following are also deemed to be persons with equivalent economic interests:

1) a company controlled by the head of a credit institution or a person specified in subsection 2 of this section within the meaning of § 10 of the Securities Market Act and the parent company or subsidiary of such company or a company in which the head of the credit institution or person specified in subsection 2 has a qualifying holding;

2) a company where the head of a credit institution or a person specified in subsection 2 of this section is a member of the directing body.

(4¹) The documentation concerning the granting of a loan to a person related to a credit institution is required to be available to the Financial Supervision Authority upon request.

(4) Loans may be granted to persons related to a credit institution only on the basis of a specific unanimous resolution of the management board. The above-mentioned condition does not apply if the amount of the loan is less than 25 per cent of the annual remuneration which the chairman of the management board of the credit institution received from the credit institution, unless a smaller minimum rate has been established by a resolution of the supervisory board.

(5) A manager of a credit institution or a member of the credit committee thereof, a staff member who decides on the grant of loans, and other persons who have equivalent economic interests to such persons shall not participate in the process of deciding on the grant of a loan to him or her.

(6) Loans shall not be granted to persons related to a credit institution under more favourable conditions than to other persons with the same solvency and guarantees. If a credit institution allows its staff members to obtain a loan under a bonus or option program, the loan may also be granted to persons related to the credit institution under the same conditions.

(7) The provisions of clauses 1, 2 and 4 of subsection 1 of § 281 of the Commercial Code do not apply to credit institutions.

§ 85³. Terms of authorisation procedure upon calculation of prudential norms

The Financial Supervision Authority shall decide to grant authorisation specified in Regulation (EU) No.575/2013 of the European Parliament and of the Council or refuse to grant such authorisation within one month after the receipt of all the required documents and information but no later than three months as of the date of receipt of the corresponding application.

§ 85⁴. Additional macro-prudential norms

(1) Within the framework of macroprudential supervision, Eesti Pank may establish requirements for all credit institutions operating in Estonia, their parent companies and subsidiaries in Estonia, and the subsidiaries and branches of foreign credit institutions operating in Estonia, regarding:

1) the risk weights and criteria applied to exposures secured by mortgages on residential and commercial property, taking into account the provisions of Article 124 of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) for the minimum value of the loss rate due to late payment, taking into account the provisions of Article 164 of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

3) for hedging the systemic risks that have a serious negative impact on the Estonian financial system and the real economy, taking into account the provisions of Article 458 of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(2) The Financial Supervision Authority transmits to Eesti Pank the relevant available information, including subject-specific assessments and, where available, measures necessary for the establishment and regular assessment of the requirements specified in subsection 1 of this section.

§ 86. Valuation of assets

(1) Credit institutions are required to value their assets on a regular basis and use all measures in compliance with the principles of sound banking management and law to collect claims.

(2) Credit institutions are required to value all claims on the basis of the likelihood of payment thereof. Claims the full or partial payment of which is unlikely shall be written off to the extent that is valued as unlikely to be paid.

(3) The minister in charge of the policy sector may establish a procedure for the assessment of claims by a regulation.

§ 86¹

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§ 86⁴⁴. General requirements for capital buffers

(1) A credit institution shall, in addition to the own funds requirement provided for in Article 92 of Regulation (EU) No 575/2013 of the European Parliament and of the Council maintain the capital conservation buffer provided for in § 86⁴⁵ and, if this is applicable thereto, the following buffers:

1) countercyclical capital buffer specified in § 86⁴⁶;

2) global systemically important credit institutions buffer specified in § 86⁴⁷;

3) other systemically important credit institutions buffer specified in § 86⁴⁸;

4) systemic risk buffer specified in § 86⁴⁹.

(2) Common equity Tier 1 capital held to meet the capital conservation buffer requirement together with the buffers specified in clauses 1–4 of subsection 1 of this section form an aggregate combined buffer.

(3) A credit institution shall maintain the buffers specified in subsection 1 of this section on an individual and consolidated basis, unless otherwise provided for in this Act.

(3¹) Where the buffer requirement for a global systemically important credit institution and the buffer requirement for another systemically important credit institution are applied to the consolidation group on a consolidated basis, the higher of these shall apply.

(3²) Where a credit institution is subject to a systemic risk buffer requirement, it shall be cumulative with the buffer requirement for other systemically important credit institutions or the buffer requirement for global systemically important credit institutions.

(3³) Where the sum of the systemic risk buffer rate calculated for the application of subsection 8, 9 or 10 of § 86⁴⁹ of this Act and the buffer rate of another systemically important credit institution or the global systemically important institution applicable to the same credit institution is higher than five per cent, applied to the same credit institution or the buffer rate of the global systemically important credit institution exceeds five per cent, Eesti Pank may apply the respective buffer rates subject to authorisation by the European Commission. The provisions of the first sentence of this subsection are not applied where, as a result of establishing of the systemic risk buffer rate and the other systemically important institution or global systemically important institution buffer rate, the previously established rate decreases or remains unchanged.

(4) The requirements for maintaining buffers specified in subsection 1 of this section are added to the Common Equity Tier 1 capital requirement provided for in Article 92 of Regulation (EU) No 575/2013 of the European Parliament and of the Council and to the additional capital requirement or the requirement for increase of own resources calculated pursuant to subsection 1 of § 104² of this Act, unless otherwise provided in this Act.

(5) A credit institution shall not make payments at the expense of Common Equity Tier 1 instruments so that it would not meet the requirements for maintaining buffers specified in subsection 1 of this section.

(5¹) Tier 1 equity capital which is maintained to meet the requirements of the combined buffer shall not be used by a credit institution:

1) to meet the requirements specified in points (a), (b) and (c) of Article 92 (1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council or the requirements for additional own resources specified in subsection 1 of § 104² of this Act;

2) for compliance with the risk-based components of the minimum requirements provided for in Articles 92a and 92b of Regulation (EU) No 575/2013 of the European Parliament and of the Council and in the Financial Crisis Prevention and Resolution Act.

(5²) Common Equity Tier 1 capital maintained by a credit institution to comply with some element of its combined buffer requirement shall not be used by the credit institution to comply with any other applicable element of the combined buffer.

(6) If the credit institution fails to meet the requirements for maintaining the buffers specified in subsection 1 of this section to the full, the limitations on distribution of instruments in the composition of the Common Equity Tier 1 instruments provided for in § 86⁵⁰ shall be implemented with regard to the credit institution.

(7) Where the Common Equity Tier 1 capital of a credit institution does not increase sufficiently from the perspective of the relevant systemic risk after the application of restrictions on distributions, the Financial Supervision Authority may apply the additional measure specified in subsection 1 of § 104⁵ of this Act.

§ 86⁴⁵. Capital conservation buffer

The capital conservation buffer is 2.5 per cent of the total risk exposure amount calculated on the basis of Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

§ 86⁴⁶. Countercyclical capital buffer

(1) The credit institution based countercyclical capital buffer is equivalent to the amount of the total risk exposure calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council multiplied by the weighted average of the countercyclical buffer rates applicable in the country of location of exposures calculated in accordance with the procedure established in subsection 9 of this section. The countercyclical capital buffer shall consist of Common Equity Tier 1 capital.

(2) The countercyclical capital buffer rate forms up to 2.5 per cent of the total risk exposure amount unless otherwise provided for in this section. The countercyclical capital buffer rate shall be calibrated in the steps of 0.25 percentage points. The exact countercyclical capital buffer rate shall be established by Eesti Pank.

(2¹) Eesti Pank calculates a countercyclical capital buffer guide for each quarter, which is used as a benchmark for setting the countercyclical capital buffer rate. The purpose of the countercyclical capital buffer guide is to reflect the Estonian credit cycle and the risks associated with excessive credit growth, taking into account the peculiarities of the Estonian economy. The countercyclical capital buffer guide is based on the deviation of the loan-to-gross domestic product ratio from the long-term trend, in which case Eesti Pank takes into account, inter alia:

1) an increase in the volume of loans and a change in the ratio of the issued loans to gross domestic product;

2) the recommendations of the European Systemic Risk Board issued in accordance with the procedure provided for in Regulation (EU) No 1092/2010 of the European Parliament and of the Council on macro-prudential oversight of the financial system in the European Union and establishing the European Systemic Risk Board (OJ L 331, 15.12.2010, pp 1-11).

(3) Eesti Pank shall assess the intensity of cyclical systemic risk and the adequacy of the countercyclical capital buffer rate on a quarterly basis and, where necessary, shall establish or adjust the countercyclical capital buffer rate, taking into account:

1) the countercyclical capital buffer guide, which is calculated in accordance with subsection 2¹ of this section;

2) the recommendations of the European Systemic Risk Board issued in accordance with the procedure laid down in Regulation (EU) No 1092/2010 of the European Parliament and of the Council;

3) other indicators and circumstances that are appropriate for dealing with the cyclical systemic risk.

(4) Based on reasoned considerations Eesti Pank may establish a countercyclical capital buffer rate in excess of 2.5 per cent of the total risk exposure amount. Eesti Pank may recognize the countercyclical capital buffer rate established in another Contracting state or third state, which is in excess of 2.5 per cent of the total risk exposure amount located in this state calculated in accordance with Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(5) If the countercyclical capital buffer rate has not been established or disclosed in a third country has not established or disclosed, the countercyclical capital buffer rates shall be calculated for the positions of the Estonian credit institutions located in that country pursuant to the procedure provided for in subsection 9 of this section.

(6) Upon establishment of the countercyclical capital buffer rate for the first time or increase thereof, the rate shall be disclosed 12 months before the rate or new rate enters into force. In exceptional circumstances the term for taking effect of the rate or the new rate may be less than 12 months as of the disclosure of the rate or new rate.

(7) Eesti Pank shall publish on its webpage once a quarter at least the following information:

1) the applicable countercyclical capital buffer rate;

2) the relevant ratio of credit granted to gross domestic product and its deviation from the long-term trend;

3) the buffer guide calculated on the basis of subsection 2¹ of this section;

4) the reason for the countercyclical capital buffer rate;

5) where the countercyclical capital buffer rate is increased, the date from which the credit institutions are required to maintain the increased buffer;

6) extraordinary circumstances justifying the earlier application of the new higher rate if the date of entry into force of the new rate of the countercyclical capital buffer rate is less than 12 months as of the publication of the new rate;

7) in the case of a reduction of the countercyclical capital buffer rate, the expected period during which no increase in the buffer rate is planned, together with the reasons for determining that period.

(9) Eesti Pank shall establish a more specific procedure for calculating the credit institution based countercyclical capital buffer rate and the procedure for recognizing the countercyclical capital buffer rate established in another Contracting state or a third country.

§ 86⁴⁷. Global systemically important credit institution and its buffer

(1) A global systemically important credit institution may be:

1) a consolidation group managed by an EU parent credit institution, an EU parent financial holding company or an EU parent mixed financial holding company, or

2) a credit institution which is not a subsidiary of an EU parent credit institution, an EU parent financial holding company or an EU parent mixed financial holding company.

(2) Identification of the global systemically important credit institution shall be based on the following criteria:

1) size of the consolidation group;

2) interconnectedness of the consolidation group with the financial system;

3) substitutability of the services or of the financial infrastructure provided by the consolidation group;

4) complexity of the consolidation group;

5) cross-border activity of the consolidation group, including cross border activity in third countries.

(2¹) Upon identifying a global systemically important credit institution, an additional methodology may be applied based on:

1) the features specified in clauses 1–4 of subsection 2 of this section;

2) the cross-border activities of the consolidation group, except in the Contracting States participating in the activities of the consolidation group for the purposes of Article 4 of Regulation (EU) No 806/2014 of the European Parliament and of the Council.

(2²) The additional methodology provided for in subsection 2¹ of this section provides an additional overall score for each unit specified in subsection 1, and on the basis thereof Eesti Pank may apply the provisions of clause 3 of subsection 8.

(3) Taking into account the provisions of subsection 2 of this section, a quantitative score shall be calculated for each global systemically important credit institution. When calculating the score, all the characteristics are taken into account with equal weight.

(4) A global systemically important credit institution is assigned, on the basis of the score determined pursuant to subsection 3 of this section, to one of at least five categories, whereas systemic importance increases from the first to the fifth category. Upon determining the lower threshold of the score and the categories, the score obtained in accordance with the methodology provided in subsections 2–2² of this section is taken into account. The assignment of scores between the categories must be distinct and conform to the principle of a continuous linear increase in systemic importance, resulting in a linear increase in the additional Common Equity Tier 1 capital requirement between each successive category. The principle of linear increase does not apply to the fifth category and to any higher category introduced in the future.

(5) Eesti Pank may determine the requirement for global systemically important credit institutions buffer as follows:

1) the requirement for global systemically important credit institutions buffer belonging to the first category shall be one per cent of the total exposure calculated in accordance with Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

2) for each of the following categories, at least 0.5 per cent of the total exposure calculated in accordance with Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council shall be added to the rate specified in clause 1 of this subsection.

(5¹) For the purposes of subsections 4 and 5 of this section, systemic importance is the anticipated impact of the distress of a globally systemically important credit institution upon the global financial market.

(6) A global systemically important credit institution shall maintain the buffer of a global systemically important credit institution on a consolidated basis. The buffer of a global systemically important credit institution shall consist of Common Equity Tier 1 capital.

(7) Eesti Pank shall notify the European Systemic Risk Board of the list of global systemically important credit institutions and the categories assigned to them. The notice shall contain a justification for the application or non-application of the supervisory right pursuant to subsection 8 of this section.

(7¹) Eesti Pank shall annually review the designation of global systemically important credit institutions and shall give justification for categories assigned them and inform the relevant global systemically important credit institution and the European Systemic Risk Board of the results.

(8) On the basis of a reasoned supervisory assessment, Eesti Pank shall have the right to:

1) assign a global systemically important credit institution to a category higher than that determined on the basis of the score;

2) define a credit institution with a score lower than the score corresponding to the lowest category as a global systemically important credit institution and include it in the relevant category;

3) taking into account the Single Resolution Mechanism of the European Union, to reclassify a global systemically important credit institution from a higher category to a lower category based on the additional overall score specified in subsection 3 of this section.

(9) The list of global systemically important credit institutions operating in Estonia shall be approved by Eesti Pank. Eesti Pank shall disclose the names of the global systemically important credit institutions, the categories thereof and the changes made in categories on its website.

§ 86⁴⁸. Other systemically important credit institution and its buffer

(1) Other systemically important credit institution may be:

1) a credit institution;

2) a consolidation group managed by a credit institution, a financial holding company or a mixed financial holding company operating as a parent undertaking in the European Union;

3) a credit institution, a financial holding company or a mixed financial holding company operating as a parent undertaking in Estonia.

(2) Identification of other systemically important credit institution is based on the following characteristics:

1) size of the credit institution;

2) importance of the credit institution for the economy of the European Union or Estonia;

3) importance of the cross-border activity of the credit institution;

4) interconnectedness of the credit institution or its consolidation group with the financial system.

(2¹) Eesti Pank shall annually review the justification for the designation of other systemically important credit institutions and shall inform the relevant other systemically important credit institution and the European Systemic Risk Board of the results.

(3) Eesti Pank may require any other systemically important credit institution to maintain the buffer of other systemically important credit institution to the extent of up to three per cent of the total risk exposure calculated pursuant to Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council. Eesti Pank, on an individual, sub-consolidated or consolidated basis.

(3¹) With the permission of the European Commission, Eesti Pank may decide to require any other systemically important credit institution to maintain the buffer of other systemically important credit institution to the extent of up to three per cent of the total risk exposure calculated in accordance with Article 92 (3) of Regulation (EU) No 575/2013, on an individual, sub-consolidated or consolidated basis.

(3²) The buffer of other systemically important credit institution shall consist of Common Equity Tier 1 capital.

(4) The application of the buffer requirement of another systemically important credit institution shall not create disproportionately negative effects on the financial system of other Contracting States or the European Union or impede the functioning of the internal market.

(5) Eesti Pank shall notify the European Systemic Risk Board of the establishment or re-establishment of the requirement specified in subsection 3 of this section at least one month before publishing the decision made on the basis provided for in subsection 3, or at least three months before publishing the decision made on the basis provided for in subsection 3¹. The notification shall include:

1) the justification for why the other systemically important credit institution buffer is considered likely to be effective and proportionate to hedge the risk;

2) an assessment of the likely positive or negative impact of the buffer of another systemically important credit institution on the internal market of the European Union, based on information available to Eesti Pank;

3) buffer rate which is sought to be set.

(5¹) Without prejudice to application of § 86⁴⁹ of this Act and subsection 3 of this section, if another systemically important credit institution is a subsidiary of such global systemically important credit institution or other systemically important credit institution which is a credit institution or consolidation group managed by an EU parent credit institution to which the buffer of another systemically important credit institution is applied on a consolidated basis, the buffer rate applied to another systemically important credit institution on an individual or sub-consolidated basis shall not exceed the lower of the following values:

1) the amount obtained by adding together the highest of the buffer rates of the global systemically important credit institution or other systemically important credit institutions applicable to the consolidation group on a consolidated basis and the one per cent rate applicable to the total risk exposure calculated pursuant to Article 92 (3) of Regulation (EU) No 575/2013of the European Parliament and of the Council;

2) three per cent of the total risk exposure calculated pursuant to Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council or the rate which the European Commission has permitted to be applied to the consolidation group on a consolidated basis in accordance with subsection 3¹ of this section.

(6) Eesti Pank assesses the appropriateness of the buffer requirement for other systemically important credit institutions at least once a year.

(6¹) Where the minimum output rate provided in subsection 3 of Article 92 of Regulation (EU) No 575/2013 of the European Parliament and of the Council is applied to a systemically important credit institution, such rate is taken into account upon the assessment specified in subsection 6 of this section.

(6) Eesti Pank shall review the requirement for other systemically important credit institution buffer at least annually.

(7) The list of other systemically important credit institutions operating in Estonia shall be approved by Eesti Pank. Eesti Pank shall disclose the names of other systemically important credit institutions on its website.