Pandikirjaseadus (PandiKS)

§ 1. Scope of regulation of Act

(1) This Act regulates the grant of additional authorisations to credit institutions for issue of covered bonds, the terms and conditions of issue and coverage of covered bonds, the assignment of claims of credit institutions for the purpose of including assigned claims in the cover pool of covered bonds, the separation of a covered bond portfolio from the other assets of a credit institution, and state supervision over, and responsibility for, covered bonds.

(2) The provisions of the Administrative Procedure Act apply to the administrative proceedings prescribed in this Act, taking into account the special rules arising from this Act, the Credit Institutions Act, the Securities Market Act and the Financial Supervision Authority Act.

§ 2. Covered bond

(1) A covered bond is a bond issued by a credit institution that has obtained the additional authorisation specified in subsection 1 of § 3 of this Act, liabilities arising from which are secured in accordance with the rules provided in this Act. The provisions of this Act do not apply to securities issued by other persons, regardless of the name or terms and conditions of the securities.

(2) For the purposes of this Act, an issuer is a credit institution that has obtained the additional authorisation specified in subsection 1 of § 3 of this Act, regardless of whether the credit institution has issued covered bonds or assumed an obligation to issue covered bonds.

(3) The claims provided in this Act may be used as cover assets of covered bonds. A claim is a cover asset of a covered bond if it has been entered in the cover register for covered bonds maintained by the issuer (hereinafter cover register).

(4) The provisions of the Law of Property Act concerning pledges do not apply to the coverage of covered bonds.

(5) The types of covered bonds are the mortgage covered bond and the mixed asset covered bond. For the purposes of this Act, the type of a covered bond is determined by reference to the claims that can be used as the main cover asset of the covered bond (hereinafter primary cover asset).

(6) The set of cover assets entered in the cover register for the coverage of covered bonds of the same type constitutes a cover pool. Covered bonds of the same type, their cover pool, and the derivative instruments entered in the cover register constitute a covered bond portfolio.

(7) Covered bond programme is issue or a series of issues of covered bonds the structural features and terms and conditions of which are the same or substantially similar and which are determined by legislation and relevant contractual terms and conditions, in accordance with the decision to approve the covered bond programme given to the issuer.

§ 3. Additional authorisation to issue covered bonds

(1) To issue covered bonds, a company must hold the authorisation specified in § 13 of the Credit Institutions Act (hereinafter main authorisation) and an additional authorisation to issue covered bonds (hereinafter additional authorisation).

(2) A company entered in the commercial register in Estonia is granted an additional authorisation by the Financial Supervision Authority.

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

(4) An additional authorisation expires:

1) in the event of expiry of the main authorisation – when the main authorisation expires;

2) in the event of voluntary discontinuation of the issue of covered bonds – when the authorisation for the voluntary discontinuation is obtained from the Financial Supervision Authority;

3) in the event of revocation of the additional authorisation – when the additional authorisation is revoked.

(5) Upon the expiry of an additional authorisation, the credit institution may not issue any new covered bonds. Expiry of an additional authorisation does not entail the expiry of the main authorisation, unless otherwise provided by law.

§ 4. Application for additional authorisation

(1) To apply for an additional authorisation, members of the management board of a company (hereinafter applicant) submit a written petition and the following documents and information (hereinafter in this Subchapter jointly application):

1) additions to the business plan specified in § 13² of the Credit Institutions Act;

2) information about the information technology and other technological tools and systems, security systems, control mechanisms and systems necessary for the issue of covered bonds and the administration of covered bond portfolios;

3) an analysis of the risks associated with the issue of covered bonds and the management of a covered bond portfolio;

4) the plan for separation of the covered bond portfolio specified in subsection 2 of § 9 of this Act;

5) the internal rules specified in § 10 of this Act;

6) data of the applicant’s cover pool monitor, including the monitor’s name, residence or seat, personal identification code or, in the absence thereof, date of birth or registry code, and the written consent to act as the monitor;

7) the monitor’s client contract or a draft thereof;

8) data of the applicant’s management and employees related to the management of a covered bond portfolio which confirm sufficient qualifications and knowledge of the person for issue of covered bonds and management of the covered bond portfolio.

(1¹) To apply for an additional authorisation, the applicant submits to the Financial Supervision Authority, in order to obtain approval for a covered bond programme, the documents specified in § 4¹ of this Act in addition to the petition prescribed in subsection 1 of this section.

(2) If it follows from the risk analysis specified in clause 3 of subsection 1 of this section or from other circumstances that in order to issue covered bonds, in addition to the amendments provided in this Act, additional amendments must be made in the organisational structure of the credit institution or in the internal rules specified in the Credit Institutions Act and in other documents regulating the activities of the credit institution, the applicant submits information on such amendments with the application.

(3) The additions to the business plan specified in clause 1 of subsection 1 of this section are submitted for a period of at least three years and the additions must include descriptions, forecasts and analysis of the following:

1) the organisational structure associated with the management of the applicant’s covered bond portfolio, and the rights, obligations and responsibilities attached to the relevant positions;

2) the covered bond portfolios and the composition of the cover pool thereof, and substantial economic indicators;

2¹) the principles of and procedure for the formation of the cover pool of the covered bond portfolio, including upon amending or refinancing a claim included in the cover pool;

3) the policy for the issue of covered bonds and designing thereof;

4) the current state of compliance with liquidity requirements and the long-term liquidity management strategy;

5) the general risk management principles and the risk management strategy relating to the issue of covered bonds;

6) the covered bond programme and its structural features and terms and conditions.

(4) If, during the processing of an application, amendments are made to the information or documents specified in subsection 1 of this section, the applicant submits the relevant updated information or documents to the Financial Supervision Authority immediately after the amendments are made or become known to the applicant.

(5) The provisions of § 13³ of the Credit Institutions Act apply to the review of an application for an additional authorisation, whereby the provisions on an application for a main authorisation and on the Credit Institutions Act also extend to an application for an additional authorisation and to this Act.

(6) A decision to approve a covered bond programme is made by the Financial Supervision Authority along with the decision to grant an additional authorisation. The provisions of subsections 3 and 4 of § 4¹ of this Act apply to the approval decision.

§ 4¹. Approval of amendments to covered bond programme

(1) If an issuer wants, after the grant of an additional authorisation, to issue covered bonds on the basis of a covered bond programme other than that provided in the business plan, the issuer submits to the Financial Supervision Authority an application for approval of the planned covered bond programme, which includes the information and documents specified in clauses 1, 2, 3, 5 and 8 of subsection 1 of § 4 and in clause 6 of subsection 3 of § 4 of this Act about the new covered bond programme and other relevant documents and information that are amended in connection with the establishment of the new covered bond programme.

(2) The Financial Supervision Authority makes a decision to approve or refuse to approve an additional covered bond programme within three months of the submission of the application or supplemented documents to the Financial Supervision Authority.

(3) The Financial Supervision Authority immediately delivers a decision to approve or refuse to approve an additional covered bond programme to the representative of the applicant.

(4) The Financial Supervision Authority has the right to make a decision on refusal under the following terms and conditions:

1) the planned covered bond programme does not meet the requirements established by legislation and contains significant deficiencies;

2) the issuer has not submitted all the documents prescribed by legislation or such documents are in conflict with one another.

§ 5. Decision to grant or refuse additional authorisation

(1) The Financial Supervision Authority makes a decision to grant or refuse an additional authorisation within three months of the receipt of all the necessary documents and information that meet the requirements, but no later than within six months after the receipt of the application for the additional authorisation. If the additional authorisation is applied for simultaneously with the main authorisation, the time limits provided in subsection 1 of § 14 of the Credit Institutions Act apply to granting the additional authorisation and the Financial Supervision Authority makes a decision to grant or refuse the additional authorisation simultaneously with the decision on the grant of the main authorisation.

(2) The Financial Supervision Authority may refuse to grant the applicant the additional authorisation if:

1) the applicant does not meet the requirements set for credit institutions or for the public offering or trading of securities in the Credit Institutions Act or in other legislation or has repeatedly or materially violated these requirements within the last five years;

2) the applicant has no capability to ensure the existence of sufficient internal capital for the purposes of subsection 1 of § 63¹ of the Credit Institutions Act to cover all risks relating to the activities described in the additions to the business plan that are not subject to the own funds requirements;

3) the applicant does not meet the requirements established for issuers in this Act or legislation issued on the basis thereof;

4) the applicant does not have sufficient resources and experience necessary for the issue of covered bonds and administration of a covered bond portfolio;

5) the applicant’s internal rules are not sufficiently detailed or unambiguous to regulate the activities of an issuer of covered bonds;

6) the applicant’s cover pool monitor does not meet the requirements provided in this Act or legislation issued on the basis thereof.

(3) Among other things, the following is considered when assessing that provided in clause 4 of subsection 2 of this section:

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

2) the professional training and experience of persons involved in the management of the covered bond portfolio, and the clarity of their rights, obligations and responsibilities;

3) the activities, financial position and reputation of the applicant, its parent company and other persons belonging to the same consolidation group as the applicant.

§ 6. Revocation of additional authorisation

The Financial Supervision Authority may revoke an additional authorisation if:

1) it appears that, when applying for the additional authorisation, the applicant submitted misleading or false information or documents to the Financial Supervision Authority;

2) the issuer does not meet the requirements in force with regard to the grant of an additional authorisation;

3) the issuer has repeatedly or materially violated the provisions of this Act;

4) the issuer has, with its activities, prevented the Financial Supervision Authority from exercising supervision on the basis of this Act;

5) the issuer is unable to meet the financial or other obligations it has assumed in connection with covered bonds or, for any other reason, its activities significantly impair the interests of investors or other clients or adversely affect the regular functioning of the securities market;

6) the issuer has failed to comply with a precept of the Financial Supervision Authority by the due date or to the extent prescribed;

7) the issuer has not issued any new covered bonds within five years of the receipt of the additional authorisation or of the redemption of all previously issued covered bonds.

§ 7. Voluntary discontinuation of issue of covered bonds

(1) The Financial Supervision Authority permits an issuer, on the basis of the application of the latter, to discontinue the issue of covered bonds and revokes the additional authorisation if the issuer certifies the fact specified in subsection 5 of § 36 of this Act.

(2) If, based on the information and documents submitted with the application for the revocation of the additional authorisation, it is not possible to establish the fact specified in subsection 5 of § 36, the Financial Supervision Authority may require the submission of additional information and documents.

(3) The additional information and documents are submitted within a reasonable term determined by the Financial Supervision Authority. The Financial Supervision Authority may refuse to review the application if the credit institution fails to submit the information or documents required by the Financial Supervision Authority by the due date.

(4) The decision to grant or refuse authorisation to discontinue the issue of covered bonds is made by the Financial Supervision Authority within two months of the submission of all the necessary information and documents, but no later than six months after the receipt of the respective application.

§ 8. Publication

(1) The Financial Supervision Authority publishes a decision to grant, amend or revoke an additional authorisation on its website no later than on the working day following the day of making such decision.

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

(3) If an additional authorisation is revoked on the basis of clause 1 of § 6 of this Act, the Financial Supervision Authority discloses the circumstances of the violation and the data of the persons responsible for the violation, applying the provisions of subsection 4 of § 18 of the Credit Institutions Act.

§ 9. Risk management

(1) Prior to issuing covered bonds, an issuer adapts its risk management system specified in § 82 of the Credit Institutions Act to enable it to adequately identify, measure and manage the risks associated with the administration of the covered bond portfolio.

(2) The issuer draws up a plan for the separation of covered bond portfolios, which describes the process of separation of the covered bond portfolios, along with the following:

1) descriptions and locations of the documents and data, information technology and other technological tools and systems necessary for the administration of a covered bond portfolio;

2) a list of the employees necessary for the administration of a covered bond portfolio and a description of their duties;

3) the rules for post-separation administration of a covered bond portfolio;

4) a substantiated forecast of the amount of the costs of management and administration of a separated covered bond portfolio during the first year.

(3) If an issuer has not started issuing covered bonds within one year of the completion of the risk analysis specified in clause 3 of subsection 1 of § 4 of this Act, the risk analysis must be reviewed and updated prior to an issue of covered bonds.

§ 10. Additional requirements for issuer’s internal rules

(1) In addition to the provisions of subsection 2 of § 63 of the Credit Institutions Act, the internal rules of an issuer determine the following:

1) the rules for operation of the information technology and other tools and systems and the relevant control mechanisms necessary for the issue of covered bonds and the administration of covered bond portfolios;

2) the rules for identification and resolution of security incidents related to the issue of covered bonds and the administration of covered bond portfolios, and for the implementation of measures with regard thereto;

3) the rules for the issue of covered bonds and the administration of a covered bond portfolio, including the rules for maintaining the cover register, preservation of the registry data and entry of assets in and deletion of assets from the cover register;

4) the rules and methodology for stress testing of a covered bond portfolio;

5) the rules and methodology for valuation and revaluation of properties standing as security for a mortgage credit specified in subsection 1 of § 25, housing construction credit specified in clause 2 of subsection 1 of § 30, and commercial mortgage credit specified in clause 3 of subsection 1 of § 30 of this Act;

6) the rules for and frequency of updating the plan for separation of covered bond portfolios;

7) the rules and methodology for calculating the present value of covered bonds and the cover pool.

(2) The plan specified in clause 6 of subsection 1 of this section is updated at least once a year. Organisation of such updating is the responsibility of the managers of the issuer specified in subsection 1 of § 48 of the Credit Institutions Act.

§ 11. Cover register

(1) An issuer maintains a separate cover register for both types of covered bonds. A cover register is a database the purpose of which is to collect, systematise and store data about the cover pool required on the basis of this Act for mortgage covered bonds and mixed asset covered bonds. Entries made in the cover register have legal effect for the composition of the cover pool.

(2) A cover register consists of the main register and sub-registers. In addition to the other events provided in law, a sub-register is created to ensure that the entire cover pool and all derivative instruments related to a specific covered bond portfolio are properly recorded. When creating sub-registers, the issuer takes into account the size of the covered bond portfolio, the complexity of its structure and other relevant indicators.

(3) The Financial Supervision Authority may require that the number of sub-registers be increased or reduced or that a sub-register be joined with the main register if this is necessary to ensure clearer recording of the data on cover pool and other assets.

(4) The entry of personal data in the cover register is only permitted for the purpose of identification of the cover pool and on the condition that the personal data are processed in accordance with the legislation in force. For a claim arising from a mortgage credit specified in subsection 1 of § 25 or from a housing construction credit specified in clause 2 of subsection 1 of § 30 of this Act, the name of the credit recipient, the credit currency and the credit balance, the date and number of the credit agreement and information on the immovable property encumbered with the mortgage are entered in the cover register.

(5) The entry of a claim serving as a cover asset of covered bonds in the cover register or its deletion from the cover register does not require the consent of the debtor or the third party concerned and the issuer has no obligation to notify the debtor or the third party concerned of the entry of the claim in the cover register or the deletion thereof from the register, unless otherwise provided in this Act.

(5¹) The issuer incurs an obligation to notify the debtor of entry of a claim in the cover register if the issuer estimates that it is objectively likely that the separation of a covered bond portfolio will take place pursuant to § 33 of this Act. In this event, the issuer notifies the debtor of entry of the claim in the cover register before the separation of the covered bond portfolio.

(5²) If it is mandatory to notify the debtor of entry of a claim securing covered bonds in the cover register, the issuer publishes the information on its website and also in the official publication Ametlikud Teadaanded or in at least one daily national newspaper.

(5³) The information specified in subsection 5² of this section must also be published, in addition to Estonia, in other EEA countries where the immovable property securing a mortgage credit is located or where the debtor of the claim is registered.

(5⁴) Information published about the entry of a claim securing covered bonds in the cover register must include at least:

1) the name and registry code of the issuer of the covered bonds;

2) information that enables the identification of the claim entered in the cover register as a cover asset of the covered bonds without publishing the data of single debtors and the third parties concerned;

3) information about how the entry of the claim in the cover register as a cover asset of the covered bonds affects the rights and obligations of the debtors and the third parties concerned.

(6) The debtor of a claim and the counterparty to a derivative instrument entered in the cover register has, prior to the separation of the covered bond portfolio, and an interested party has, in a justified event, the right to obtain information as to whether the claim or derivative instrument that is related thereto has been entered in the cover register. The obligation to provide the information lies with the issuer, the cover pool administrator and the bankruptcy trustee of the covered bond portfolio.

(7) The issuer ensures the preservation of the data entered in the cover register and the reproduction of the data for entitled persons and institutions while the claim that necessitated the entry of the data in the cover register is included in the register and within ten years of the removal of the claim from the register.

(8) A more detailed composition of the data to be entered in the cover register is established by a regulation of the minister in charge of the policy sector.

§ 12. Cover pool monitor

(1) For the performance of the duties provided in this Act, an issuer appoints an independent cover pool monitor (hereinafter monitor).

(2) The duties of a monitor consist of assurance audit services to which the provisions of the Auditors Activities Act apply with the special rules provided in this Act.

(3) An audit firm guaranteeing that only a trustworthy sworn auditor with an impeccable business reputation and with sufficient knowledge and experience to this end will perform the duties of the monitor may be appointed as a monitor. An audit firm that provides or has provided within the year preceding the appointment as the cover pool monitor the audit service provided in § 93 of the Credit Institutions Act to the issuer may not be the monitor.

(4) The client contract for the performance of the monitor’s duties is submitted to the Financial Supervision Authority within three working days of its signing.

§ 13. Appointment and end of term of office of monitor

(1) The issuer’s general meeting has the authority to appoint a monitor. A monitor is appointed for a term that may not be less than one year. The issuer notifies the Financial Supervision Authority of the intention to appoint a monitor by submitting the information and documents specified in clause 6 of subsection 1 of § 4 of this Act to the Financial Supervision Authority at least ten days before the relevant decision is made.

(2) The term of office of a monitor ends when:

1) a cover pool administrator is appointed;

3) the covered bond portfolio is declared bankrupt;

4) the general meeting removes the monitor;

5) the monitor resigns at the monitor’s own request;

6) the monitor’s term of appointment expires.

(3) Upon the resignation at the monitor’s own request, the monitor notifies the issuer and the Financial Supervision Authority thereof at least 30 days in advance. Upon the removal of the monitor by the general meeting, the issuer notifies the Financial Supervision Authority of the planned removal ten days before the relevant decision is made, unless prior notification is not possible for good reason.

(4) No new monitor is appointed in the events specified in clauses 1–3 of subsection 2 of this section.

(5) A court appoints a new monitor on the basis of a petition of the Financial Supervision Authority in action-by-petition proceedings if:

1) the general meeting has not appointed a new monitor or there is a reason to believe that a new monitor cannot be appointed before the end of the term of office of the current monitor;

2) the current monitor does not meet the requirements established by law or there are deficiencies in the performance of the monitor’s duties.

(6) The term of office of a monitor appointed by a court continues until the general meeting appoints a new monitor.

§ 14. Duties of monitor

(1) The duty of a monitor is to verify:

1) the compliance of stress testing of a covered bond portfolio and the changes introduced to the covered bond portfolio as a result of stress testing with requirements;

2) the existence of a sufficient cover pool and its compliance with requirements;

3) the compliance of the maintenance of the cover register with requirements;

4) the compliance of the valuation of immovable properties encumbered with a mortgage securing credit and included in the cover pool with requirements;

5) the compliance of the issuer’s risk management and reporting with requirements;

6) the compliance of the terms and conditions of covered bonds with requirements;

7) the existence of an updated plan for separation of the covered bond portfolio and its compliance with the requirements of this Act.

(2) The monitor has the right to determine the scope and duration of the verification on each occasion. The monitor may carry out an on-the-spot verification at the issuer’s seat or place of business, notifying the issuer thereof at least two working days in advance.

(3) The issuer allows the monitor to examine documents and information systems and provides the monitor with the information that is necessary for the performance of the monitor’s duties.

(4) The monitor notifies the issuer of any deficiencies detected during verification in a form reproducible in writing and sets a reasonable term for the elimination of the deficiencies. The monitor notifies the Financial Supervision Authority of the deficiencies that are not fully eliminated by the term set.

(5) The monitor is required to immediately notify the Financial Supervision Authority, in a form reproducible in writing, of any circumstances or decisions that have come to the knowledge of the monitor and that result or may result in:

1) a material violation of the laws and regulations governing the activities of the issuer;

2) a material violation of the conditions under which the additional authorisation was granted;

3) a situation, or the risk of a situation arising, in which the issuer is unable to meet its financial or other obligations arising from covered bonds and from the derivative instruments entered in the cover register.

(6) The information specified in subsection 5 of this section must be submitted simultaneously to the issuer’s management body, unless there are good reasons not to do so.

(7) The monitor draws up a report on verification activities that gives an overview of performance of the duties specified in subsection 1 of this section, the deficiencies detected and the measures taken to eliminate them. The reporting period corresponds to the issuer’s financial year. The report is submitted to the issuer and the Financial Supervision Authority within three months of the end of the issuer’s financial year. Even a person whose term of office as a monitor has ended must comply with the obligation to submit the report.

(8) Upon the appointment of a cover pool administrator or, based on the Financial Crisis Prevention and Resolution Act, special administrator, the monitor must provide the cover pool administrator or special administrator with all the information that may be necessary for the performance of the duties of the cover pool administrator or special administrator. Upon the declaration of bankruptcy of a covered bond portfolio, the monitor must provide the bankruptcy trustee of the covered bond portfolio with all the information that may be necessary for the performance of the duties of the bankruptcy trustee of the covered bond portfolio.

§ 15. Offering of covered bonds

(1) The provisions of the Securities Market Act concerning the offering of bonds apply to the offering of covered bonds, with the special rules provided in this Act.

(2) Covered bonds may not be issued unless they are covered to the extent required in this Act.

§ 16. Protection of name of covered bonds

(1) Only an Estonian credit institution with the additional authorisation or a credit institution founded in a state that is a contracting party to the EEA agreement (hereinafter EEA country) and having the right to issue covered bonds in compliance with this Act and the provisions of the laws and regulations established for the transposition of Directive (EU) 2019/2162 of the European Parliament and of the Council on the issue of covered bonds and covered bond public supervision and amending Directives 2009/65/EC and 2014/59/EU (OJ L 328, 18.12.2019, p. 29–57) in another EEA country may use the word “ pandikiri ” [Covered Bond], expression “ Euroopa pandikiri ” [European Covered Bond] or “ eriti kvaliteetne Euroopa pandikiri ” [European Covered Bond (Premium)], their derivatives or foreign language equivalents in the name of bonds when offering them in Estonia.

(2) A credit institution founded in an EEA country may only use the word “ pandikiri ” [Covered Bond] or expression “ Euroopa pandikiri ” [European Covered Bond], its derivatives or foreign language equivalents in the name of bonds when offering them in Estonia if the following conditions are met:

1) the bonds offered in Estonia as covered bonds meet the conditions provided in Directive (EU) 2019/2162 of the European Parliament and of the Council;

2) all prospectuses, reports and advertising materials indicate the original foreign language name of such bonds and the foreign legal act on the basis of which the bonds are issued.

(2¹) A credit institution founded in an EEA country may only use the expression “ eriti kvaliteetne Euroopa pandikiri ” [European Covered Bond (Premium)], its derivatives or foreign language equivalents in the name of bonds when offering them in Estonia if, in addition to the conditions provided in subsection 2 of this section, the bonds offered are in compliance with the requirements provided in Article 129 of Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1–337) and in Regulation (EU) 2019/2160 of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards exposures in the form of covered bonds (OJ L 328, 18.12.2019, p. 1–6).

(3) Upon offering covered bonds, an Estonian credit institution with the additional authorisation may only use the word “ hüpoteekpandikiri ” [mortgage covered bond], its derivatives or foreign language equivalents in the name of the bonds if the bonds meet the requirements set for mortgage covered bonds in this Act.

(4) Upon offering covered bonds in Estonia, a credit institution founded in an EEA country may only use the word “ hüpoteekpandikiri ” [mortgage covered bond] or its derivatives in the name of the bonds if, in addition to the provisions of subsection 2 of this section, the following conditions are met:

1) the cover pool meets the requirements provided in §§ 19, 20, 25 and 26 of this Act;

2) pursuant to the legislation of the country of location of the EEA country’s credit institution or branch of a foreign credit institution or the terms and conditions of the covered bonds, the cover assets included in the cover pool are valuated and insured at least in a manner equivalent to that provided in §§ 27–29 of this Act.

§ 17. Terms and conditions of covered bonds

(1) The terms and conditions of covered bonds may not grant the holders of the covered bonds the right to demand early redemption of the covered bonds.

(2) The terms and conditions of covered bonds must provide the redemption value of the covered bonds.

(3) It must be possible to unambiguously determine the maturity of the payment obligation arising from a covered bond on the basis of the terms and conditions of the covered bonds.

(4) Any suspensive condition prescribed in the terms and conditions of covered bonds which, when fulfilled, will extend the maturity of the payment obligation arising from a covered bond, is void except in the event specified in subsection 4¹ of this section or if both of the following requirements are met:

1) the suspensive condition does not allow the issuer to extend the maturity of the payment obligation at its discretion;

2) it is possible to unambiguously determine the new maturity of the payment obligation on the basis of the terms and conditions of the covered bonds.

(4¹) A condition prescribed in the terms and conditions of covered bonds and suspending the maturity of the payment obligation arising from covered bonds may only be:

1) separation of the covered bond portfolio pursuant to § 33 of this Act; or

2) implementation of early intervention measures in respect of the issuer on the basis of § 36 of the Financial Crisis Prevention and Resolution Act if the Financial Supervision Authority grants permission therefor.

(4²) The terms and conditions of covered bonds provide which consequences the insolvency of the issuer or application of a resolution tool in respect of the issuer has on the maturity of the payment obligation of a covered bond.

(5) The terms and conditions of covered bonds may not restrict the right of the holders of covered bonds to require the issuer to duly comply with all payment obligations arising from the covered bonds.

(6) The provisions of this Chapter, with the exception of the provisions of subsections 1–4 of this section, may be derogated from in the terms and conditions of covered bonds only in favour of the holders of the covered bonds if this is in compliance with other legislation.

§ 18. Main collateral and overcollateral

(1) The principal amount of all outstanding covered bonds of the same type and the interest payable thereon, the net liabilities, for the purposes of subsection 2 of § 24 of this Act, arising from derivative instruments entered in the cover register, and operating expenses related to a covered bond portfolio, which consist of the expenses presumably related to management and administration in the event of liquidation of the covered bond portfolio must be covered by a cover pool at any time. The nominal value of the cover pool must exceed the liabilities covered by at least five per cent. Unsecured claims in the event of which a default has occurred in accordance with Article 178 of Regulation (EU) No 575/2013 of the European Parliament and of the Council must be excluded from the cover pool, unless otherwise provided by this Act.

(1¹) The cover pool of covered bonds and the interest payable on covered bonds, the net liabilities arising from derivative instruments entered in the cover register and operating expenses related to a covered bond portfolio are calculated using the same calculation methodology.

(2) If the known redemption value of covered bonds is higher than their nominal value at the time of issue, all covered bonds of the same type must, in addition to that provided in subsection 1 of this section, be covered by a cover pool whose nominal value is at least equal to the redemption value of the covered bonds. The nominal value of the credits specified in §§ 25 and 30 of this Act is deemed equal to the outstanding amount of the credits.

(2¹) The issuer may prescribe in the terms and conditions of covered bonds a higher level of the nominal value of a cover pool compared to the requirements for the cover pool provided in subsection 1 of this section.

(4) The pool of cover assets whose value corresponds to the nominal value or redemption value of covered bonds constitutes the main collateral. The pool of cover assets exceeding the covered liabilities as specified in the second sentence of subsection 1 of this section constitutes the mandatory overcollateral.

(5) Taking into account the restrictions arising from this Act and other legislation, an issuer may also include additional cover assets in the cover pool in addition to the main collateral and the mandatory overcollateral. The portion of the cover pool exceeding the requirements provided in subsections 1 and 2 of this section constitutes voluntary overcollateral.

(6) The issuer ensures, through the application of appropriate calculation models prescribed in its internal rules and through clear documentation of the use thereof, that the cover pool required on the basis of this Act exists at any time. Organisation of the existence of the cover pool that meets requirements, including the liquidity buffer specified in § 21 of this Act, is the responsibility of the managers of the issuer specified in subsection 1 of § 48 of the Credit Institutions Act.

(7) No cover pool or cover assets may be transferred, encumbered or removed from the cover register if, as a result thereof, the value of the cover pool or the liquidity buffer provided in § 21 of this Act decreases or is likely to decrease below the level provided in this Act or in the terms and conditions of the covered bonds. The restriction provided in this subsection does not apply, after the occurrence of an event specified in subsection 1 of § 33 of this Act, to transactions aimed at meeting the liabilities arising from covered bonds and from the derivative instruments entered in the cover register or covering the costs of management of the covered bond portfolio.

(9) More detailed requirements for calculating the interest payable on outstanding covered bonds and the interest receivable on the cover pool are established by a regulation of the minister in charge of the policy sector.

§ 19. Minimum portion of primary cover assets

(1) The primary cover assets specified in subsection 1 of § 25 and subsection 1 of § 30 of this Act must constitute at least 85 per cent of the main collateral of the relevant covered bond portfolio.

(2) Based on an application submitted by the issuer, the Financial Supervision Authority may authorise a temporary derogation from the provisions of subsection 1 of this section if the issuer simultaneously applies other measures to bring the cover pool into conformity with requirements.

§ 20. Substitute collateral

(1) In addition to primary cover assets, the following cover assets (hereinafter substitute collateral) may be included in a cover pool:

1) claims on or guaranteed by central banks within the European System of Central Banks, and central governments, public sector entities, regional governments or local authorities of the Member States of the European Union;

2) claims on or guaranteed by third-country central governments and central banks, multilateral development banks and international organisations that qualify for credit quality step 1 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council;

3) claims on or guaranteed by third-country public sector entities, regional governments and local authorities, for which a risk weight has been assigned the same way as for claims on credit institutions and investment firms or central governments and central banks in accordance with Article 115(1) or (2), and Article 116(1), (2) or (4) of Regulation (EU) No 575/2013 of the European Parliament and of the Council and which qualify for credit quality step 1 according to the risk weight so assigned;

4) claims specified in clauses 2 and 3 of this subsection, which qualify as a minimum for credit quality step 2 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that they do not exceed 20 per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover;

5) claims on credit institutions and investment firms, which qualify for credit quality step 1 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that they do not exceed 15 per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover;

6) claims on credit institutions and investment firms, which qualify for credit quality step 2 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that they do not exceed ten per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover;

6¹) claims on credit institutions and investment firms in the European Union with a term to maturity not exceeding 100 days, which qualify as a minimum for credit quality step 3 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that they do not exceed eight per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover and provided that the requirements provided in subsection 3 of this section are observed;

7) net claims specified in subsection 1 of § 24 of this Act arising from derivative instruments that meet the conditions provided in § 23 of this Act, which cannot be treated as the claims specified in clause 5 or 6 of this subsection, provided that they do not exceed 15 per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover;

8) claims specified in clause 7 of subsection 1 of this section, which qualify as a minimum for credit quality step 3 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that they do not exceed eight per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover and provided that the requirements provided in subsection 3 of this section are observed.

(2) Claims on one credit institution or investment firm specified in clause 5, 6 or 6¹ of subsection 1 of this section or on the counterparty to a derivative instrument specified in clause 7 or 8 of subsection 1 of this section may not exceed two per cent of the nominal value of the outstanding covered bonds in the covered bond portfolio that they cover. The limit provided in this subsection does not apply to claims on central banks within the European System of Central Banks.

(3) If the issuer wants to include, as a substitute collateral, in a cover pool the claims arising from the derivative instruments as provided in clauses 6¹ and 8 of subsection 1 of this section, which qualify for credit quality step 3, the issuer must, in order to obtain a corresponding authorisation from the Financial Supervision Authority, submit a written application together with the documents substantiating the application to the Financial Supervision Authority.

(4) The Financial Supervision Authority may grant the authorisation provided in subsection 3 of this section only if they have beforehand consulted the European Banking Authority and provided that:

1) application of the requirements to qualify for credit quality steps 1 and 2 in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council gives rise to large exposure problems and these can be documented;

2) the credit risk management and assessment methods used in the credit institution are reliable, they are implemented consistently and the internal procedures of the credit institution provide an adequate assessment of the credit risk level of debtors and transactions and allow making a sufficient distinction between risk levels as well as exact and consistent measurement of the credit risk.

§ 21. Liquidity buffer

(1) To ensure the liquidity of a covered bond portfolio, a liquidity buffer is formed, which may only comprise the following cover assets:

1) level 1 and level 2A assets specified in Articles 10 and 11 of Commission Delegated Regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to liquidity coverage requirement for Credit Institutions (OJ L 11, 17.1.2015, p. 1–36), except the issuer’s own covered bonds;

2) short-term exposures and short-term deposits meeting the characteristics specified in point (c) of Article 129(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, provided that they do not constitute more than 15 per cent of the sum of the main collateral and the mandatory overcollateral;

3) short-term exposures to credit institutions that qualify for credit quality step 1 or 2, or short-term deposits to credit institutions that qualify for credit quality step 1, 2 or 3, in accordance with the provisions of point (c) of Article 129(1) of Regulation (EU) No 575/2013.

(2) A cover asset included in the liquidity buffer as specified in subsection 1 of this section must meet the following conditions:

1) it may not be in default or, in the estimation of the credit institution, doubtful;

2) in the case of deposits, it must be ensured that the funds deposited are fully available without delay upon the occurrence of an event specified in subsection 1 of § 36 of this Act;

3) securities must be kept in a separate securities account of the issuer or in a manner that enables the securities included in the liquidity buffer to not be frozen in accordance with subsection 1 of § 41 of the Bankruptcy Act.

(3) To calculate the minimum level of the liquidity buffer, the difference between the payments to be made in order to meet all the liabilities arising from covered bonds and from the derivative instruments entered in the cover register, on the one hand, and the cash flow to be received from the cover pool, on the other hand, must be calculated on a daily basis for each of the following 180 days (hereinafter daily difference). Thereafter the sum of the accumulated daily differences is calculated for each of the following 180 days, and the highest negative result must be covered by cover assets meeting the conditions provided in subsections 1 and 2 of this section at any time. Amounts received on the basis of derivative contracts are not taken into account upon calculating the daily difference if the amounts arise from the financial assets pledged by the counterparty of the derivative contract for the benefit of the issuer of covered bonds.

(4) If the issuer has, in compliance with subsection 4 of § 17 of this Act, established a suspensive condition in the terms and conditions of covered bonds the fulfilment of which will extend the maturity of the payment obligation arising from a covered bond, the maturity to be observed upon the fulfilment of the suspensive condition may be used as the basis for the purpose of the calculation provided in subsection 3 of this section for that payment obligation.

(5) Notwithstanding the provisions of subsections 3 and 4 of this section, the liquidity buffer must account for at least two per cent of the nominal value of the cover pool.

(6) The liquidity buffer is part of the cover pool and is considered in the calculation of the main collateral and the mandatory overcollateral.

(7) The liquidity buffer is entered in a separate sub-register of the cover register.

§ 22. Stress testing of covered bond portfolio

(1) In order to ensure the sustainability of a covered bond portfolio and verify the value of the cover pool of covered bonds, an issuer must, at least once every three months, perform a stress test on the covered bond portfolio to assess the risks specified in the methodology prescribed in clause 4 of subsection 1 of § 10 of this Act. Ensuring the performance of stress tests is the responsibility of the managers of the issuer specified in subsection 1 of § 48 of the Credit Institutions Act.

(2) If the value of the cover pool, as calculated during the stress test, no longer meets the requirements provided in subsections 1, 1¹ and 2 of § 18 of this Act, the cover assets to be entered in the cover register must be increased by the maximum deficiency determined as a result of the stress test or the respective deficiency must be covered in another form.

(2¹) Upon assessing the risks or calculating the value of the cover pool during the stress test, the restrictions provided in subsection 4¹ of § 25 and subsection 1 of § 26 of this Act must be taken into account.

(3) The minister in charge of the policy sector may, by a regulation, establish more detailed requirements for the rules, methodology and purpose of stress testing of a covered bond portfolio and for covering the deficiency found during the stress test.

§ 23. Use of derivative instruments

(1) To hedge risks arising from covered bonds, an issuer has the right to use derivative instruments and enter them in the cover register if all of the following conditions are met:

1) the derivative instrument transaction has been made on the basis of a framework agreement that is usual for this sector, is sufficiently documented and only allows set-off for claims arising from derivative instruments entered in the cover register;

2) the counterparty to the transaction is a person who meets the eligibility requirements of the regulation established on the basis of subsection 4 of this section;

3) the terms and conditions of the framework agreement or transaction ensure that, in the event of the issuer’s insolvency or resolution, if it does not lead to the insolvency of the covered bond portfolio related to the particular derivative instrument, the counterparty to the transaction has no right to prematurely terminate the transaction or framework agreement;

4) the sole purpose of the transaction is to hedge the issuer’s interest rate or foreign exchange risks arising from covered bonds;

5) the counterparty to the transaction has given consent to the inclusion of the derivative instrument in the cover register;

6) the derivative instrument transactions are not subject to the clearing obligation in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1–59);

7) the cover pool of covered bonds is not used as a cover asset for securing obligations arising from a derivative instrument contract;

8) if the creditworthiness of the counterparty to a derivative instrument transaction has fallen to a significant extent, the counterparty to the transaction provides, pursuant to the derivative contract, an additional collateral or the issuer arranges replacement of the counterparty to the transaction.

(1¹) The issuer is required to reduce the volume of derivative contracts in the cover pool in proportion to the reduction in the hedged risk and remove derivative contracts from the cover register in their entirety when the hedged risk ceases to exist.

(2) The consent specified in clause 5 of subsection 1 of this section is presumed if a framework agreement between the parties provides or if the issuer has otherwise notified the counterparty to the derivative instrument that the framework agreement is entered into for the purpose of hedging the risks arising from the specific covered bond portfolio.

(3) If the issuer has the right to require the counterparty to a derivative instrument to provide collateral on the basis of the claim arising from the derivative instrument, the collateral must be comprised of claims specified in clauses 1–6 of subsection 1 of § 20 of this Act and must be entered in a separate sub-register of the cover register.

(4) Additional requirements for the methods of and procedure for valuation of derivative contracts, eligibility criteria for the counterparty of a derivative contract, for the submission of documents necessary in connection with using derivative instruments and for the rules for replacement of the counterparty to the derivative transaction as well as conditions in the event of deterioration in the creditworthiness of the counterparty are established by a regulation of the minister in charge of the policy sector.

§ 24. Net claims and liabilities arising from derivative instruments

(1) A net claim is the amount resulting from the netting of the values of derivative instruments entered into between the issuer and a counterparty to the derivative instrument on the basis of a framework agreement meeting the conditions specified in subsection 1 of § 23 of this Act, which the counterparty owes to the issuer on the basis of the relevant agreement at the moment of calculation of the values.

(2) A net liability is the amount resulting from the netting of the values of derivative instruments entered into between the issuer and a counterparty to the derivative instrument on the basis of a framework agreement meeting the conditions set out in subsection 1 of § 23 of this Act, which the issuer owes to the counterparty on the basis of the relevant agreement at the moment of calculation of the values.

§ 25. Primary cover assets of mortgage covered bonds

(1) Only the issuer’s claims that arise from a credit granted to a natural person against a mortgage established on residential property situated in the territory of an EEA country (hereinafter mortgage credit) may constitute primary cover assets of mortgage covered bonds, provided that such claims comply with the conditions provided in this Subchapter.

(2) For the purposes of this Act, residential property means the property specified in point (75) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(3) Claims arising from a mortgage credit granted to a natural person against residential property situated in the territory of another EEA country may only be used as a cover asset of mortgage covered bonds if the mortgage or other right of security that secures the mortgage credit provides the creditor with protection that is equivalent to the protection provided by a mortgage established under Estonian legislation. It is presumed that cover assets meeting the requirements laid down in Article 208(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council provide the creditor with protection that is equivalent to the protection provided by a mortgage established on the basis of Estonian legislation.

(4) The recipient of a mortgage credit may not be in default with the credit at the time when the credit is entered in the cover register.

(4¹) If the recipient of a mortgage credit falls into default with the credit after the credit has been entered in the cover register, the following portion of the credit that has fallen into default may be taken into account upon calculation of the value of the cover pool:

1) 100 per cent of the value of the credit entered in the cover register if the credit has been in default for less than 90 days;

2) 70 per cent of the value of the credit entered in the cover register if the credit has been in default for at least 90 days and the ratio of the credit to the value of the property securing the mortgage credit is less than 50 per cent;

3) 40 per cent of the value of the credit entered in the cover register if the credit has been in default for at least 90 days and the ratio of the credit to the value of the property securing the mortgage credit is more than 50 per cent;

4) 0 per cent of the value of the credit entered in the cover register if the credit has been in delay for at least 180 days.

(5) A cover register may not include a mortgage credit in the event of which the issuer’s claim arising from the credit or the mortgage securing the claim is encumbered or is subject to a restraint on disposition.

(6) If the same mortgage established on an immovable property secures claims arising from various credit agreements, the claims arising from these credit agreements may only serve as cover assets of mortgage covered bonds if the credits have been granted to the same person or persons on the basis of all the credit agreements secured by the corresponding mortgage and all the credits have been granted in the same currency. In this event, when calculating the proportion provided in subsection 1 of § 26 of this Act, the claims arising from all credit agreements are deemed to be claims arising from one credit agreement and all the claims are summed up.

§ 26. Ratio of credit to value of property securing mortgage credit

(1) The claims of an issuer arising from a mortgage credit may be used as a cover asset of mortgage covered bonds in an amount of up to 70 per cent of the value of the property securing the mortgage credit. Nevertheless, all the issuer’s claims arising from the mortgage credit entered in the cover register are included in the cover pool in their entirety.

(2) A mortgage accounting for at least 110 per cent of the issued credit amount must be established on the property securing a mortgage credit to be entered in the cover register (hereinafter sum of mortgage). The sum of mortgage may exceed the value of the property securing the credit.

§ 27. Obligation to insure property standing as security for mortgage credit

(1) A property standing as security for a mortgage credit to be entered in the cover register must, until the credit recipient has met all the obligations owed to the issuer, be insured under the conditions normally used to insure such properties in the EEA country in such a way as to ensure that all relevant risks are insured.

(2) An undeveloped residential building plot need not be insured. If a residential building, apartment building or apartment is constructed or a residential building or apartment under construction is purchased, the insurance obligation arises at the moment when the building being constructed becomes a construction work with an interior space that is separated from the external environment by a roof and other parts of the building envelope.

(3) In the absence of an insurance contract meeting the conditions provided in subsections 1 and 2 of this section, the issuer deletes the claims arising from the mortgage credit from the cover register, unless an insurance contract meeting requirements is entered into within 30 days of the day when the issuer became aware of the absence of the insurance contract.

(4) This section does not regulate the right of an issuer to demand the entry into an insurance contract or the payment or reimbursement of insurance premiums.

§ 28. Requirements for valuation of property standing as security for mortgage credit, and qualification of valuator

(1) A mortgage credit may only be included in the cover register if a current valuation of the market value of the property standing as security for the credit exists at the moment of inclusion of the mortgage credit in the cover register and the valuation has been carried out by a valuator meeting the requirements provided in subsection 2 of § 53 of the Creditors and Credit Intermediaries Act in compliance with the requirements provided in subsection 3 of the same section and in the regulation issued on the basis of subsection 4 of the same section.

(1¹) A mortgage credit provided in subsection 3 of § 25 of this Act may be included in the cover register if the market value of the property standing as security for the credit has been valuated by a valuator who holds relevant professional qualification in another EEA country in accordance with the legislation, relevant standards and good practices in force in the country of location of the immovable property at the time of the valuation and the following conditions are met:

1) the methodology and rules of procedure applied ensured an objective and impartial valuation;

2) the valuation or the result thereof was documented in a form reproducible in writing and in such a way as to enable the identification of, among other things, the person of the valuator or the issuer’s structural unit conducting the valuation, the methodology and rules of procedure applied in the valuation, and the source data used for making the valuation.

(2) The minister in charge of the policy sector may establish, by a regulation, additional requirements arising from subsection 1 of this section for valuators of properties standing as security for a mortgage credit, and for the valuation reports, methods and procedure.

§ 29. Revaluation of property standing as security for mortgage credit

(1) The value of a property standing as security for a mortgage credit entered in the cover register is reviewed at least once a year and revaluated, where necessary.

(2) In addition to the provisions of subsection 1 of this section, the value of a property standing as security for a mortgage credit entered in the cover register must be additionally reviewed and revaluated, where necessary:

1) in the event of a significant change in market conditions;

2) in the event that the information available to the issuer indicates that a significant decline has occurred or is occurring on the national or local real estate market, including if it concerns only one specific property type, residential building type or other narrower category of properties;

3) in the event that more frequent review of the value of a property standing as security for a mortgage credit entered in the cover register has been prescribed in the terms and conditions of covered bonds;

4) in the event that this is demanded by the Financial Supervision Authority;

5) in the event that this is demanded by the cover pool monitor or the cover pool administrator and there is reasonable doubt that the issuer has not performed the obligations set out in subsection 1 of this section or clauses 1–3 of this subsection.

(3) In the events provided in subsections 1 and 2 of this section, the value of a property standing as security for a mortgage credit entered in the cover register may be revaluated by indexed valuation. Upon the entry in the cover register, the most recent valuation or revaluation of the market value of the property standing as security for the mortgage credit, which may not be older than 12 months, is taken as the basis.

§ 30. Primary cover assets of mixed asset covered bonds

(1) Only the issuer’s claims that arise from the following may constitute primary cover assets of mixed asset covered bonds:

1) a mortgage credit specified in subsection 1 of § 25 of this Act;

2) a credit granted to a natural person against a mortgaged residential building plot specified in subsection 2 of § 31 of this Act and situated in the territory of an EEA country (hereinafter housing construction credit);

3) a credit granted to a legal person against a mortgaged residential property specified in subsection 2 of § 25, mortgaged residential building plot specified in subsection 2 of § 31 or mortgaged commercial immovable property specified in subsection 3 of § 31 of this Act and situated in the territory of an EEA country (hereinafter commercial mortgage credit);

4) a credit granted to, or debt securities issued by, an EEA country;

5) a credit granted to, or debt securities issued by, a regional government or local authority of an EEA country;

6) a credit granted to, or debt securities issued by, an EEA country’s legal person governed by public law;

6¹) a credit granted to or guaranteed by a company in which an EEA country has a holding;

7) a credit or debt securities guaranteed by an EEA country or a regional government or local authority of an EEA country.

(2) The credit and debt securities specified in clause 4 of subsection 1 of this section may be used as a cover pool if one of the following conditions is met:

1) the legal person governed by public law cannot be liquidated as a result of bankruptcy or other insolvency proceedings;

2) in the event of bankruptcy or other insolvency proceedings concerning the legal person governed by public law, or a threat of such proceedings, the obligations of the legal person are fully taken over by a person who cannot be liquidated as a result of the bankruptcy or other insolvency proceedings.

(2¹) The credit specified in clause 6¹ of subsection 1 of this section may only be used as a cover pool if a collateral accounting for at least 110 per cent of the issued credit amount has been established for securing the credit and if all of the following conditions are met:

1) the company in which an EEA country has a holding provides an essential public service on the basis of a licence, a concession contract or other form of entrustment granted by a public authority;

2) the company in which an EEA country has a holding is subject to public supervision;

3) the company in which an EEA country has a holding has sufficient revenue generating powers to ensure its financial soundness and solvability, which are ensured by the fact that the company in which an EEA country has a holding has adequate flexibility to collect and to increase fees, charges and receivables for the services provided as well as to receive sufficient grants on a statutory basis in exchange for providing essential public services, or if the company in which an EEA country has a holding has entered into a profit and loss transfer agreement with a public authority.

(3) At the moment when a claim specified in subsection 1 of this section is entered in the cover register, it may not be in default.

§ 31. Requirements applicable to housing construction credit and commercial mortgage credit

(1) The provisions of §§ 25–29 of this Act and legislation issued on the basis thereof concerning mortgage credits and residential property apply to commercial mortgage credits and commercial immovable properties and to housing construction credits and residential building plots, unless otherwise provided in this section.

(2) For the purposes of this Act, a residential building plot means a property specified in Article 125(1)(a) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(3) For the purposes of this Act, a commercial immovable property means an immovable property, an apartment ownership, a right of superficies, or a right of superficies in an apartment, which accommodates or the physical share of which comprises premises that can be used for a commercial purpose or on which a building usable for a commercial purpose can be built.

(4) The claims of an issuer arising from a commercial mortgage credit or a housing construction credit may be used as a primary cover asset of mixed asset covered bonds in an amount of up to 60 per cent of the value of the property standing as security for the commercial mortgage credit or housing construction credit. Nevertheless, all the issuer’s claims arising from the commercial mortgage credit or housing construction credit entered in the cover register are included in the cover pool in their entirety.

§ 31¹. Assignment of claim

(1) A credit institution has the right to assign its claim against a debtor for the formation of the cover pool of covered bonds to a credit institution of an EEA country or to a special purpose entity located in an EEA country that has been established for the formation of the cover pool of covered bonds. The provisions of the Law of Obligations Act concerning the assignment of a claim apply to the assignment of a claim, with the special rules provided in this Act.

(2) Assignment of a claim on the basis of this section for the purpose of forming the cover pool of covered bonds does not require the consent of the debtor.

(3) A contract for the assignment of a claim for the purpose of forming the cover pool must be entered into in writing or in a form reproducible in writing.

(4) If the debtor performs their obligation to the credit institution that assigned the claim, the credit institution that assigned the claim must ensure that the proceeds received as a result of the performance of the obligation are separated from the other assets of the credit institution that assigned the claim and immediately deliver the proceeds received as a result of the performance of the obligation to the new creditor.

(5) The assets delivered to the new creditor pursuant to subsection 4 of this section are not part of the assets of the credit institution that assigned the claim in the bankruptcy proceedings, liquidation proceedings, enforcement proceedings or resolution proceedings of the credit institution that assigned the claim and a moratorium does not extend to them.

(6) If the credit institution that assigned the claim has not delivered to the new creditor the proceeds received as a result of the performance of the obligation pursuant to subsection 4 of this section before the declaration of bankruptcy or a moratorium, entry into force of a court order prescribing compulsory dissolution, adoption of a decision on voluntary dissolution, introduction of resolution tools or institution of enforcement proceedings in respect of the credit institution, such assets are not part of the assets of the credit institution that assigned the claim in its bankruptcy proceedings, liquidation proceedings, resolution proceedings or enforcement proceedings and a moratorium does not extend to them.

(7) The credit institution that assigned the claim on the basis of this section is required to notify the debtor of the assignment of the claim. The debtor may be notified of the assignment of a claim, publishing the information on the website of the credit institution that assigned the claim and on the website of the credit institution or the special purpose entity that acquired the claim or in at least one daily national newspaper. The debtor may be notified of the assignment of a claim before or after the assignment of the claim, but this must be done no later than before the declaration of bankruptcy or a moratorium, introduction of resolution tools, entry into force of a court order prescribing compulsory dissolution or adoption of a decision on voluntary dissolution in respect of the credit institution that assigned the claim.

(8) Information published about the assignment of a claim for the purpose of forming the cover pool of covered bonds must include:

1) the name and registry code of the person who acquired the claim;

2) the name of the credit institution that assigned the claim;

3) information that enables the identification of assigned claims without publishing the data of single debtors and the third parties concerned;

4) information about how the assignment of the claim affects the rights and obligations of the debtors and the third parties concerned.

(9) The credit institution that assigned a claim must also simultaneously submit the information specified in subsection 8 of this section to the Financial Supervision Authority. The Financial Supervision Authority may publish the submitted information on its website.

(10) After the assignment of a claim to a new creditor pursuant to this section, a debtor, who is a consumer, or a third party concerned has all the rights arising from the laws and regulations governing consumer protection in their home country, taking into account the special rules provided in this Act.

§ 31². Transfer of collaterals and accessory obligations related to collaterals securing claims assigned for the purpose of forming cover pool

(1) The provisions of the Law of Obligations Act apply to the transfer of a collateral and an accessory obligation related to a collateral securing a claim, with the special rules provided in this Act.

(2) If a credit institution assigns a claim for the purpose of forming the cover pool, the right to exercise in respect of the claim the rights arising from a present or future enforcement instrument transfers to the acquirer of the claim:

1) as of the assignment of the claim assigned for the purpose of forming the cover pool if no entry must be made in a public register for the transfer of the collateral securing the claim assigned for the purpose of forming the cover pool;

2) after an entry has been made in a public register if an entry must be made in a public register for the transfer of the collateral securing the claim assigned for the purpose of forming the cover pool.

§ 31³. Application of provisions

The provisions of this Subchapter concerning covered bonds also apply to covered bonds issued on the basis of the laws and regulations established for the transposition of Directive 2019/2162 of the European Parliament and of the Council in another EEA country.

§ 31⁴. Set-off concerning cover pools

A debtor or a third party concerned may not set off their claims related to the cover pool, which have not fallen due before the events provided in clauses 1 and 2 of this section, as of the time when the debtor or the third party concerned became or had to become aware of:

1) the entry of a claim serving as a cover asset of a covered bond in the cover register;

2) the assignment of a claim to a new creditor for the purpose of forming the cover pool of covered bonds pursuant to § 31¹ of this Act if the claim assigned for the purpose of forming the cover pool of covered bonds has been included in the cover pool of covered bonds by the new creditor.

§ 31⁵. Enforcement proceedings concerning creditor who assigned claim

(1) The provisions of the Code of Enforcement Procedure apply to enforcement proceedings to be conducted in respect of a credit institution that has assigned a claim for the purpose of forming the cover pool, with the special rules provided in this section.

(2) A claim assigned by a credit institution to a new creditor for the purpose of forming the cover pool can only be made subject to a claim for payment, seized or be made subject to a restraint on disposition if the claim has not been included in the cover pool of covered bonds by the new creditor.

§ 31⁶. Bankruptcy proceedings concerning creditor who assigned claim

(1) A claim assigned on the basis of § 31¹ of this Act does not form part of the bankruptcy estate of the credit institution that assigned the claim on the basis of the aforementioned section and it cannot be recovered during bankruptcy proceedings, except in the event provided in subsection 2 of this section. This restriction applies upon assignment of claims that has taken place before the declaration of bankruptcy of the credit institution that assigned the claim.

(2) A claim assigned on the basis of § 31¹ of this Act forms part of the bankruptcy estate of the credit institution that assigned the claim and it can only be recovered during bankruptcy proceedings of the credit institution if one of the following conditions is met:

1) the assigned claim has not been included in the cover pool by the new creditor;

2) the cover pool administrator, cover pool monitor or respective institution of another EEA country has granted their consent and, as a result of the recovery of the claim, the amount of the main collateral and overcollateral of covered bonds does not fall below the minimum rate provided in law and it has been certified that the declaration of invalidity of the transaction of assignment of claims does not impair the rights of the holder of covered bonds for the satisfaction of their claims on the account of the cover pool and the proceeds to be received therefrom according to the terms and conditions of covered bonds.

§ 32. Enforcement proceedings concerning cover pools

(1) The provisions of the Code of Enforcement Procedure apply to enforcement proceedings to be conducted in respect of cover pools, with the special rules provided in this section.

(2) A cover pool can only be made subject to a claim for payment, seized or be made subject to a restraint on disposition for the purpose of performance of the obligations that arise from covered bonds and from derivative instruments related to covered bonds. A claim for payment, seizure or restraint on disposition can only be established on the cover pool as a whole and only for the amount of the claim raised by a creditor of the covered bond portfolio. The issuer or the cover pool administrator keeps accounts of claims for payment, seizures and restraints on disposition.

(3) The imposition of a claim for payment, seizure or other restraint on disposition on a cover asset or cover pool for reasons not related to covered bonds does not result in the revocation of the additional authorisation or the appointment of a cover pool administrator if the issuer meets all the other requirements arising from this Act and there are no other grounds for revoking the additional authorisation or for appointing a cover pool administrator. If, in the aforementioned event, the value of the cover pool falls below the statutory level, the issuer is required to immediately replace the cover asset that is subject to a claim for payment, seizure or restraint on disposition with another cover asset of the same value.

§ 33. Separation of covered bond portfolios

(1) A covered bond portfolio is deemed to be separated when:

1) the issuer is declared bankrupt;

2) a moratorium is established in respect of the issuer;

4) the additional authorisation or main authorisation of the issuer expires;

5) the court order prescribing compulsory dissolution of the issuer enters into force;

6) the authorisation for voluntary dissolution of the issuer as a credit institution or for voluntary discontinuation of the issue of covered bonds is obtained;

7) the decision adopted by the Financial Supervision Authority in respect of the issuer under subsection 2 of this section takes effect.

(2) The Financial Supervision Authority may adopt a decision on the separation of a covered bond portfolio prior to the occurrence of an event provided in clauses 1–6 of subsection 1 of this section if:

1) the issuer violates or is likely to violate materially the requirements of this Act or other legislation regarding the activities of a credit institution in the near future;

2) the issuer is likely to become insolvent in the near future.

§ 34. Consequences of separation of covered bond portfolios

(1) A cover pool is not part of the issuer’s bankruptcy estate and a moratorium does not extend to a covered bond portfolio. After the separation of a covered bond portfolio, an independent pool of designated assets is formed, in which the cover pool and the proceeds received therefrom can only be used to satisfy the claims of the holders of the respective type of covered bonds and of the counterparty to the derivative instrument entered in the corresponding cover register and to cover the expenses related to the management of the covered bond portfolio.

(2) Separate accounts are kept of both types of covered bond portfolios. The cover pool of one type of covered bonds and the proceeds to be received therefrom may not be used to meet the liabilities arising from the other type of covered bonds and the related covered bond portfolio.

(3) With the separation of covered bond portfolios:

1) the right to manage the covered bond portfolios and the right to participate, instead of the issuer, in court proceedings concerning a covered bond portfolio transfers to the cover pool administrator;

2) the issuer loses the right to make any transactions with the assets included in a covered bond portfolio.

(4) The separation of a covered bond portfolio does not affect the rights and obligations arising from covered bonds or from the derivative instruments and the cover assets entered in the cover register, and the payment obligations attached to covered bonds are not subject to automatic acceleration upon the separation of the covered bond portfolio, unless otherwise provided in this Act. The claims of the holders of covered bonds and of the counterparties to the derivative instruments entered in the cover register are satisfied on the account of the cover pool and the proceeds to be received therefrom, in accordance with the terms and conditions of the covered bonds and derivative instruments.

(5) The provisions of subsections 2–4 of § 36 of the Bankruptcy Act concerning bankruptcy estate apply to the transactions made by the issuer with the covered bond portfolio after an event specified in subsection 1 of § 33 of this Act. Satisfaction of the claims included in the cover pool to the issuer is deemed to be satisfaction in favour of the covered bond portfolio. The issuer immediately gives the proceeds of the satisfaction of the claims included in the cover pool to the disposal of the cover pool administrator.

(6) An issuer may not be deleted from the commercial register before the transfer or liquidation of its covered bond portfolios.

§ 36. Appointment of cover pool administrator

(1) If an issuer is declared bankrupt or the compulsory dissolution of an issuer is decided, a court appoints, on the proposal of the Financial Supervision Authority, a cover pool administrator for covered bond portfolios in the bankruptcy order or in the order prescribing the compulsory dissolution.

(2) If a main authorisation or an additional authorisation is revoked, a decision on the separation of a covered bond portfolio is adopted or a moratorium is established, the Financial Supervision Authority files a petition in action-by petition proceedings with a court for the appointment of a cover pool administrator. The court appoints a cover pool administrator immediately, but no later than within three days after the receipt of the petition from the Financial Supervision Authority. Until the cover pool administrator is appointed, the monitor has the right to make urgent transactions necessary for the management of the covered bond portfolio on the account of the cover pool, acting as the representative of the issuer.

(3) An entry regarding the appointment of a cover pool administrator is made in the commercial register.

(4) The court that decided the appointment of a cover pool administrator, the separation of a covered bond portfolio or the compulsory dissolution of an issuer immediately sends to the registration department of the Tartu County Court copies of its decisions and of the decisions of a higher court made on the basis of subsection 2 of this section and §§ 43 and 44 and subsection 2 of § 48 of this Act, as well as decisions made in respect of the compulsory dissolution of the issuer. An entry is made in the register immediately after the order has been sent to the registration department.

(5) If the issuer certifies that all covered bonds have been redeemed and all other obligations arising from covered bond portfolios have been met by the moment of obtaining the authorisation for voluntary dissolution of the issuer as a credit institution or for voluntary discontinuation of the issue of covered bonds, the Financial Supervision Authority will not file a petition specified in subsection 2 of this section and no cover pool administrator will be appointed. In this event, this Act does not apply to the remaining cover pool once the decision of the Financial Supervision Authority specified in subsection 4 of § 7 of this Act or in subsection 3 of § 117 of the Credit Institutions Act takes effect.

§ 37. Requirements for cover pool administrator

(1) A person who meets the requirements set out in the Bankruptcy Act for bankruptcy trustees and the requirements provided in subsection 2 of § 56 of the Credit Institutions Act may be appointed as a cover pool administrator.

(2) The issuer’s temporary administrator, bankruptcy trustee, moratorium administrator or liquidator, a person who has been the issuer’s monitor, a person specified in subsection 3 of § 48 of the Credit Institutions Act, a bankrupt debtor, or a manager or employee of the issuer, or a person who performs the duties provided in § 93 of the Credit Institutions Act may not be a cover pool administrator.

§ 38. Pecuniary liability of cover pool administrator

(1) A cover pool administrator bears pecuniary liability for the direct pecuniary harm wrongfully caused by a violation of the administrator’s obligations.

(2) The limitation period for a claim for reimbursement of harm arising from a violation of the obligations of a cover pool administrator is three years of the day when the victim became aware of the harm and of the circumstances on which the liability of the administrator is based, but no more than three years of the release of the cover pool administrator.

§ 39. Professional liability insurance of cover pool administrator

(1) To ensure reimbursement of harm caused by a cover pool administrator, the cover pool administrator must enter into a professional liability insurance contract with a company holding an authorisation for insurance activities in Estonia, under the following conditions:

1) the insured event involves causing, by the cover pool administrator, direct pecuniary harm through a violation of the cover pool administrator’s obligations;

2) the minimum amount of the insured sum per insured event is at least 63,910 euros;

3) if the insurance contract provides for an excess, the insurance undertaking reimburses the full amount of the harm caused and claims the excess from the policyholder.

(2) A professional liability insurance contract entered into on the basis of this Act need not cover harm that:

1) occurs due to intentional violation of obligations of the cover pool administrator;

2) is usually precluded pursuant to the policy conditions of insurance undertakings entering into professional liability insurance contracts of a cover pool administrator based on international insurance or reinsurance practice.

(3) A bankruptcy trustee, an enforcement agent, an advocate and a sworn auditor whose liability arising from their professional activities has been insured pursuant to law need not enter into the contract specified in subsection 1 of this section if the existing professional liability insurance contract covers the person’s activities as a cover pool administrator.

(4) A cover pool administrator submits a copy of the professional liability insurance contract to the Financial Supervision Authority no later than on the day when the administrator’s term of office begins

§ 40. Remuneration of cover pool administrator

(1) A court determines, on a proposal of the Financial Supervision Authority, the remuneration of a cover pool administrator for the performance of the administrator’s duties that corresponds to the administrator’s qualifications and the volume and complexity of the administrator’s duties. The annual remuneration may not exceed 0.5 per cent of the value of the cover pool.

(2) A cover pool administrator has the right to demand reimbursement of the necessary expenses incurred in the performance of the administrator’s duties. The Financial Supervision Authority verifies whether the expenses incurred in the performance of the cover pool administrator’s duties were justified and approves the amount of the necessary and justified expenses. An application for reimbursement of expenses is submitted with the report specified in subsection 9 of § 41 of this Act. In the application for reimbursement of expenses, the administrator indicates the amount of the expenses and the reason or ground for, and the time of, incurring the expenses.

(3) The remuneration and justified expenses of a cover pool administrator are covered on the account of the cover pool. If the cover pool administrator manages several covered bond portfolios, a court determines the distribution of the remuneration between the covered bond portfolios. The justified expenses are covered on the account of the covered bond portfolio to the management of which the expenses are related.

§ 41. Rights and obligations of cover pool administrator

(1) Upon the appointment of a cover pool administrator, the right to manage and dispose of covered bond portfolios transfers to the cover pool administrator.

(2) The cover pool administrator ascertains immediately, but no later than within two weeks after the administrator’s appointment, whether the cover pool and the proceeds to be received therefrom are sufficient to meet the issuer’s liabilities arising from covered bonds and from the derivative instruments entered in the cover register and to pay the expenses of management of a covered bond portfolio.

(3) If a covered bond portfolio appears to be insolvent in accordance with subsection 2 of § 49 of this Act, the cover pool administrator immediately notifies the Financial Supervision Authority thereof.

(4) The cover pool administrator represents the issuer in the management and disposal of covered bond portfolios, including in meeting the liabilities arising from covered bonds and from the derivative instruments entered in the cover register, in the acceptance of satisfaction of claims included in the cover pool, in the enforcement of mortgages and other cover assets, and in legal disputes.

(5) The cover pool administrator manages covered bond portfolios with the necessary diligence arising from their nature, and in a manner ensuring that the liabilities arising from covered bonds and from the derivative instruments entered in the cover register are met in the best possible way. To this end, the cover pool administrator has the right to transfer and encumber the cover pool, enter into derivative instruments on the account of the cover pool, and perform other necessary operations. The cover pool administrator has the right to use the cover pool and the proceeds to be received therefrom to cover the expenses necessary for the management of a covered bond portfolio.

(6) To perform their duties, the cover pool administrator has the right to use the assistance of the issuer’s employees and the issuer’s tools, compensating the issuer for the expenses relating to their use. The issuer is required to deliver the contracts and other documents related to covered bonds and the cover pool to the cover pool administrator and provide the cover pool administrator with access to the information systems used for the management of the covered bond portfolio.

(7) Upon the management of a covered bond portfolio, the cover pool administrator is required to observe the requirements provided in respect of issuers by the Credit Institutions Act and this Act, including the requirements for banking secrecy and for processing of personal data established on credit institutions.

(8) The cover pool administrator complies with the reporting and disclosure obligation provided in §§ 54 and 55 of this Act.

(9) In addition to the obligations provided in subsection 8 of this section, the cover pool administrator submits to the Financial Supervision Authority a report on the current state of a covered bond portfolio and on the performance of the administrator’s activities in the management of the covered bond portfolio, immediately after performing the duty specified in subsection 2 of this section and thereafter on a monthly basis. The reporting period is a calendar month and a report must be submitted to the Financial Supervision Authority within five working days after the end of the reporting period.

(10) The cover pool administrator and the issuer’s bankruptcy trustee, moratorium administrator or liquidator, and the cover pool administrator and the bankruptcy trustee of a covered bond portfolio are required to cooperate and provide each other with information that may be relevant to the bankruptcy proceedings concerning the issuer or a covered bond portfolio, liquidation proceedings, moratorium, and management of a covered bond portfolio. Even a person whose term of office as a cover pool administrator has ended must comply with the obligation specified in the first sentence of this subsection.

§ 42. Supervision over cover pool administrator

The provisions of § 69 of the Bankruptcy Act do not apply to a cover pool administrator. Supervision over cover pool administrators is exercised by the Financial Supervision Authority in accordance with the rules provided in Chapter 6 of this Act.

§ 43. Release of cover pool administrator

(1) A court releases a cover pool administrator at the administrator’s request. The cover pool administrator notifies the court and the Financial Supervision Authority of such a request in writing 30 days in advance.

(2) A court releases a cover pool administrator from office on the basis of a petition of the Financial Supervision Authority in action-by-petition proceedings if the cover pool administrator has failed to perform the administrator’s duties or performs them inadequately or there are other good reasons for the release of the cover pool administrator.

(3) If a court releases a cover pool administrator on the basis of subsection 1 or 2 of this section, it appoints a new cover pool administrator on the proposal of the Financial Supervision Authority.

§ 44. Liquidation of separated covered bond portfolio

(1) Within 20 working days of the date of meeting all the liabilities arising from covered bonds and from the derivative instruments entered in the cover register, the cover pool administrator submits to the Financial Supervision Authority the last of the reports specified in subsection 9 of § 41 and in subsection 1 of § 54 of this Act and discloses the information specified in § 55 of this Act with the notice regarding the liquidation of the covered bond portfolio. In addition, the cover pool administrator publishes a notice regarding the liquidation of the covered bond portfolio in the official publication Ametlikud Teadaanded.

(2) After the cover pool administrator has performed all the obligations provided in subsection 1 of this section, the Financial Supervision Authority files, within ten working days, a petition in action-by-petition proceedings for release of the cover pool administrator with a court.

(3) From the date of entry into force of the court order on the release of the cover pool administrator, this Act no longer applies to the portion of the cover pool that remains after the liabilities arising from covered bonds and from the derivative instruments entered in the cover register are met and the expenses of management of the covered bond portfolio are paid. The person whose term of office as the cover pool administrator has ended assists, insofar as possible, in the inclusion of the assets specified in the first sentence of this subsection in the issuer’s bankruptcy estate or other assets.

(4) An appeal can be filed against the order by which a court adjudicates the petition specified in subsection 2 of this section.

§ 45. Transfer of covered bond portfolio in its entirety

(1) With the permission of the Financial Supervision Authority, a cover pool administrator may transfer a separated covered bond portfolio in its entirety to another Estonian credit institution that holds the additional authorisation to issue covered bonds or to a credit institution of an EEA country specified in clause 1 of subsection 2 of § 16 of this Act (hereinafter acquirer).

(2) The provisions of other Acts regarding the transfer of claims, rights and obligations apply to the transfer of a covered bond portfolio in its entirety, insofar as this Subchapter does not provide otherwise.

(3) The provisions of §§ 175–185 of the Law of Obligations Act do not apply to the transfer of a covered bond portfolio in its entirety.

(4) A contract for the transfer of a covered bond portfolio in its entirety must include the following:

1) the business names and seats of the transferring credit institution and the acquiring credit institution;

2) an agreement on the assumption of all the rights and obligations included in the covered bond portfolio, including contracts serving as a basis for the cover assets;

3) a list of all the contracts, rights and obligations to be assumed;

4) the conditions and rules for the transfer of rights and obligations, and for the transfer of related documents and administrative records.

(5) Having obtained the permission from the Financial Supervision Authority, the cover pool administrator immediately publishes a notice regarding the transfer of the covered bond portfolio in the official publication Ametlikud Teadaanded, on the issuer’s website and in at least one daily or weekly national newspaper. The acquirer publishes the same notice on the acquirer’s website.

(6) All the rights, cover assets and obligations related to the covered bond portfolio being transferred, including responsibility for the obligations arising before the transfer of the rights and obligations, are transferred to the acquirer.

(7) An agreement which derogates from the provisions of subsection 6 of this section is void. Deficiencies in the list specified in clause 3 of subsection 4 of this section or in the conditions and rules specified in clause 4 of subsection 4 of this section do not affect the transfer of rights and obligations to the acquirer.

(8) If a covered bond portfolio is transferred in its entirety, the transfer of the rights and obligations included in the covered bond portfolio does not require the consent of the holders of covered bonds, other parties to contracts, creditors or other interested parties.

(9) The rights and obligations transfer at the time prescribed in the contract for the transfer of the covered bond portfolio, but no earlier than 30 days after the publication of the notice specified in subsection 5 of this section.

(10) The acquirer notifies, within a reasonable time after the acquisition of the covered bond portfolio, the holders of the covered bonds, the debtors of the claims constituting the cover pool, the counterparties to derivative instruments related to the cover pool and the third parties concerned of all the circumstances necessary for the exercise and performance of the respective rights and obligations.

(11) Satisfaction of the claims included in the cover pool to the issuer after the transfer of the covered bond portfolio is deemed to be satisfaction in favour of the covered bond portfolio and the issuer immediately gives the proceeds of the satisfaction of the claims to the acquirer’s disposal.

§ 46. Permissibility of transfer of covered bond portfolio in its entirety

(1) A covered bond portfolio may be transferred in its entirety to another Estonian credit institution that has obtained the additional authorisation to issue covered bonds if both of the following conditions are met:

1) the acquirer meets all the requirements established on issuers by the Credit Institutions Act, this Act and other legislation and has not violated these requirements repeatedly or materially during the last five years;

2) the acquirer is able to ensure the existence of sufficient internal capital for the purposes of subsection 1 of § 63¹ of the Credit Institutions Act to cover risks relating to the acquisition of the covered bond portfolio to which the own funds requirements do not apply.

(2) A covered bond portfolio may be transferred in its entirety to an acquirer being a credit institution founded in another EEA country if all of the following conditions are met:

1) the acquirer meets all the requirements established on credit institutions and issuers of covered bonds by the law of the acquirer’s country of location, and the acquirer has not violated these requirements repeatedly or materially during the last five years;

2) according to the law of the acquirer’s country of location, the covered bonds included in the covered bond portfolio being transferred and the related derivative instruments entered in the cover register are covered and the rights of the holders of the covered bonds and of the counterparties to the derivative instruments entered in the cover register are protected at a level that is at least equivalent to that guaranteed by Estonian law;

3) the law of the acquirer’s country of location guarantees the rights of the debtors of the claims constituting cover assets of the covered bonds at a level that is at least equivalent to that guaranteed by Estonian law, and the transfer will not render the performance of the obligations more expensive or difficult for the debtor of any such claim;

4) the law of the acquirer’s country of location allows the acquirer to acquire the covered bond portfolio being transferred;

5) the acquirer holds all the necessary authorisations and approvals for the acquisition of the covered bond portfolio being transferred that are required for the transaction according to the law of the acquirer’s country of location.

§ 47. Proceedings for granting permission for transfer of covered bond portfolio

(1) To obtain permission for the transfer of a covered bond portfolio, the acquirer submits, no later than on the 20th day after the entry into the contract for the transfer of the covered bond portfolio in its entirety, a written petition and the following information and documents (hereinafter in this Subchapter application) to the Financial Supervision Authority:

1) the contract for the transfer of the covered bond portfolio;

2) an assessment of the impact of the acquisition of the covered bond portfolio on the acquirer, forecasts of the acquirer’s annual balance sheets and financial indicators, including income and expenses by area of activity, the acquirer’s prudential plan and plans for the economic indicators of covered bond portfolios.

(2) If the acquirer is a credit institution founded in another EEA country, the application includes, in addition to that provided in subsection 1 of this section, the following:

1) sufficient evidence that the acquirer meets the conditions provided in clause 1 of subsection 2 of § 46 of this Act;

2) a substantiated legal assessment of a sworn advocate regarding the compliance of the law of the acquirer’s country of location with the conditions provided in clauses 2–4 of subsection 2 of § 46 of this Act;

3) a description of how the obligations of the debtors of the claims constituting cover assets of the covered bonds will be performed for the acquirer;

4) the authorisations and approvals specified in clause 5 of subsection 2 of § 46 of this Act.

(3) The provisions of § 13³ of the Credit Institutions Act apply to the review of applications for transfer of a covered bond portfolio, with the provisions on applications for the main authorisation and on the Credit Institutions Act also extending to applications for the permission for transfer of a covered bond portfolio and to this Act. If the acquirer is a credit institution founded in another EEA country, the Financial Supervision Authority co-operates, when processing an application for the permission, with the financial supervision authority of that EEA country.

(4) The Financial Supervision Authority may refuse to grant permission for the transfer of a covered bond portfolio if:

1) the conditions provided in § 46 of this Act are not met;

2) other circumstances appear that harm the legitimate interests of the holders of covered bonds and of the counterparties to the derivative instruments entered in the cover register.

§ 48. Proceeds from transfer of covered bond portfolio, and release of cover pool administrator

(1) The proceeds received from transfer are used to cover the expenses of management of the covered bond portfolio. The funds remaining after all expenses are covered are included by the cover pool administrator in the issuer’s bankruptcy estate or other assets.

(2) If the issuer does not have any other covered bond portfolios and after the cover pool administrator has performed the obligations imposed on the administrator in subsection 1 of this section, the Financial Supervision Authority immediately files a petition in action-by-petition proceedings for release of the cover pool administrator with a court.

§ 49. Insolvency of separated covered bond portfolio

(1) The provisions of the Bankruptcy Act concerning a bankrupt debtor and bankruptcy proceedings thereof apply to an insolvent separated covered bond portfolio, with the special rules provided in this Act.

(2) A separated covered bond portfolio is insolvent if one of the following circumstances occurs:

1) it is not possible to satisfy the legitimate claim of even one holder of covered bonds or counterparty to a derivative instrument entered in the cover register on the account of the cover pool or the proceeds to be received therefrom, and this impossibility is not temporary due to the economic situation of the covered bond portfolio;

2) the present value of the cover pool does not cover the present value of the liabilities arising from covered bonds and from the derivative instruments entered in the cover register and the expenses of management of the covered bond portfolio.

(3) Only the Financial Supervision Authority has the right to file a bankruptcy petition in respect of a separated covered bond portfolio.

(4) Clause 1 of subsection 1 of § 14, §§ 15–26 or subsections 1–4 of § 27 of the Bankruptcy Act do not apply to the filing of a bankruptcy petition in respect of a covered bond portfolio. A court hears the bankruptcy petition immediately but no later than on the following working day and decides on the declaration of bankruptcy on the basis of evidence appended to the bankruptcy petition.

(5) Only the holders of covered bonds, the counterparties to the derivative instruments entered in the cover register whose claims arise on the basis of § 48 of the Bankruptcy Act, and other persons whose claims may be satisfied on the account of the cover pool or the proceeds to be received therefrom pursuant to law, can be creditors in bankruptcy proceedings concerning a covered bond portfolio.

(6) Claims arising from covered bonds and derivative instruments have the same ranking and are satisfied before the claims of other creditors.

§ 50. Bankruptcy trustee of covered bond portfolio

(1) A court appoints the bankruptcy trustee of a covered bond portfolio on the proposal of the Financial Supervision Authority. The provisions of § 61 of the Bankruptcy Act do not apply to the bankruptcy trustee of a covered bond portfolio.

(2) A person who, prior to the declaration of the bankruptcy of a covered bond portfolio, performed the duties of the monitor or cover pool administrator, or a person specified in subsection 2 of § 37 of this Act, may not be a bankruptcy trustee of the covered bond portfolio.

(3) In addition to the provisions of the Bankruptcy Act, a bankruptcy trustee:

1) immediately submits to the Financial Supervision Authority the information requested by the latter and allows the Financial Supervision Authority to examine the documentation related to the bankruptcy proceedings concerning the covered bond portfolio;

2) where necessary, or if so prescribed by the legislation of the other EEA country, notifies the commercial register, registrar of the land register or other relevant register of the EEA country where the cover pool is located about the bankruptcy order concerning the covered bond portfolio.

(4) In addition to that specified in § 68 of the Bankruptcy Act, a court may release the bankruptcy trustee of a covered bond portfolio on the proposal of the Financial Supervision Authority. If a bankruptcy trustee is released, a new bankruptcy trustee is appointed in accordance with the rules prescribed in subsection 1 of this section.

(5) The provisions of subsection 10 of § 41 of this Act apply to the co-operation between the bankruptcy trustee of a covered bond portfolio, and the bankruptcy trustee or moratorium administrator of the issuer.

§ 51. Bankruptcy committee of covered bond portfolio

(1) The bankruptcy committee of a covered bond portfolio consists of five members, three of whom are appointed by the Financial Supervision Authority.

(2) The provisions of subsection 7 of § 74 of the Bankruptcy Act do not apply to bankruptcy proceedings concerning a covered bond portfolio.

§ 52. Formation and sale of bankruptcy estate

(1) On the basis of a bankruptcy order, the covered bond portfolio concerned becomes a separate bankruptcy estate of the issuer.

(2) Satisfaction of a claim included in the cover pool of the bankrupt covered bond portfolio to the issuer is deemed to be satisfaction in favour of the bankruptcy estate in bankruptcy proceedings concerning the covered bond portfolio. The issuer or its bankruptcy trustee immediately gives the proceeds of the satisfaction to the disposal of the bankruptcy trustee of the covered bond portfolio.

(3) The bankruptcy trustee has the right to sell the cover pool in its entirety with the consent of the bankruptcy committee.

§ 53. Termination of bankruptcy proceedings

(1) The bankruptcy proceedings concerning a covered bond portfolio may not be terminated by a compromise.

(2) To the extent that it is not possible to satisfy claims arising from covered bonds and from the derivative instruments entered in the cover register in the bankruptcy proceedings concerning the covered bond portfolio, a creditor has the right to file claims, to the extent not satisfied, against the issuer in accordance with the general rules, including in bankruptcy proceedings.

(3) In addition to the bodies of bankruptcy proceedings specified in subsection 1 of § 162 of the Bankruptcy Act, the bankruptcy trustee of a covered bond portfolio also submits the final report to the Financial Supervision Authority.

§ 54. Requirements for reports

(1) In addition to the reporting obligations arising from other legislation, an issuer prepares regular supervisory reports and submit them to the Financial Supervision Authority.

(2) The period covered by a supervisory report is a quarter.

(3) Supervisory reports are submitted within 25 days after the end of a reporting period.

(4) In addition to the provisions of subsection 1 of this section, the Financial Supervision Authority has the right, upon exercising supervision, to require issuers to provide additional periodic and one-time reports and data. The frequency and term of submission of the additional reports and data are determined by the Financial Supervision Authority.

(5) The person who submitted the report is required to preserve the documents serving as the sources for the initial data used in the preparation of reports submitted to the Financial Supervision Authority for at least five years.

(6) If any deficiencies are identified in a submitted report, the issuer immediately submits a corrected report.

(7) The content of the supervisory reports, the basis for their preparation and the rules for submission thereof are established by a regulation of the minister in charge of the policy sector.

§ 55. Disclosure of information relating to covered bonds

(1) In addition to the disclosure obligation arising from other legislation, an issuer discloses information about covered bond portfolios once a quarter. Information about the first three quarters of a year is disclosed within 20 days of the end of the respective quarter. Information about the fourth quarter is disclosed within two months of the end of the quarter. The disclosed information must be available on the issuer’s website about at least the last five years.

(2) The following information is disclosed based on the types of covered bond portfolios:

1) the nominal value of outstanding covered bonds and of the cover pool;

2) a list of all covered bonds under that covered bond programme with the International Securities Identification Numbers (ISINs), if any;

3) the maturity structure of the covered bonds and the cover pool;

4) the geographical distribution of the value of cover assets, at least to the accuracy of the country, based on the location of the property standing as security for a mortgage credit or commercial mortgage credit, and the location of the debtor or issuer in the event of other cover assets;

5) the type of property included in the cover pool, the total size and valuation method of the loans included in the cover pool;

6) the distribution of substitute collaterals, in terms of their value, between the types specified in subsection 1 of § 20 of this Act;

7) the level of the liquidity buffer and information about the ratio between the total liquidity buffer and the payment obligations of the next 180 days;

8) the percentage of the amount of substitute collaterals, which have been in default for over 90 days or which the issuer estimates to be doubtful, in the cover pool;

9) details in relation to market risk, including interest rate risk and currency risk, and credit and liquidity risks;

10) a list of the conditions suspending the maturity of a payment obligation;

11) the amount of the main collateral, mandatory overcollateral and voluntary overcollateral;

12) information about counterparties of derivative contracts;

13) the methodology for calculating the ratio between credit and the value of the property standing as security for the credit.

(3) In addition, the following information is disclosed on the primary cover assets of mortgage covered bonds:

2) the percentage of the amount of mortgage credits, which have been in default for over 90 days or which the issuer estimates to be doubtful, in the cover pool.

(4) In addition, the following information is disclosed on the primary cover assets of mixed asset covered bonds:

2) the distribution of debt obligations, in terms of their value, between the types specified in subsection 1 of § 30 of this Act;

3) the percentage of the amount of debt obligations, which have been in default for over 90 days or which the issuer estimates to be doubtful, in the cover pool.

(5) The minister in charge of the policy sector may, by a regulation, establish more detailed requirements for the composition and manner of publication and the formal requirements for the information to be disclosed in respect of covered bond portfolios.

§ 56. Grounds for and exercise of supervision

(1) The Financial Supervision Authority exercises supervision over the compliance of the activities of issuers and cover pool administrators with the requirements provided in this Act and the legislation issued on the basis thereof, in accordance with the rules provided in Chapter 9 of the Credit Institutions Act with the special rules provided in this Act. Upon exercising supervision, the Financial Supervision Authority has all the rights provided in the Credit Institutions Act and the Financial Supervision Authority Act.

(2) To exercise supervision, the Financial Supervision Authority has the right to request reports, free information, documents and oral or written explanations concerning facts relevant to the exercise of supervision from the persons specified in subsection 1 of § 99 of the Credit Institutions Act as well as from monitors and cover pool administrators.

(3) In addition to the provisions of subsection 2 of § 99 of the Credit Institutions Act, the Financial Supervision Authority has the right to require, for the purpose of exercising supervision, credit institutions, monitors and cover pool administrators to submit all information and documents necessary for verification of the compliance of covered bond portfolios with requirements.

(4) In addition to the provisions of other legislation, the Financial Supervision Authority has the right to issue precepts to issuers requiring:

1) the inclusion of cover assets in a cover register;

2) the entry of cover assets meeting the conditions provided in subsections 1 and 2 of § 21 of this Act in the liquidity buffer sub-register;

3) the removal of non-compliant cover assets or derivative instruments from the cover register;

4) the correction of incorrect entries in the cover register;

5) the revaluation of a property standing as security for a mortgage credit or a commercial mortgage credit in accordance with the methodology determined by the Financial Supervision Authority;

6) the conduct of a stress test on a covered bond portfolio in order to assess the risks determined by the Financial Supervision Authority and in accordance with the methodology determined by the Financial Supervision Authority;

7) the replacement of a monitor;

8) the provision of a monitor with information and with access to documents and information systems;

9) the calculation of the present value of covered bonds or the cover pool in accordance with the methodology determined by the Financial Supervision Authority;

10) bringing the internal rules into compliance with law.

(5) On the basis of clauses 1 and 2 of subsection 4 of this section, the Financial Supervision Authority may require the increase of cover assets by an amount exceeding the level prescribed in law or in the terms and conditions of covered bonds if there is a significant risk that the occurrence of an event specified in subsection 1 of § 33 of this Act could result in the insolvency of the covered bond portfolio.

(6) In addition to the provisions of subsection 1 of § 108 of the Credit Institutions Act, an issuer is required to immediately notify the Financial Supervision Authority of any changes to information or circumstances, which constituted the basis for granting the additional authorisation, including submit the following information and documents:

1) in the event of changes to the rules and methodologies specified in clauses 3, 4 and 7 of subsection 1 of § 10 of this Act – the amended rules and methodologies;

2) in the event of changes to the plan for separation of covered bond portfolios – the amended plan;

3) the results of the stress test specified in subsection 1 of § 22 of this Act;

4) the circumstances that affect or may materially affect the financial position of a covered bond portfolio;

5) other information if so prescribed in this Act.

(7) The Financial Supervision Authority does not require disclosure of the information specified in clauses 1–4 of subsection 6 of this section on the basis of subsection 2 of § 108 of the Credit Institutions Act.

§ 57. Non-compliance levy

In the event of non-compliance or inappropriate compliance with an administrative act issued on the basis of this Act, the Financial Supervision Authority may impose a non-compliance levy in accordance with the rules provided in the Substitutional Performance and Non-Compliance Levies Act and at the maximum rates provided in subsection 2 of § 104¹ of the Credit Institutions Act.

§ 58. List

(1) The Financial Supervision Authority maintains the list of issuers, the list of covered bonds that are entitled to use the label “ Euroopa pandikiri ” [European Covered Bond] and the list of covered bonds that are entitled to use the label “ Eriti kvaliteetne Euroopa pandikiri ” [European Covered Bond (Premium)]. The lists are disclosed in accordance with the rules established on the basis of subsection 4 of § 53 of the Financial Supervision Authority Act.

(2) Each year, the Financial Supervision Authority sends the information specified in subsection 1 of this section to the European Banking Authority.

§ 59. Violation of requirements for coverage of covered bonds

(1) A violation of the requirement to cover covered bonds as provided in §§ 18–21, subsection 2 of § 22, §§ 23, 25–31, 66 or 67 of this Act

is punishable by a fine of up to 300 fine units.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 400,000 euros.

§ 59¹. Violation of rules for amendment of covered bond programme

(1) A violation of the rules for amendment of a covered bond programme as provided in § 4¹ of this Act or submission of false information about a covered bond programme

is punishable by a fine of up to 300 fine units.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 400,000 euros.

§ 60. Violation of requirements for name protection

(1) A violation of the requirements for name protection provided in § 16 of this Act

is punishable by a fine of up to 300 fine units.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 400,000 euros.

§ 61. Failure to perform stress test

(1) Non-compliance or late compliance with the obligation to perform a stress test as provided in subsection 1 of § 22 of this Act

is punishable by a fine of up to 300 fine units.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 400,000 euros.

§ 62. Presentation of incomplete data in the plan for separation of covered bond portfolios

(1) Presentation of incorrect data in the plan for separation of covered bond portfolios provided in subsection 2 of § 9 of this Act or failure to update the plan

is punishable by a fine of up to 300 fine units.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 400,000 euros.

§ 63. Failure to submit information

(1) Failure to comply with the requirements to disclose a report, document, explanation or other information provided in this Act, failure to submit them to the Financial Supervision Authority or to submit them to the Financial Supervision Authority on time, or submission or disclosure of incorrect or misleading information

is punishable by a fine of up to 300 fine units.

(2) The same act, if committed by a legal person,

is punishable by a fine of up to 400,000 euros.

§ 64. Violation of obligations of cover pool administrator

A violation or late performance of the obligation of a cover pool administrator to ascertain the solvency of a covered bond portfolio in accordance with subsection 2 of § 41 of this Act or the obligation to notify about the insolvency of a covered bond portfolio in accordance with subsection 3 of § 41 of this Act

is punishable by a fine of up to 300 fine units.

§ 65. Proceedings

Extra-judicial proceedings concerning the misdemeanours provided in this Act are conducted by the Financial Supervision Authority.

§ 66. Commencement of issue of covered bonds

An issuer may issue covered bonds or submit to the Financial Supervision Authority an application for approval of a covered bond prospectus from 1 October 2019.

§ 67. Valuation of property conducted before entry into force of this Act

A valuation of a property standing as security for a mortgage credit or a commercial mortgage credit, which was carried out before the entry into force of this Act, may be deemed to comply with the requirements of this Act if the market value of the property was determined in accordance with the legislation in force at the time of the valuation pursuant to which an objective and impartial valuation was ensured.

§ 68. Ratio of mortgage established before entry into force of this Act to amount of credit

(1) If the mortgage established on a property standing as security for a mortgage credit issued before the entry into force of this Act does not comply with the provisions of subsection 2 of § 26 of this Act, the issuer’s claims arising from the mortgage credit may be used as a primary cover asset of mortgage covered bonds in an amount not exceeding ten-elevenths of the sum of mortgage, but no more than the proportion provided in subsection 1 of § 26.

(2) If the mortgage established on a property standing as security for a commercial mortgage credit or housing construction credit issued before the entry into force of this Act does not comply with the provisions of subsection 2 of § 26 of this Act, the issuer’s claims arising from the commercial mortgage credit may be used as a primary cover asset of mixed asset covered bonds in an amount not exceeding ten-elevenths of the sum of mortgage, but no more than the proportion provided in subsection 4 of § 31.

§ 68¹. Application of requirements in force before entry into force of the wording of this Act passed on 17 November 2021 and bringing activities into compliance

(1) An issuer to whom an additional authorisation for issue of covered bonds has been granted on the basis of the wording of this Act in force before entry into force of the wording passed on 17 November 2021 need not apply for an approval of amendments to a covered bond programme for such covered bonds already issued or such covered bonds to be issued in the future the structural terms and conditions of which are the same as or substantially similar to those of the covered bonds already issued.

(2) An issuer who has issued covered bonds on the basis of the wording of this Act in force before entry into force of the wording passed on 17 November 2021 or who will, in the future, issue covered bonds the structural terms and conditions of which are the same as or substantially similar to those of the covered bonds issued before the aforementioned wording was passed must, no later than by 8 July 2022, also bring their activities into compliance with all the requirements established by the wording of this Act passed on 17 November 2021, unless otherwise provided in subsection 3 of this section.

(3) An issuer who has issued or will issue covered bonds before 8 July 2022 in accordance with the terms and conditions provided in subsection 9 of § 115 of the Investment Funds Act, need not observe the requirements additionally provided in subsections 1, 1¹, 3 and 6 of § 4, in § 4¹, in subsections 4, 4¹ and 4² of § 17, in §§ 18, 20, 21, 23 and 30, and in subsection 4 of § 34 of the wording of this Act passed on 17 November 2021.

§ 69

–

§ 75

[Omitted from this text.]

§ 76. Entry into force of Act

This Act enters into force on 1 March 2019.