Väärtpaberituru seadus (VPTS)

§ 1. Scope of application

(1) This Act regulates the offer of securities to the public and their admission to trading on regulated securities markets, the activities of investment firms, the provision of investment services, the provision of data reporting services, the functioning of a trading venue of securities, the netting of qualifying financial transactions, the exercising of supervision over the securities market and the participants therein as well as the liability thereof.

(2) The provisions of Chapter 3¹ and §§ 237⁸⁴ and 237⁹⁰ of this Act apply to the crowdfunding service providers whose services are regulated by Regulation (EU) 2020/1503 of the European Parliament and of the Council on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (OJ L 347, 20.10.2020, pp 1–49).

§ 2. Security

(1) For the purposes of this Act, each of the following proprietary right or obligation or contract transferred on the basis of at least unilateral expression of will is a security, even without a document being issued therefor:

1) a share or other similar tradable right;

2) a bond, convertible security or other tradable debt obligation issued which is not a money market instrument;

3) a subscription right or other tradable right granting the right to acquire securities specified in clause 1 or 2 of this subsection, or which is settled in cash, the settlement amount of which is determined on the basis of transferable securities, currencies, interest rates or returns, commodities or other indices or indicators;

4) an investment fund unit and share;

5) a money market instrument;

6) a derivative security or a derivative contract;

7) a tradable depositary receipt;

8) a greenhouse gas emission allowance within the meaning of subsection 1 of § 137 of the Atmospheric Air Protection Act (hereinafter emission allowance).

(1¹) The securities specified in subsection 1 of this section may be issued by means of distributed ledger technology.

(2) For the purposes of this Act, a money market instrument is an unsecured, transferable and marketable debt obligation that is normally traded on the money market, including a treasury bond, commercial paper, certificate of deposit, bill of exchange secured by a credit institution and other securities which comply with the conditions provided for in Article 11 of Commission Delegated Regulation (EU) 2017/565 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (OJ L 87, 31.3.2017, p. 1–83).

(3) For the purposes of this Act, a derivative instrument is a tradable security expressing a right or obligation to acquire, exchange or transfer, the underlying assets of which are securities specified in subsection 1 of this section or the price of which depends directly or indirectly on:

1) the stock exchange or market price of the security;

2) the interest rate;

3) the securities index, other financial index or financial indicator, including the inflation rate, freight rate, emission allowances or other official economic statistics;

4) currency exchange rates;

5) credit risk and other risks, including climatic variables;

6) the exchange or market price of a commodity, including precious metal.

(3¹) A depositary receipt is a security that represents ownership of the securities of a foreign issuer and that can be admitted to trading on a regulated market independently of the securities of the foreign issuer.

(4) For the purposes of this Act, a convertible security is:

1) a convertible bond within the meaning provided for in § 241 of the Commercial Code;

2) a convertible bond which may be exchanged only for a share of a subsidiary of the issuer – exchangeable debt security;

3) a debt security with warrants consisting of a redeemable bond and the right to acquire a share to be issued (warrant).

(5) For the purposes of this Act, an equity security is:

1) any security specified in clause 1 of subsection 1 of this section;

2) any freely transferable subscription right, convertible security or derivative security which grants the right to acquire securities specified in clause 1 of subsection 1 of this section by way of exchange or exercise of another right if the issuer of the security to be issued is the issuer of securities which are the underlying assets of the security or belongs to the consolidation group of the issuer.

(6) For the purposes of this Act, a non-equity security is any other security not specified in subsection 5 of this section.

(7) For the purposes of this Act, securities issued in a continuous or repeated manner means issues on tap or at least two separate issues of securities of a similar type in a period of 12 months.

(8) For the purposes of this Act, bills of exchange, cheques and other means of payment, except bills of exchange secured by a credit institution deemed to be money market instruments, are not deemed to be securities.

(9) Derivative securities and derivative contracts are derivative instruments.

(10) For the purposes of this Act, a derivative contract is a contract providing for a right or obligation to acquire, exchange or transfer:

1) which is assumable or non-assumable by a third person with the consent of a party;

2) the underlyings of which are securities specified in subsection 1 of this section or the price of which depends directly or indirectly on the circumstances provided for in subsection 3 of this section.

(11) In Parts 3 and 4 of this Act, “security” includes only the following derivative contracts:

1) option contracts, futures contracts, swaps, interest rate contracts and other derivative contracts related to securities, currency, interest rate or an emission allowance or other derivative instruments and derivative contracts related to financial indices or financial indicators which may be settled physically, in cash or in cash under the right of option or in the case of which physical settlement can be replaced by settlement in cash;

2) option contracts, futures contracts, swaps, forward contracts and other derivative contracts related to commodities which must be settled in cash, in cash under the right of option or the settlement of which can be replaced by settlement in cash;

3) option contracts, futures contracts, swaps and other derivative contracts related to commodities admitted to trading on a trading venue which can be physically settled, except for wholesale energy products admitted to trading on an organised trading facility that must be physically settled;

4) option contracts, futures contracts, swaps, forward contracts and other derivative contracts related to commodities which are not specified in clause 3 of this subsection and not established for commercial purposes, but which have the characteristics of derivative instruments;

5) derivative instruments for transfer of credit risks;

6) contracts for difference;

7) option contracts, futures contracts, swaps, interest rate contracts and derivative contracts related to climatic variables, freight rate, inflation rate, or other official economic statistics which must be settled in cash, in cash under the right of option or the settlement of which can be replaced by settlement in cash, also other derivative contracts related to assets, rights, obligations, indices and circumstances not specified in this section which have the characteristics of derivative instruments or which are admitted to trading on a trading venue;

8) emission allowances.

(12) Detailed features of derivative instruments have been provided for in Articles 7 and 8 of Commission Delegated Regulation (EU) 2017/565.

§ 3. Trading venue

(1) A trading venue is a regulated securities market, multilateral trading facility and organised trading facility.

(2) A regulated securities market (hereinafter regulated market) is a multilateral system of organisational, legal and technical measures operated or managed in Estonia or in another Contracting Party to the EEA Agreement (hereinafter Contracting State) and supervised by the Contracting State, which has been established for the purpose of enabling continuous and regular trade with securities admitted to trading there and which brings together the non-simultaneous or simultaneous interests of different people for acquisition and transfer of securities under non-discretionary conditions, which result in a contract. A regulated market is only managed or operated by an operator of the regulated market.

(3) A multilateral trading facility is a multilateral system which brings together the non-simultaneous or simultaneous interests of different people for acquisition and transfer of securities under non-discretionary conditions in a way that results in a contract. A multilateral trading facility may be operated by an operator of the regulated market or an investment firm.

(4) An organised trading facility is a multilateral system which is not a regulated market or a multilateral trading facility and which brings together the interests of different people for acquisition and transfer of securities specified in clauses 2, 6 and 8 of subsection 1 of § 2 of this Act or structured finance products within the meaning of Article 2(1)(28) of Regulation (EU) No 600/2014 of the European Parliament and of the Council on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84–148) in a way that results in a contract. An organised trading facility may be operated by an operator of the regulated market and an investment firm.

§ 5. Issuer

(1) For the purposes of this Act, an issuer is a legal person who has issued securities or has assumed an obligation to issue securities.

(2) For the purposes of Chapter 20 of this Act, an issuer shall mean in addition to provisions of subsection 1 of this section:

1) a natural person or pool of assets of another Contracting State who has issued securities or has assumed an obligation to issue securities;

2) in case of depositary receipts representing shares, the issuer of shares on the basis of which such depositary receipts are issued.

§ 5¹. Offeror

For the purposes of this Act, an offeror means a person defined in Article 2(i) of Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, p. 12–82).

§ 5². Person asking for admission to trading

A person asking for admission to trading for the purposes of this Act shall mean a person who applies for the admission of securities to trading on a regulated market or at whose request securities have been admitted to trading on a regulated market, including without the issuer's consent.

§ 6. Investor

(1) For the purposes of this Act, an investor is a person who owns a security or who has assumed an obligation to acquire securities.

(2) For the purposes of this Act, each of the following is a qualified investor:

1) a credit institution, investment firm, management company, investment fund, insurance undertaking and another financial institution subject to financial supervision;

2) the Republic of Estonia, a foreign state, a regional government or the central bank of Estonia or a foreign state;

3) an international institution or organisation, including the International Monetary Fund, the European Central Bank, and the European Investment Bank;

4) a financial institution whose only business activity is investment in securities, a market trader in commodities and commodity derivatives;

5) a large enterprise;

6) another professional client not specified in clauses 1–5 of this subsection or an eligible counterparty pursuant to the provisions of §§ 46 and 46¹ of this Act or a person who is considered a professional client or an eligible counterparty pursuant to the current legislation of another Contracting State, excluding the case when the client has applied for being treated as a retail client.

(2¹) A large enterprise for the purposes of the Act is a company which meets at least two of the following conditions:

1) the balance sheet total thereof is equal to or exceeds 20 million euros;

2) the net turnover thereof is equal to or exceeds 40 million euros;

3) the equity thereof is equal to or exceeds 2 million euros.

(2²) For determining a qualified investor by an issuer or an offeror, investment firms and credit institutions shall provide the information concerning the treatment of their client as a professional client or an eligible counterparty to the issuer or the offeror at the request of the latter unless otherwise provided by the Personal Data Protection Act.

§ 6¹. Market maker

For the purposes of this Act, a market maker is a person who is permanently ready to deal in securities on own account for a price determined in its purchase and sales offer.

§ 7. Professional securities market participant

(1) Each of the following is a professional securities market participant:

1) an investment firm;

2) a credit institution;

2¹) a management company;

3) an operator of the regulated market;

4) an operator of a securities settlement system;

5) other persons prescribed by law.

§ 7². Regulated information

For the purposes of this Act, regulated information means all the information which an issuer or person asking for admission to trading is required to disclose pursuant to the provisions of Chapter 20 of this Act and Article 17 of Regulation (EU) No 596/2014 of the European Parliament and of the Council on market abuse and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OJ L 173, 12.6.2014, p. 1–61).

§ 8. Supervision of securities market

The Financial Supervision Authority (hereinafter Supervision Authority) shall exercise supervision over compliance with this Act and legislation specified in subsection 1 of § 230 of this Act.

§ 8¹. Consolidation group

A consolidation group is a consolidating entity together with one or more consolidated entities within the meaning of § 27 of the Accounting Act.

§ 8². Control relationships and close links

(1) In Part 3 and Chapters 14–18¹ of this Act “control relationships” means the relations between a parent undertaking and a subsidiary provided for in subsections 1 and 2 of § 27 of the Accounting Act.

(2) In Part III and Chapters 14–18¹ of this Act ''close links'' means a situation where at least two persons are linked:

1) by a holding where at least 20 per cent of the share capital or votes determined by shares is held in a company or other legal person;

2) by a control relationship within the meaning of subsection 1 of this section.

(3) A situation in which two or more persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link.

§ 9. Qualifying holding

(1) For the purposes of this Act, a qualifying holding means any direct or indirect holding in the share capital of a company which represents 10 per cent or more of the share capital of the company, of all rights related thereto or of the voting rights in the company or which makes it possible to exercise a significant influence over the management of the company in which that holding subsists.

(2) Holding is direct if a person holds or exercises it personally.

(3) Holding is indirect if:

1) a person holds or exercises it together with one or several controlled companies;

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

3) it is held or exercised by a person or a company controlled by the person upon agreement with a third party;

4) the voting rights arising therefrom are deemed to belong to a person.

§ 10. Controlled company and ownership of voting rights

(1) For the purposes of this Act, a company controlled by a person is a company which meets at least one of the following conditions:

1) the person holds the majority of the votes represented by shares in the company or holds the majority of the votes as a general partner or limited partner;

2) the person who is a general partner or limited partner of the company has the right to appoint or remove the majority of members of the supervisory board or management board of the company;

3) the person who is a general partner, a limited partner, a partner or a shareholder of the company controls alone the majority of votes pursuant to the agreement entered into with other general partners, limited partners, partners or shareholders.

4) a person exercises or has the power to exercise dominant influence or control over a company.

(2) Voting rights held by a controlled company and the right thereof to appoint or remove a majority of the members of the supervisory or management board of the company and the corresponding voting rights held on the account of the person or company controlled thereby, and held by a third person acting in its own name and the right thereof to appoint or remove the majority of members of the supervisory board or management board of the company are deemed to belong to the person upon application of clause 2 of subsection 1 of this section.

(3) Upon determination of voting rights, the following are deemed to belong to a person:

1) votes held personally by the person;

2) voting rights managed by a third party for the person in the person's own name;

3) votes held by a company controlled by the person;

4) votes held by a third party with whom the person has entered into an agreement which obliges the parties to use concerted voting to adopt a continuous common policy towards the management of the corresponding company;

5) voting rights held by a third party and exercised on the basis of a written agreement providing for the temporary transfer of the voting rights to the person for a counter-performance, which is entered into by the third party;

6) votes represented by shares used as collateral, except if the person who receives the collateral (temporary holder of shares) has the right to exercise voting rights arising from the shares and has not waived the right in favour of the person;

7) votes represented by shares encumbered for the benefit of a third party, except if the person for whose benefit the shares are encumbered has the right to exercise voting rights arising from the shares and has not waived the right in favour of the person;

8) votes represented by shares granted to the person as a collateral or encumbered for the benefit of the person, if the person has the right to exercise voting rights arising from the shares and the person has not waived the right;

9) voting rights represented by issued shares which a person has the right to acquire irrevocably or under the right of option on the due date for the exercise of rights or performance of obligations arising from the securities held by him or her directly or indirectly and on the basis of a binding arrangement pursuant to the law applicable thereto;

9¹) voting rights represented by shares held by a person directly or indirectly and issued by an issuer and by securities with similar economic effect to holding or entitlements to acquire such shares;

10) voting rights represented by shares deposited with the person, which the person may exercise at the discretion thereof, unless the actual holders of the corresponding shares have given instructions for the exercise of voting rights;

11) voting rights represented by shares encumbered with a commercial lease for the benefit of the person;

12) voting rights, which the person may exercise at the discretion thereof and pursuant to authorisation granted to him or her, unless the shareholders have given specific instructions.

(4) For the purposes of subsection 3 of this section, the acquisition of votes represented by shares also includes:

1) the exchange of a convertible security for a share granting voting rights;

2) the right to acquire voting rights arising from the shares stated in the certificate of subscription upon acquisition of the shares;

3) the acquisition of voting rights by an owner of preferred shares.

(5) The securities specified in clauses 9 and 9¹ of subsection 3 of this section are deemed to be securities specified in clauses 1–3, 6 and 7 of subsection 1 of § 2 of this Act and any contracts that can be settled physically or in cash.

§ 10¹. Other terms used in the Act

The terms not defined in this Act are within the meaning of Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.06.2013, pp 1–337), Regulation (EU) No 600/2014 of the European Parliament and of the Council, and Regulation (EU) 2019/2033 of the European Parliament and of the Council on the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014 (OJ L 314, 5.12.2019, pp 1–63).

§ 12. Offer of securities to the public

For the purposes of this Act, an offer of securities to the public means an offer defined in Article 2(d) of Regulation (EU) 2017/1129 of the European Parliament and of the Council.

§ 13. Issue of securities

(1) For the purposes of this Act, an issue of securities is a pool of securities of the same type issued on the basis of a single decision by the issuer (hereinafter issue).

(2) The issue of securities on the basis of a single decision but at different times (as a series) is deemed to be one issue. In the framework of one issue, non-equity securities may be issued as a series in such way that the total nominal value or book value of the issued or non-redeemable securities does not exceed the volume of the issue.

§ 14. Application of this Part

(1) This Part shall apply to securities specified in Article 2(a) of Regulation (EU) 2017/1129 of the European Parliament and of the Council, taking also into account the exemptions provided by Article 1 of the same Regulation.

(2) The provisions of Chapters 3–6 of this Act regarding securities are not applicable to the exemptions provided by Article 1 of Regulation (EU) 2017/1129 of the European Parliament and of the Council and to the following securities:

1) securities which are issued by the Guarantee Fund, the Estonian Unemployment Insurance Fund or the Estonian Health Insurance Fund;

2) deposit certificates specified in subsection 3 of § 24 of the Guarantee Fund Act, which are issued in a continuous or repeated manner, which are guaranteed by a deposit guarantee scheme of the Contracting State, which are not subordinated, convertible, replaceable, which do not grant the right to acquire or exchange securities of a different type and are not underlying assets for derivative instruments.

§ 15. Making prospectus public

(1) Where securities are offered in Estonia the total consideration of the public offer of which is at least 12 million euros per all the Contracting States in total calculated in a one-year period of the offer of the securities, and Article 1 of Regulation (EU) 2017/1129 of the European Parliament and of the Council or subsection 2 of § 14 of this Act does not provide otherwise, a prospectus concerning the offer, which complies with the requirements of that Regulation, must be made public pursuant to the procedure provided in the Regulation.

(2) Persons specified in Article 8(1) of Regulation (EU) 2017/1129 of the European Parliament and of the Council may choose to draw up a base prospectus specified in the same Article under the terms set out in the same Article when securities are offered to the public.

(3) Persons specified in Article 14a(1) of Regulation (EU) 2017/1129 of the European Parliament and of the Council may choose to draw up a Follow-on prospectus specified in the same Article under the terms set out in the same Article when securities are offered to the public.

(4) Persons specified in Article 15a(1) of Regulation (EU) 2017/1129 of the European Parliament and of the Council may choose to draw up a Growth issuance prospectus specified in the same Article under the terms set out in the same Article when securities are offered to the public.

(5) The Supervision Authority shall notify the European Securities and Markets Authority of the approval of a prospectus or any supplement thereto as soon as possible, but not later than by the end of the working day following the notification of the applicant, providing the European Securities and Markets Authority also with the following:

1) an electronic copy of the prospectus and any supplement thereto, as well as the data necessary for its classification by the European Securities and Markets Authority in the storage mechanism referred to in Article 21(6) of Regulation (EU) 2017/1129 of the European Parliament and of the Council, and

2) data necessary for the report referred to in Article 47 of Regulation (EU) 2017/1129 of the European Parliament and of the Council.

(6) Where securities are subject to offer in Estonia with a total consideration of at least 1,000,000 euros but less than 12,000,000 euros calculated in a one-year period of the offer of the securities, the minister in charge of the policy sector may prescribe by a regulation requirements for the disclosure of information on the abovementioned offers, including requirements for the content of the information, and specific requirements for notification of such offers.

(7) In the case of an offer which complies with the requirements established by the regulation specified in subsection 6 of this section, the cross-border recognition of a prospectus established by Article 24(1) of Regulation (EU) 2017/1129 of the European Parliament and of the Council shall not be applied.

§ 25. Obligation to compensate

(1) If the prospectus contains information which is significant for the purpose of assessing the value of the securities and such information proves to be different from the actual circumstances, the issuer, offeror or any other person specified as a responsible person in the prospectus of the security shall compensate the owner of the security for damage sustained thereby due to the difference between the actual circumstances and the information presented in the prospectus, provided that the issuer, offeror or any other person specified as a responsible person in the prospectus of the security was or should have been aware of such difference.

(2) The provisions of subsection 1 of this section also apply if the prospectus is incomplete due to the omission of relevant facts, provided that the incompleteness of the prospectus results from the hiding of the facts by the issuer, offeror or any other person specified as a responsible person in the prospectus of the security.

(2¹) The provisions of subsection 1 of this section apply to the summary of a separate prospectus, including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the prospectus.

(3) The obligation to compensate for damage provided by subsection 1 of this section also rests with the issuer, offeror or any other person specified as a responsible person in the prospectus of the security if a third party is the source of the information presented in the prospectus.

§ 26. Level of compensation

(1) A person who causes damage prescribed in § 25 of this Act has the right to compensate for the damage by acquiring the security from the person that sustained the damage for the price that the latter paid to acquire the offered security. By acquiring securities in this manner from the person that sustained the damage, the person causing the damage is released from the obligation to compensate for any other damage to the person that sustained the damage.

(2) An issuer, offeror or any other person specified as a responsible person in the prospectus of the security shall not have the obligation to compensate for damage on the basis of § 25 of this Act if the person that sustained the damage was aware, at the moment of acquiring the security, that the prospectus which was the basis for the offer was incomplete or contained inaccurate information.

§ 27. Limitation period

The limitation period for a claim prescribed in § 25 of this Act is five years as of the beginning of the offer of the relevant security on the basis of a prospectus which contains inaccurate information or is incomplete.

§ 28. Agreement to limit liability

Any agreements which exclude, limit or reduce compensation or the limitation period prescribed in §§ 25–27 of this Act shall be null and void.

§ 28¹. Obligation to compensate in case of crowdfunding offer

(1) If a key investment information sheet specified in Article 23(2) of Regulation (EU) 2020/1503 of the European Parliament and of the Council and, where appropriate, the translation thereof contains information which is relevant for the purpose of assessing the value of the crowdfunding project and such information proves to be different from the actual circumstances, the project owner shall compensate the investor for loss sustained thereby due to the difference between the actual circumstances and the information presented in the key investment information sheet, provided that the project owner was or should have been aware of such difference.

(2) If a key investment information sheet at platform level specified in Article 24(1) of Regulation (EU) 2020/1503 of the European Parliament and of the Council and, where appropriate, the translation thereof contains information on the service of individual portfolio management of loans and such information proves to be different from the actual circumstances, the crowdfunding service provider shall compensate the investor for loss sustained thereby due to the difference between the actual circumstances and the information presented in the key investment information sheet at platform level, provided that the crowdfunding service provider was or should have been aware of such difference.

(3) The project owner or the crowdfunding service provider shall not have the obligation to compensate for loss on the basis of subsection 1 or 2 of this section if the person that sustained the loss was aware or should have been aware, at the moment of investing in the crowdfunding project, that the key investment information sheet was incomplete or contained inaccurate information. The same applies if a sophisticated investor that sustains loss should have realised, at the moment of investing in the crowdfunding project and by exercising due diligence in its activities, that the information contained in the key investment information sheet was inaccurate or incomplete, unless the damage is caused intentionally.

(4) The provisions of subsections 1 and 2 of this section also apply if the key investment information sheet is incomplete and relevant facts are omitted, provided that the incompleteness of the key investment information sheet results from the project owner or the crowdfunding service provider hiding of the information.

(5) The obligation to compensate for damage prescribed in subsection 1 or 2 of this section also rests with the project owner or the crowdfunding service provider if a third party is the source of the information presented in the key investment information sheet.

§ 28². Agreement on limitation of liability

Any agreements which exclude, limit or reduce compensation prescribed in § 281 of this Act shall be null and void.

§ 31. Requirements for advertising

Any advertisement relating to an offer shall comply with the requirements provided by Article 22 of Regulation (EU) 2017/1129 of the European Parliament and of the Council and the Advertising Act.

§ 35. Obligation to repurchase

(1) If an issuer or an offeror who offers securities to the public in Estonia makes a supplement to a prospectus public during the period of the offer, the issuer or the offeror is required:

1) to cancel the subscription at the request of subscribers for securities and to return the funds received as a result of the subscription to the subscribers;

2) to repurchase the securities offered from investors requesting it at least for the purchase price paid upon subscription.

(1¹) The obligations provided by subsection 1 of this section apply to issuers or offerors also if the approved and published prospectus does not include the final offer price and amount of securities offered or the maximum price of securities and the criteria in accordance with which the final price and amount of securities offered are determined.

(2) A claim to cancel the subscription or repurchase the securities on the grounds prescribed in subsection 1 or 1¹ of this section shall be filed with the issuer or the offeror during the term of the offer prescribed in the notice of the offer which shall not be shorter than two working days as of making the supplement to the prospectus or final information on the offer price and amount of securities public if any new significant circumstances, mistakes or inaccuracies relating to the information included in the prospectus became known before the final closing of the offer to the public and the transfer of the securities. The issuer or the offeror may extend the term.

The final date of the right of cancellation shall be specified in a supplement to the prospectus.

(3) The funds received as a result of the subscription provided for in this section shall be returned or the securities shall be repurchased within ten working days as of the receipt of the claim specified in subsection 2 of this section. The issuer or the offeror shall notify the Supervision Authority of any claims filed against the issuer or the offeror or the return of the funds received as a result of the subscription or the repurchase of the securities within one working day. Any expenses related to the return of the repurchase shall be borne by the issuer or the offeror.

§ 36. Suspension of offer

(1) If the home Contracting State of the issuer is Estonia, the Supervision Authority has the right to request, by its precept, that the offer of securities to the public be terminated or suspended if:

1) the requirements of this Act and legislation established on the basis thereof or other legislation concerning the public offer are violated or there is reason to believe that the specified requirements are violated;

2) the terms and conditions of the offer as prescribed in the prospectus have not been complied with;

3) the information submitted upon approval of the prospectus has been rendered inaccurate to a significant extent.

(2) When suspending an offer, the Supervision Authority shall issue a precept to oblige the issuer or the offeror to eliminate the circumstances causing the suspension of the offer. While eliminating such circumstances, the issuer or the offeror may resume the offer with the permission of the Supervision Authority.

(4) With the prior consent of the Supervision Authority, the issuer or the offeror may suspend the offer.

(5) The offer shall be suspended for a term determined by the Supervision Authority but for a maximum of ten consecutive working days. If the offer is not resumed after this term, the issuer or the offeror is required to cancel the subscription and return the funds received as a result of the subscription to the subscribers within ten working days as of the expiry of the term.

(6) The issuer or the offeror shall immediately inform the public of the suspension or resumption of the offer or the cancellation of the subscription at least in the same national daily newspaper in which the notice of the offer was published. The Supervision Authority shall publish the precept specified in subsection 1 of this section and the consent specified in subsection 4 of this section on its website pursuant to the procedure provided on the basis of subsection 3 of § 237 of this Act.

§ 40. Investment firm

(1) For the purposes of this Act, an investment firm is a public limited company whose permanent activity is the provision of investment services to third parties or the performance of investment activities on a professional basis. An investment firm is a financial institution within the meaning of § 5 of the Credit Institutions Act. As an exception to the provisions of the second sentence of this section, an investment firm is not deemed to be a financial institution within the meaning of Part 3 of this Act, point (26) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, and Regulation (EU) 2019/2033 of the European Parliament and of the Council.

(2) An investment firm may engage in activities not specified in subsection 1 of this section only in cases prescribed by law or if such activities are directly necessary for the provision of investment services or ancillary services to investment services.

(4) The reorganisation of credit institutions operating in several states provided for in Chapter 10¹ of the Credit Institutions Act shall apply also to investment firms, including their branches located in other Contracting State. An investment firm shall have the meaning of a credit institution provided for in Chapter 10¹ and Division 3 of Chapter 11 of the Credit Institutions Act.

(5) The terms specified in § 3¹ of the Credit Institutions Act and the regulation applicable to approval of the activities of a financial holding company and a mixed financial holding company provided in §§ 13⁴–13⁷ of the same Act also apply to a parent undertaking of an investment firm, which is either a financial holding company or mixed financial holding company, if the Supervision Authority exercises supervision over the investment firm on a consolidated basis. For the purposes of §§ 13⁴–13⁷ of the Credit Institutions Act, an investment firm means a credit institution.

(6) An investment firm that meets the conditions specified in point (1)(b) of Article 4(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council shall be deemed to be a credit institution and the provisions of the Credit Institutions Act and other legislation concerning credit institutions shall apply to the investment firm.

(7) In the case of investment firms specified in Article 1(2) and (5) of Regulation (EU) 2019/2033 of the European Parliament and of the Council, supervision over compliance with the prudential requirements specified in Titles VII and VIII of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338–436) shall be exercised in accordance with the first paragraph of Article 1(2) and third paragraph of Article 1(5) of the same Regulation.

(7¹) In the case specified in Article 7 of Regulation (EU) 2019/2033 of the European Parliament and of the Council, subsections 2–11 of § 79², §§ 79³ and 79⁴, subsections 3–8 of § 82², §§ 83³ and 110², subsection 1 and clause 3 of subsection 2 of § 110³ of this Act apply to an investment firm on an individual and consolidated basis. These provisions do not apply to a subsidiary established in a third country which is subject to supervision on a consolidated basis, provided that the parent undertaking located in the European Union proves to the Supervision Authority that the application of the provisions is contrary to the law of that third country.

(8) The priority of claims of the creditors of an investment firm shall be based on § 131 of the Credit Institutions Act.

(9) The provisions of § 20⁷ of the Credit Institutions Act apply to the activities of an investment firm of a third-country consolidation group.

§ 40¹. Small and non-interconnected investment firm

(1) If an investment firm meets all the conditions for qualifying as a small and non-interconnected investment firm provided for in Article 12(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council (hereinafter small and non-interconnected investment firm), subsections 2–11 of § 79², §§ 79³ and 79⁴, subsection 2 of § 82², clause 2 of subsection 3 of § 82² and subsections 4–7 of § 82², subsection 6 of § 110, § 110², subsection 1 of § 110³ and clauses 1 and 3 of subsection 2 of § 110³, and §§ 236¹¹–236¹³ shall not apply to that investment firm, unless otherwise provided for in this section.

(2) Subsection 6 of § 110 and clause 1 of subsection 2 of § 110³ of this Act shall apply to a small and non-interconnected investment firm that issues Additional Tier 1 instruments.

(3) The provisions of subsection 1 of this section shall apply if an investment firm has met the conditions for qualifying as a small and non-interconnected investment firm for six consecutive months and has notified the Supervision Authority thereof.

(4) If an investment firm no longer qualifies as a small and non-interconnected investment firm, the Supervision Authority shall be notified thereof and the provisions of subsections 1 and 5 of this section shall not apply to that investment firm within 12 months as of assessment.

(5) If an investment firm no longer qualifies as a small and non-interconnected investment firm, the performance pay requirements provided for in § 79³ of this Act shall apply to the investment firm in the following financial year.

(6) The Supervisory Board may decide in respect of a small and non-interconnected investment firm the following:

1) to apply subsection 2 of § 82² clause 2 of subsection 3 of § 82² and subsections 4–7 of § 82² of this Act to an appropriate extent;

2) to apply subsections 5 and 5¹ of § 230 of this Act based on the size and the nature, extent and level of complexity of the activity of the investment firm;

3) to establish the additional own funds requirement on the basis of clause 9 of § 235 of this Act, taking account of the conditions provided for in § 236¹¹;

4) to establish specific liquidity requirements on the basis of clause 16 of § 235 of this Act, taking account of the conditions provided for in § 236¹², if the investment firm is not exempt from liquidity requirements pursuant to Article 43(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council.

§ 41. Protection of name

Only investment firms may use the word "investment firm" [investment firm] or derivatives or foreign language equivalents thereof in their business names.

§ 43. Investment services and activities

(1) For the purposes of this Act, investment services and activities (hereinafter investment services) are:

1) reception and transmission of orders related to securities;

2) execution of orders related to securities in the name of or for the account of the client;

3) dealing in securities on own account;

4) securities portfolio management;

5) provision of investment advice;

6) guarantee of securities or guarantee of the offer, issue or sale of securities;

7) organising an offer or issue of securities;

8) operation of a multilateral trading facility;

9) operation of an organised trading facility.

(2) The content of the investment service specified in clause 2 of subsection 1 of this section is any act for entry into a contract or entry into a contract in the name of or for the account of the client in order to acquire or transfer securities, including securities issued by an investment firm at the moment of their issuance.

(3) The content of the investment service specified in clause 3 of subsection 1 of this section is conducting a securities transaction against proprietary capital.

(4) The content of the investment service specified in clause 4 of subsection 1 of this section is management of a portfolio including one or more securities in accordance with a mandate given by the client, on a discretionary basis and separately for each client.

(5) The content of the investment service specified in clause 5 of subsection 1 of this section is making personal recommendations to clients concerning transactions related to securities within the meaning of Article 9 of Commission Delegated Regulation (EU) 2017/565.

§ 44. Ancillary services to investment service

Ancillary services to an investment service (hereinafter ancillary service) are:

1) safekeeping and administration of securities for a client and activities related thereto, including receipt of securities transfer and pledge orders and other orders related to the encumbrance of financial securities from clients and forwarding or execution thereof, except services specified in point (2) of Section A of the Annex to Regulation (EU) No 909/2014 of the European Parliament and of the Council on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (OJ L 257, 28.8.2014, p. 1–72);

2) grant of a credit or loan to an investor to conduct securities transactions on the condition that the creditor or lender itself is related to the transaction;

3) provision of advice to undertakings on capital structure, business strategy and related matters and advice and service relating to mergers of undertakings and participation therein;

4) provision of foreign exchange services where these are connected with the provision of investment services;

5) preparation or provision of recommendations on investment and financial analysis or other general recommendations in connection with securities transactions;

6) services related to the guarantee of the offer or issue of securities;

7) provision of other investment services and ancillary services in connection with the derivative instruments specified in clause 2, 3, 4, 7 or 8 of subsection 11 of § 2 of this Act if the securities are connected with the provision of investment services or ancillary services.

§ 45. Provision of investment services

Investment services may be provided as a permanent activity only by:

1) an investment firm, a branch of a foreign investment firm or cross-border by a foreign investment firm pursuant to this Act;

2) a credit institution or a branch of a foreign credit institution or cross-border by a foreign credit institution pursuant to this Act and the Credit Institutions Act;

3) a management company, a branch of a foreign management company or cross-border by a foreign management company pursuant to this Act and the Investment Funds Act;

4) an operator of a regulated market pursuant to this Act.

§ 45¹. Provision of crypto-asset service

(1) The provisions of Regulation (EU) 2023/1114 of the European Parliament and of the Council on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (OJ L 150, 09.06.2023, pp 40–205), and the Crypto-Assets Market Act apply to an investment firm that wishes to provide or provides a crypto-asset service equivalent to investment services in accordance with the requirements provided in Article 60(3) of that Regulation.

(2) Where this Act and the Crypto-Assets Market Act provide requirements for the same activity, the requirements that are more detailed or more stringent apply to an investment firm.

§ 46. Client of investment firm

(1) Within the meaning of Part 3 of this Act, a client of an investment firm is any person to whom an investment firm provides investment services or ancillary services. A potential client of an investment firm is a person to whom it is wished to provide investment services or ancillary services, but with whom no contractual relations have been entered into (hereinafter potential client).

(2) A professional client of an investment firm is a person specified in clauses 1–5 of subsection 2 of § 6 of this Act.

(3) A person not specified in subsection 2 of this section shall be deemed to be a retail client.

(4) A professional client may apply for being treated as a retail client, if the professional client finds that he or she is unable to assess or manage sufficiently the risks related to the services and transactions. In such case it is not presumed that he or she is as highly knowledgeable in the securities market as a professional client.

(5) In order to treat a professional client as a retail client on the initiative of the client, the investment firm shall enter into a written contract with the client which shall set out with regard to which services, transactions or securities the professional client shall be treated as a retail client.

(6) A retail client may apply for being treated as a professional client where the retail client finds that they have sufficient experience, knowledge and expertise for making investment decisions and for adequate assessment of the risks related thereto. An investment firm is required to assess the abovementioned circumstances and upon assessment the investment firm must take account of the nature of the planned transactions and services. It is not presumed that such client has the knowledge or experience of the securities market comparable to that of a knowledgeable client.

(7) An investment firm may assess the expertise, experiences and knowledge of a client on the basis of the requirements set for the managers of credit institutions, investment firms and other financial institutions subject to financial supervision. In case of companies which are not large enterprises for the purposes of this Act, the person holding the right of representation, which is necessary for the conclusion of transactions, shall be assessed pursuant to the provisions of this section.

(8) Upon the assessment specified in subsections 6 and 7 of this section at least two of following conditions shall be complied with:

1) the client has on average concluded ten transactions of a significant size on securities markets per quarter over the last four quarters;

2) the volume of the securities portfolio of the client exceeds 500,000 euros;

3) the client works or has worked for at least one year in the financial sector in a position or office which requires knowledge of securities investment.

(9) An investment firm is required to take all necessary measures to guarantee that a retail client complies with the conditions specified in subsections 6–8 of this section before a decision is made to treat the retail client as a professional client and an retail client may be treated as a professional client only if all the following conditions are complied with:

1) the client shall provide written confirmation to the investment firm that he or she wishes to be treated as a professional client generally or in connection with a concrete investment service or transaction or type of transaction or service;

2) the investment firm shall present the client a written explanation concerning the rights which the client may lose when treated as a professional client;

3) the client shall provide written confirmation that he or she is aware of the rights which he or she will lose as a result of being treated as a professional client.

(10) If a client is already treated as a professional client on the basis of the characteristics specified in subsections 6–9 of this section and simultaneously on the basis of equivalent characteristics and procedure, the procedure arising from subsections 6–9 of this section does not affect the relationship between the client and the investment firm.

(11) An investment firm is required to establish written procedures for treating clients.

(12) A professional client is required to notify the investment firm of any changes which may affect the treatment of the client as a professional client. If it becomes known to the investment firm that a client treated as a professional client does not comply with the conditions provided for in this section any more, the investment firm shall apply the provisions of retail clients to the client in accordance with the changed circumstances.

(14) Non-compliance with the formal requirements provided for in this section shall not render a contract void.

§ 46¹. Transactions with eligible counterparties

(1) Upon conclusion of transactions with eligible counterparties and provision of ancillary services directly relating to those transactions, an investment firm authorised to provide investment services specified in clause 1, 2 or 3 of subsection 1 of § 43 of this Act is not subject to provisions of subsection 2 of § 79¹, clauses 1, 5–7 ja 9 of subsection 1 of § 85, §§ 85² and 85⁴–85⁶, subsections 1, 2 and 5 of § 86, clauses 3–5 of subsection 1 and subsections 2–5 of § 87, §§ 87¹–87⁵ and subsections 1 and 3 of § 89¹ of this Act. When complying with the obligation provided in clause 1 of subsection 1 of § 85 and subsection 2 of § 86 of this Act, an investment firm may take into account the nature of the eligible counterparty and of its business.

(2) For the purposes of this Act, an eligible counterparty is a person specified in clauses 1, 2 and 3 of subsection 2 of § 6 of this Act.

(3) An investment firm may, with the consent of a professional client, treat the client as an eligible counterparty. In such case the investment firm shall explain to the client thoroughly the consequences of such change in the status before the professional client is treated as an eligible counterparty.

(4) An eligible counterparty has the right to demand that the investment firm treat the counterparty as another type of client generally or with regard to a concrete transaction. In such case, subsection 1 of this section does not apply to the investment firm and the client.

§ 47. Application of this Part

(1) Part III of this Act does not apply to:

1) an insurance undertaking holding an authorisation of a Contracting State;

2) a person providing investment services only to a person belonging to the same group;

3) a person providing investment services where these services are provided in an incidental manner in the course of a professional activity and that activity is regulated by legislation or a code of ethics governing the profession which do not exclude the provision of an investment service;

4) a person dealing on own account in securities other than commodity derivatives, emission allowances or derivatives thereof and not providing any other investment services in such other securities;

5) the Guarantee Fund or any other person providing an investment service confined to the management of a pension or compensation system with participation of the employees;

6) a person providing investment services confined to the management of a pension or compensation system with participation of the employees and provision of an investment service only to a person belonging to the same group;

7) Eesti Pank and any other central bank of a Contracting State, the Ministry of Finance and the debt manager of a Contracting State, established under public law or other such type of person or agency, and an international financial institution established by two or more Contracting States which has the purpose of mobilising funding and providing financial assistance to the benefit of their members where necessary;

8) investment funds, including pension funds and a depositary of such funds and a management company in connection with the management of the investment fund, unless otherwise provided by law;

9) a person dealing on own account, including as a market maker, but not for the purpose of executing client orders, in commodity derivatives, emission allowances or derivatives thereof or providing other investment services in such securities to the clients or other persons of their main activity with whom the person has initial contractual relationship or any other legal relationship through the transaction related to such main activity;

10) a person providing investment advice in the course of providing another professional activity not regulated by this Act, provided that the provision of such advice is not specifically remunerated;

13) offers of units of a pension fund and the transactions and acts performed in relation to them;

14) an operator of an emission source and an aircraft operator within the meaning of the Atmospheric Air Protection Act dealing on own account in emission allowances provided that the person does not execute client orders, provide any investment services or apply a high-frequency algorithmic trading technique;

15) a transmission system operator within the meaning of the Electricity Market Act and a system operator within the meaning of the Natural Gas Act when carrying out their tasks under the Natural Gas Act, Electricity Market Act, Regulation (EC) No 714/2009 of the European Parliament and of the Council on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, p. 15–35) and Regulation (EC) No 715/2009 of the European Parliament and of the Council on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ L 211, 14.8.2009, p. 36–54) or legislation established on the basis thereof and a person acting on their behalf to carry out their tasks under the legislation specified in this clause, and a system operator or balance provider within the meaning of the Electricity Market Act and the Natural Gas Act whose task is to ensure balance if carrying out the tasks specified in this clause presumes the provision of investment services relating to commodity derivatives;

16) a central securities depository within the meaning of point (1) or (2) of Article 2(1) of Regulation (EU) No 909/2014 of the European Parliament and of the Council holding the relevant authorisation under the conditions provided for in Article 73;

17) crowdfunding service providers specified in point (e) of Article 2(1) of Regulation (EU) 2020/1503 of the European Parliament and of the Council.

(1¹) The exemption provided for in clause 4 of subsection 1 of this section does not apply to a person who:

1) is a market maker;

2) is a member of or participant in a regulated market or a multilateral trading facility, except such member of or participant in a regulated market or a multilateral trading facility that is not a credit institution, investment firm or financing institution and that concludes such transactions on a trading venue which are part of managing liquidity or which are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the person or another person belonging to the same consolidation group as the person;

4) applies a high-frequency algorithmic trading technique; or

5) deals on own account when executing client orders.

(1²) The exclusion of application of the exemption provided for in subsection 1¹ of this section does not apply to the exemption provided for in clauses 1, 8 and 9 of subsection 1.

(1³) In order to apply clause 9 of subsection 1 of this section, all of the following conditions must be met:

1) for each of those cases individually and on an aggregate basis the activity of the persons or a service provided by the persons is an ancillary activity to their main business, when considered on a consolidation group basis;

2) the persons do not belong to a consolidation group, the main activity of which is the provision of investment services, the provision of financial services provided for in § 6 of the Credit Institutions Act or acting as a market-maker in relation to commodity derivatives;

3) the persons do not apply a high-frequency algorithmic trading technique;

4) the persons provide justification upon request by the Supervision Authority concerning the consideration of the activity or service specified in clause 9 of subsection 1 of this section as ancillary activity.

(4¹) The provisions of clause 15 of subsection 1 of this section do not apply to the operation of a secondary market, including a platform for secondary trading in financial transmission rights.

(5) The provisions of this Part relating to investment firms and the provision of investment services are applicable with respect to credit institutions, management companies and branches of foreign credit institutions and management companies in so far as this Act, the Credit Institutions Act and the Investment Funds Act do not provide otherwise.

(6) The provisions of §§ 82¹⁵, 82¹⁶ and 90 of this Act apply to persons specified in clauses 1, 8, 9 and 14 of subsection 1 of this section who are participants of regulated markets or multilateral trading facilities.

(7) The provisions of § 46¹, clause 14 of subsection 1 of § 54, subsections 5–8 of § 79, subsections 2 and 4 of § 79¹, §§ 82³, 82⁴, 82⁶ and 82⁹–82¹⁴, subsection 1 of § 85, §§ 85¹, 85², 85⁴–87⁶, 89¹ and 90, Chapter 13¹, Subchapter 6 of Chapter 21 and Part 6 of this Act also apply to selling or recommending investment risk deposits specified in subsection 2 of § 89¹ of the Credit Institutions Act.

(8) Where in the framework of provision of investment services specified in clause 4 or 5 of subsection 1 of § 43 of this Act, a pan-European Personal Pension Product or PEPP specified in point 2 of Article 2 of Regulation (EU) 2019/1238 of the European Parliament and of the Council on a pan-European Personal Pension Product (PEPP) (OJ L 198, 25.7.2019, p. 1–63) is provided or distributed for the purposes of point 15 or 16 of the same Article, the provisions of this Part apply to the investment firm and the investment services provided by the investment firm unless otherwise provided by the same Regulation.

(9) The provisions of this Part relating to the provision of investment services and ancillary services do not apply to the provision of services as a party to transactions concluded by debt managers specified in clause 7 of subsection 1 of this section or by members of the European System of Central Banks, which perform the tasks provided in the Treaty on the Functioning of the European Union and in Protocol No 4 on the Statute of the European System of Central Banks and of the European Central Bank, or equivalent tasks under national legislation.

§ 48. Authorisation

(1) In order to operate as an investment firm, a person shall hold a relevant authorisation (hereinafter in this Part authorisation).

(2) Authorisations are granted for an unspecified term.

(3) Authorisations are not transferable, and the acquisition or use thereof by other persons is prohibited.

(4) A person shall ensure that an investment firm and activities thereof comply at all times with the conditions for grant of a valid authorisation and requirements provided for in legislation.

§ 49. Scope of authorisations

(1) An authorisation is granted for the provision of one or several investment services. An authorisation may include one or several ancillary services. No separate authorisation is granted to an investment firm for the provision of merely ancillary services.

(2) An investment firm may only provide those investment services and ancillary services for the provision of which it has been granted an authorisation. In order to provide investment services and ancillary services not specified in the authorisation, an investment firm shall apply for an additional authorisation.

§ 50. Authorisations of credit institution and management company

(1) A company which holds an authorisation of a credit institution need not apply for a separate authorisation for the provision of investment services and ancillary services.

(2) A company which holds an authorisation of a management company need not apply for a separate authorisation for the provision of a service provided for in clauses 4 and 5 of subsection 1 of § 43 and clause 1 of § 44 of this Act pursuant to the procedure provided for in this Act.

§ 51. Decision

(1) An authorisation shall be granted or revoked by a decision of the Supervision Authority. Upon granting an authorisation, the Supervision Authority may establish more favourable secondary conditions to the applicant which, if it is justified, permit the applicant to derogate from the circumstances on the basis of which the authorisation is obtained or to extend the term provided for in § 55¹ of this Act in the course of which the applicant shall bring itself into conformity with the requirements on the basis of which the authorisation is granted.

(2) A decision regarding an authorisation shall at least set out:

1) the name and registry code of the person with regard to whom the decision is made;

2) the type or types of investment services or ancillary services with regard to which the decision is made;

3) the date on which the decision is made and the date on which it enters into force.

(3) A decision refusing to grant or revoking an authorisation shall contain the justification therefor.

§ 52. Notification regarding decision

(1) The Supervision Authority shall immediately deliver a decision regarding the grant or refusal to grant an authorisation or the revocation of an authorisation to the investment firm.

(2) The Supervision Authority shall publish a decision to grant, amend or revoke an authorisation on its website not later than on the working day following the day the decision is made.

(3) In addition to the provisions of subsection 2 of this section, the Supervision Authority publishes a decision regarding the revocation of an authorisation in at least one national media outlet.

§ 53. Application for authorisation

(1) In order to apply for an authorisation, the members of the management board of a company being founded or an operating company (hereinafter in this Subchapter applicant) shall submit a corresponding application.

(2) An application shall consist of a written application and the supplements specified in § 54 of this Act.

(3) If, during the processing of an application for an authorisation, there are changes in the information or documents specified in subsection 1 of § 54 of this Act, the applicant shall promptly submit the corresponding updated information and documents to the Supervision Authority.

§ 54. Information submitted upon application

(1) Upon application for an authorisation, the applicant shall submit information and documents specified in the Commission Delegated Regulation issued on the basis of Article 7(4) of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349–496) and the following information and documents:

1) upon foundation of a company, a notarised transcript of the memorandum of association or foundation resolution;

2) a copy of the articles of association and, in the case of an operating company, the resolution of the general meeting on amendment of the articles of association, and the amended text of the articles of association;

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

4) information specified in subsection 1 of § 74 of this Act relating to shareholders and other persons, with a qualifying holding in the applicant and information specified in subsection 7 of § 55 of this Act relating to the relationship with an investment firm, credit institution, insurance undertaking or other person subject to financial supervision authorised in a Contracting State;

5) information on the members of the applicant’s managers, including, for each person, the name and surname, personal identification code or, in the absence thereof, date and place of birth, educational background, a complete list of places of employment and positions held during the last five years and, for the members of the board of management, a description of their areas of responsibility and other documents certifying the managers’ trustworthiness and conformity to the requirements of this Act which the applicant deems necessary to submit;

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

7) information on the auditor and person(s) conducting the internal audit of the applicant, including the name, residence or registered office, personal identification code or, in the absence of the personal identification code, the date of birth or registry code;

8) the opening balance sheet of the applicant and an overview of the revenue and expenditure of the applicant or, in the case of an operating company, the balance sheet and income statement as at the end of the month prior to submission of the application and, if they exist, the last three annual reports;

9) in the case of an operating company, documents certifying the amount of own funds together with the sworn auditor’s reports;

10) if a credit institution, management company, investment fund, investment firm, insurance undertaking or another person subject to financial supervision of a third country has a qualifying holding in the applicant, confirmation from the supervision authority of the appropriate state to the effect that the specified person of a third country holds a valid authorisation and, according to the knowledge of the supervision authority, its activities are not contrary to legislation in force;

11) the applicant’s three-year business plan which sets out at least a description of the applicant's planned activities, organisational structure, places of business, information systems and other technical facilities, and a description of its economic indicators;

12) the accounting policies and procedures and the internal policies specified in § 82 of this Act or their drafts;

13) the rules of procedure specified in subsection 1 of § 14 of the Money Laundering and Terrorist Financing Prevention Act and the internal audit rules to monitor compliance therewith;

14) a document by which the applicant assumes the obligation to pay the single contribution to the Investor Protection Sectoral Fund prescribed in the Guarantee Fund Act;

15) certification to the Supervision Authority concerning payment of the administrative fee;

16) the address of the applicant's head office or registered office.

(1¹) An applicant or manager of an investment firm shall be a member of the supervisory board and management board. The Supervision Authority may consider an employee of an applicant or investment firm or any other person who makes independent management decisions concerning the development or business of the applicant or investment firm as manager.

(2) The accuracy of information and documents submitted with regard to natural persons specified in clauses 5 and 7 of subsection 1 of this section shall be confirmed by the above-mentioned persons by their signatures.

(3) Upon application for an additional authorisation, an investment firm shall submit the information and documents specified in clauses 3, 9, 10, 12, 13 and 15 of subsection 1 of this section.

§ 55. Review of application

(1) If an applicant has failed to submit all the information and documents specified in § 54 of this Act or if such information or documents are incomplete or have not been prepared in accordance with the requirements, the Supervision Authority shall demand elimination of the deficiencies by the applicant.

(1¹) If amendments are made to the data or documents specified in subsection 1 of § 54 of this Act during the processing of an application for an authorisation, the applicant shall promptly submit the respective updated data or documents to the Supervision Authority. If an amendment is important, the Supervision Authority may deem the moment of receipt of the updated data or documents to be the beginning of the time limit of proceedings. In this case, the Supervision Authority must notify the applicant of the new time limit of proceedings.

(2) The Supervision Authority may demand the submission of additional information and documents if it is not convinced on the basis of the information and documents specified in § 54 of this Act as to whether the applicant has adequate facilities for the provision of investment services or whether it meets the requirements for investment firms prescribed by law or on the basis thereof.

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

(4) The data referred to in subsections 1–3 of this section shall be submitted during a reasonable term determined by the Supervision Authority.

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

(7) Upon processing of an application for an authorisation, the Supervision Authority shall cooperate with the securities market or financial supervision authority of the corresponding Contracting State if:

1) the applicant is a subsidiary of a credit institution, investment firm, insurance undertaking or another person subject to financial supervision authorised in a Contracting State;

2) the applicant is a subsidiary of a parent undertaking of a credit institution, investment firm, insurance undertaking or another person subject to financial supervision authorised in a Contracting State;

3) the applicant is supervised by a person or persons supervising an investment firm, credit institution, insurance undertaking or other person subject to financial supervision authorised in another Contracting State.

(8) The Supervision Authority shall consult the securities market and financial supervision authorities of other Contracting States for assessment of the reputation, experience and suitability of the applicant and the persons having a qualifying holding and managers of a legal person belonging to the same consolidation group with such applicant. In the course of such a consultation the Supervision Authority shall forward only essential data concerning the reputation, experience and suitability of the applicant and the persons having a qualifying holding and managers of a legal person belonging to the same consolidation group with such applicant which are necessary for other securities market and financial supervision authorities related to granting an authorisation of a Contracting State.

§ 55¹. Grant of authorisation

(1) The Supervision Authority shall grant an authorisation if the applicant has submitted all information required by legislation provided that no bases exist for refusal to grant an authorisation or for termination of an authorisation and if the doubt of the Supervision Authority expressed to the applicant concerning the fact that the applicant does not comply with the requirements arising from this Act or legislation issued on the basis thereof has been eliminated.

(2) If there is justified reason for the Supervision Authority to believe that the applicant does not comply with the requirements arising from this Act or legislation issued on the basis thereof, the applicant is required to provide information to the Supervision Authority on its own initiative for the purpose of elimination of the doubt. The Supervision Authority shall specify beforehand which information and data are required for the elimination of the doubt.

(3) The Supervision Authority shall make a decision to grant or refuse to grant an authorisation within two months after receipt of all the necessary information and documents, but not later than within six months after receipt of the application for the authorisation.

(4) The Supervision Authority shall make a decision to grant or refuse to grant an additional authorisation within one month after receipt of the corresponding application and all the necessary information and documents, but not later than within six months after receipt of the application for the additional authorisation.

(5) An investment firm holding an authorisation shall notify immediately the Supervision Authority of material changes in the circumstances submitted to the Supervision Authority by the applicant which were the basis for the grant of the authorisation upon becoming aware of them.

§ 56. Refusal to grant authorisation

(1) The Supervision Authority shall refuse to grant an authorisation if:

1) the information or documents submitted upon application for the authorisation do not meet the requirements provided for in this Act, Regulation (EU) 2019/2033 of the European Parliament and of the Council, legislation established on the basis thereof or the Commission Delegated Regulation issued on the basis of Article 7(4) of Directive 2014/65/EU of the European Parliament and of the Council or are inaccurate, misleading or incomplete;

2) the applicant fails, within the prescribed term, to submit other information and documents prescribed upon application for an authorisation or as are requested by the Supervision Authority or refuses to submit the same;

3) the applicant does not meet the requirements provided for in the legislation specified in clause 1 of this subsection;

4) a manager of the applicant or a person carrying out the duties of the internal audit unit or a person having a qualifying holding in the applicant does not meet the requirements provided for in legislation specified in clause 1 of this subsection;

5) the applicant has materially or repeatedly violated requirements provided for in legislation or the activities or omissions of the applicant are in contradiction with good business practices;

6) close links between the applicant and another person or the requirements arising from legislation or the implementation of legislation of any other state applicable to the applicant or to the persons with whom the applicant has close links prevent the exercise of the required or sufficiently efficient supervision over the investment firm.

(2) Upon assessment of the provisions of clause 6 of subsection 1 of this section, the Supervision Authority shall, among other things, consider the criteria provided for in Article 10 of Commission Delegated Regulation issued on the basis of Article 7(4) of Directive 2014/65/EU of the European Parliament and of the Council.

§ 57. Termination of authorisation

An authorisation terminates:

1) in the event of voluntary dissolution of the investment firm, upon the receipt of a corresponding authorisation from the Supervision Authority;

2) if the authorisation is revoked;

3) in the event of a merger of investment firms, if it is held by the firm being acquired;

4) if the investment firm is declared bankrupt.

§ 57¹. Dissolution of investment firm

(1) An authorisation of the Supervision Authority is required for the dissolution of an investment firm (hereinafter in this section dissolution).

(2) The provisions of the Commercial Code apply to dissolution, unless otherwise provided in this Act.

(3) In order to obtain an authorisation for dissolution, the investment firm submits to the Supervision Authority an application to which the following information and documents are appended:

1) the resolution of the general meeting of the investment firm concerning the dissolution and the application for authorisation therefor;

2) an assessment of the effect of the dissolution on the interests of their clients or other creditors by the investment firm.

(4) The provisions of § 55 of this Act apply to the processing of an application for authorisation for dissolution, verification of the submitted information and verification of whether the dissolution of the investment firm corresponds to the interests of the clients or other creditors.

(5) The decision to grant or refuse to grant an authorisation for the dissolution is made by the Supervision Authority within one month after the submission of all the necessary documents and information but not later than within two months after the receipt of the corresponding application.

(6) The Supervision Authority may refuse to grant an authorisation for dissolution where the dissolution is contrary to the interests of the clients or other creditors of the investment firm.

(7) The Supervision Authority immediately informs the investment firm of a decision to grant or refuse to grant an authorisation for dissolution.

§ 58. Revocation of authorisation

(1) Revocation of an authorisation means total or partial deprivation of a right granted by the authorisation. An authorisation may be revoked completely or by individual investment services or ancillary services, whereupon the rights of which the holder of the authorisation is deprived of upon revocation of the authorisation shall be specified.

(2) The Supervision Authority may revoke an authorisation if:

1) the investment firm fails to commence activities or if an act by the founders of the investment firm indicates that the investment firm will be unable to commence activities within twelve months as of the grant of the authorisation, or if the investment firm has not provided investment services for more than six consecutive months;

2) it has been established that the applicant has submitted inaccurate information upon application for the authorisation or obtained the authorisation by any other irregular means, as well as if other events of submission of inaccurate information to the Supervision Authority by or on behalf of the investment firm occur;

3) the investment firm has violated repeatedly or to a material extent the provisions of legislation regulating the activities thereof, the investment firm or its manager has been punished for an economic offence, official misconduct, offence against property or offence against public trust if information concerning the punishment has not been expunged from the criminal records database pursuant to the Criminal Records Database Act or the activities of the investment firm are not in compliance with good business practice;

4) the investment firm does not meet the requirements in force with regard to the grant of the authorisation;

5) the circumstances provided for in clauses 4 or 6 of § 56 of this Act become evident;

6) the investment firm has failed to implement a precept of the Supervision Authority within the term or to the extent prescribed;

7) the amount of own funds of the investment firm does not comply with the requirements of Regulation (EU) 2019/2033 of the European Parliament and of the Council or this Act or legislation issued on the basis thereof;

8) the investment firm is unable to perform the obligations it has assumed or if, for any other reason, its activities significantly damage the interests of investors or other clients or adversely affect the regular functioning of the securities market;

9) the investment firm has been involved in money laundering or violates the procedure for preventing money laundering and terrorist financing established by legislation;

10) the investment firm belongs to a consolidation group the structure of which prevents the receipt of information necessary for supervision on a consolidated basis, or if a company which belongs to the same consolidation group as the investment firm operates on the basis of legislation of a foreign state, which prevents the exercise of sufficient supervision;

11) the investment firm fails to pay the contributions to the Investor Protection Sectoral Fund prescribed in the Guarantee Fund Act within the specified term or in full;

12) the investment firm has published materially incorrect or misleading information or advertising concerning its activities or managers;

13) according to the information submitted to the Supervision Authority by the securities market supervisory agency of the Contracting State, the investment firm has violated the requirements which are provided for in legislation of the Contracting State;

14) the internal rules specified in § 82 of this Act are not sufficiently accurate or unambiguous for regulation of the activities of the investment firm;

15) it becomes evident that the investment firm has chosen Estonia as the place for application for the authorisation and registration for the purpose of evading the stricter standards for the activities of investment firms in force in another Contracting State within whose territory it carries on the greater part of its activities.

(3) An authorisation or an additional authorisation shall be revoked in full or in part on the application of the investment firm if the investment firm no longer wishes to provide investment services and if the legitimate interests of its clients are thereby adequately protected.

(3¹) The Supervision Authority may refuse to revoke an authorisation on the basis of an application specified in subsection 3 of this section if there is good reason to believe that revocation of the authorisation may damage the interests of investors or other clients.

(3²) An application specified in subsection 3 of this section shall be reviewed by the Supervision Authority and a decision to revoke in part or in full or to refuse to revoke the authorisation shall be made within two months as of the receipt of the application.

(4) Prior to making a decision to revoke an authorisation on the basis of subsection 2 of this section, the Supervision Authority may issue a precept to the investment firm establishing a term for elimination of the deficiencies which are the basis for revocation of the authorisation.

§ 58². Activities of investment firm abroad

(1) An investment firm established and holding authorisation in Estonia may provide investment services or ancillary services abroad by the establishment of a branch, by the use of an investment agent or by the provision of services on a cross-border basis. An investment firm may only provide ancillary services abroad together with provision of an investment service.

(2) Upon provision of investment services abroad, an investment firm shall comply with the requirements provided for in this Act, legislation issued on the basis thereof and other legislation, including that of foreign states.

(3) The provisions of §§ 64–65¹ of this Act apply to the provision of investment services by an investment firm in another Contracting State. An investment firm may provide other services in a Contracting State in accordance with the provisions of the legislation of the Contracting State.

(4) The provisions of §§ 59–62, 65 and 65¹ of this Act apply to the provision of investment services in a third country.

(5) The cross-border provision of services is the provision of investment services and ancillary services in a state where the investment firm or a branch thereof is not registered. The provisions of this Subchapter concerning the cross-border provision of services apply to the provision of investment services by the use of an investment agent entered in the list of investment agents in Estonia pursuant to the provisions of § 119² of this Act.

§ 59. Branch in third country

(1) In order to establish a branch in a third country, an investment firm shall apply for a permission (hereinafter in this Subchapter permission) from the Supervision Authority.

(2) In an application for the permission, an investment firm shall submit the following information:

1) the state where the branch is to be established;

2) the name and address of the branch:

3) a programme of operations of the branch which sets out at least a description of the planned activities, applicant’s organisational structure and outsourced functions;

4) the information on persons responsible for the management of the branch (hereinafter managers of branch) pursuant to the provisions of clause 5 of subsection 1 of § 54 of this Act.

(3) The provisions of this Act concerning the establishment and activities of a branch shall apply to the provision of investment services through the medium of an investment agent established in a third country.

§ 60. Processing of application for permission

(1) Unless otherwise provided in this Subchapter, applications for permission and the processing thereof shall be subject to the provisions of §§ 51–53, 55 and 55¹ of this Act regulating authorisations and applications therefor.

(2) The Supervision Authority shall inform the securities market supervisory agency of the relevant third country of the submission of an application for permission within two months as of the receipt of the application. If no co-operation agreement exists between the Supervision Authority and the securities market supervisory agency of the relevant third country, the Supervision Authority shall enter into an agreement with the agency regarding the exercise of supervision over the branch.

(3) The Supervision Authority shall make a decision regarding the grant of or refusal to grant the permission within two months of submission of all the necessary information and documents, but not later than six months after submission of the application. Upon refusal to grant permission, the decision shall contain the justification for refusal.

(4) The Supervision Authority shall immediately forward the decision regarding the grant of or refusal to grant permission to the applicant. The securities market supervisory agency of a relevant third country shall also be notified of the grant of permission.

(5) An investment firm that has a branch in a third country is required to notify the Supervision Authority and the securities market supervisory agency of the relevant country at least one month in advance if it intends to amend the information specified in clauses 2–4 of subsection 2 of § 59 of this Act.

§ 61. Refusal to grant permission

The Supervision Authority may refuse to grant permission if:

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

2) the applicant fails, within the prescribed term, or refuses to submit the information and documents subject to submission upon application for a permit or as are requested by the Supervision Authority to the Supervision Authority;

3) the managers of branch do not meet the requirements for managers of an investment firm established in this Act;

6) establishment of the branch may damage the interests of investors or the financial situation of the investment firm or its reliable activities in Estonia or in the relevant third country;

7) no agreement specified in subsection 2 of § 60 of this Act has been entered into or the legislation of the relevant third country does not enable adequate supervision to be exercised and the data necessary therefor to be acquired.

§ 62. Revocation of permission

(1) The Supervision Authority may revoke a permission for the foundation of a branch granted to an investment firm in a third country if:

1) the investment firm or its branch does not meet the requirements in force with regard to the issue of permissions for the foundation of a branch;

2) the investment firm fails to submit reports on its branch as required;

3) upon application for a permission for the foundation of the branch, the investment firm has submitted misleading or inaccurate information or misleading or falsified documents or, in other cases, has submitted misleading or inaccurate information or misleading or falsified documents regarding the branch to the Supervision Authority;

5) the risks arising from the activities of the branch are significantly greater than risks arising from the activities of the investment firm;

6) the authorisation of the investment firm has been revoked;

7) the circumstances provided for in § 61 of this Act arise;

8) the investment firm has failed to implement a precept of the Supervision Authority within the term or to the extent prescribed.

(2) The Supervision Authority shall promptly inform the investment firm and the financial supervision authority of a third country of a decision to revoke a permission for the foundation of a branch.

(3) After becoming aware of revocation of a permission for the foundation of a branch, the investment firm shall terminate provision of its services through the branch registered in the third country specified in subsection 2 of this section not later than by the due date specified by the Supervision Authority.

§ 64. Branch in another Contracting State and provision of investment service through the medium of investment agent of another Contracting State

(1) An investment firm shall notify the Supervision Authority of its intention to establish a branch in another Contracting State for the provision of investment services and ancillary services provided for in its authorisation or to use an investment agent in that Contracting State and submit the following information and documents to the Supervision Authority:

1) the Contracting State where the investment firm plans to establish a branch or use an investment agent;

2) a programme of operations setting out information on all the planned services;

3) upon establishment of a branch, information on the organisational structure of the branch and on whether the branch intends to use an investment agent and, upon the use of an agent, the name, place of residence or registered office, personal identification code or, in the absence of the personal identification code, the date of birth or registry code of the agent;

4) where an investment agent is only used, a description of the investment agent, including information on reporting lines and on how the agent fits into the corporate structure of the investment firm;

5) the contact address of the branch or investment agent in the Contracting State where documents required may be obtained;

6) the information on managers of branch or persons responsible for the management of the investment agent.

(2) The documents specified in subsection 1 of this section shall be submitted in Estonian together with a translation made by a sworn translator into the official language or one of the official languages of a Contracting State where the investment firm wishes to establish a branch.

(3) The Supervision Authority shall make a decision to forward or refuse to forward the information and documents specified in subsection 1 of this section to the securities market supervisory agency of the corresponding Contracting State on the bases provided for in subsection 5 of this section within two months after receipt of all the required information and documents, but not later than within three months after receipt of the corresponding application. The Supervision Authority shall immediately inform the investment firm of the decision to forward or refuse to forward the information and documents.

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

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

2) the information or documents required by the Supervision Authority have not been submitted within the prescribed term.

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

1) the financial situation, organisational structure or other resources of the investment firm are insufficient for the provision of services specified in the programme of operations in a Contracting State;

2) the foundation of the branch or implementation of the a programme of operations submitted by the investment firm may damage the interests of its clients, the financial situation or reliable activities of the investment firm;

3) the information or documents submitted for forwarding are incorrect, misleading or incomplete;

4) the investment firm wishes to provide only ancillary services.

(6) If the information and documents specified in subsection 1 of this section are forwarded, the Supervision Authority shall also submit information on the investor protection scheme applicable in Estonia to the securities market supervisory agency of the Contracting State.

(7) An investment firm may found a branch in a Contracting State pursuant to the provisions of legislation of the other Contracting State.

(8) An investment firm shall inform the Supervision Authority of changes in the information specified in subsection 1 of this section or changes in documents, if possible, at least one month before entry into force of the changes or immediately after entry into force of the changes. The Supervision Authority shall notify the securities market supervisory agency of the relevant Contracting State of the changes.

(9) The Supervision Authority shall inform the securities market supervisory agency of the Contracting State of any changes to the investor protection scheme applicable in Estonia, which have occurred in the corresponding Contracting State during the period when the investment firm has been operating through a branch, immediately after the changes occurred.

(10) The Supervision Authority may, by its precept, prohibit provision of services by an investment firm through the branch founded in another Contracting State if:

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

2) the securities market supervisory agency of the Contracting State has notified the Supervision Authority of a violation by the investment firm of legislation of a Contracting State.

(11) The investment firm is required to terminate provision of its services through the branch established in the Contracting State not later than by the due date specified in the precept.

§ 65. Cross-border provision of services in another Contracting State and in third country

(1) An investment firm shall notify the Supervision Authority of its intention to provide investment services and ancillary services specified in its authorisation on a cross-border basis in another Contracting State or in a third country and submit the following information and documents to the Supervision Authority:

1) the state where the investment firm plans to provide investment services;

2) a programme of operations setting out information on all the planned services;

3) information on whether the investment firm intends to use an investment agent entered in the list of investment agents in Estonia pursuant to the provisions of § 119² of this Act and, upon the use of an agent, the name, place of residence or registered office, personal identification code or, in the absence of the personal identification code, the date of birth or registry code of the agent.

(2) The information and documents specified in subsection 1 of this section shall be submitted together with a translation made by a sworn translator into the official language or one of the official languages of a Contracting State where the services specified in subsection 1 are intended to be provided.

(3) The Supervision Authority shall make a decision to forward or refuse to forward the information and documents specified in subsection 1 of this section to the securities market supervisory agency of the corresponding Contracting State or third country and immediately disclose the decision to the investment firm. If the Supervision Authority makes a decision to forward the information and documents, the information and documents shall be forwarded to the securities market supervisory agency of the corresponding Contracting State within one month after receipt of the information from the investment firm.

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

1) the information or documents submitted do not meet the requirements provided for in this Act or are inaccurate, misleading or incomplete;

2) the investment firm wishes to provide only ancillary services.

(5) An investment firm may commence cross-border provision of services, taking account of the conditions provided for in the legislation of the relevant Contracting State or third country and established by the securities market supervisory agency of the relevant state, starting from the disclosure of the decision to forward the information specified in subsection 3 of this section to the investment firm.

(6) An investment firm shall notify the Supervision Authority of changes in the information and documents specified in subsection 1 of this section at least one month before entry into force of the changes. The Supervision Authority shall inform the securities market supervisory agency of the relevant state of the changes.

(7) The Supervision Authority may, by a precept, prohibit cross-border provision of services by an investment firm in a Contracting State or third country if:

1) grounds provided for in subsection 4 of this section for refusal to forward the specified information and documents exists;

2) the securities market supervisory agency of the Contracting State or third country has notified the Supervision Authority that the investment firm has violated the legislation of the Contracting State or a third country.

(8) The investment firm is required to terminate cross-border provision of its services in that Contracting State not later than by the due date specified in the precept.

§ 65¹. Cross-border provision of operation services of multilateral trading facility and organised trading facility in another Contracting State and in a third country

(1) An investment firm intending to provide operation services of a multilateral trading facility or an organised trading facility on a cross-border basis shall notify the Supervision Authority in which state the investment firm intends to provide trading facility operation services on a cross-border basis.

(2) The Supervision Authority shall submit the information specified in subsection 1 of this section to the securities market supervisory agency of the corresponding Contracting State within one month after receipt of the specified information and shall immediately notify the investment firm thereof. Upon the request of the securities market supervisory agency of the Contracting State, the Supervision Authority shall forward to the agency information on the participants and remote members of a multilateral trading facility established in Estonia.

(3) An investment firm may commence cross-border provision of operation services of a multilateral trading facility or an organised trading facility, taking into account the conditions provided for in the legislation of the respective Contracting State and established by the securities market supervisory agency of the Contracting State provided that the Supervision Authority notifies the investment firm of forwarding of the information.

(4) The provisions of § 65 of this Act do not apply to cross-border provision of investment services provided for in this section.

§ 65². Bases of activities of foreign investment firms

(1) A person who may provide investment services or ancillary services under the legislation of the home country may provide investment services and ancillary services in Estonia on the basis of the authorisation granted by a competent securities market supervisory agency of the home country by the establishment of a branch, by the use of an investment agent or by the provision of services on a cross-border basis in Estonia, unless otherwise provided for in this Act. For the purposes of this Subchapter, a home country is a country where the person has been established.

(2) The provisions of §§ 69 and 70 of this Act apply to the provision of investment services in Estonia by an investment firm established in a Contracting State by the use of an investment agent or by the establishment of a branch.

(3) The procedure provided for in §§ 66, 67 and 70¹ of this Act and Regulation (EU) No 600/2014 of the European Parliament and of the Council applies to the commencement of provision of investment services in Estonia by a third country investment firm.

(4) A third country investment firm may only provide investment services in Estonia on a cross-border basis to a professional client or an eligible counterparty.

(5) The provisions of this Division do not apply to a third country investment firm if the client addresses an investment firm established in that third country for the receipt of investment services or ancillary services at its own initiative. The provisions of the first sentence of this subsection shall not be applied if the investment firm markets investment services or ancillary services or other investment services or products directly to the client in which the client has not expressed interest, including even in the case the abovementioned services are provided or the products are marketed by a third party or a person related to the investment firm on behalf of the investment firm, except in the case of intra-group transactions.

(6) The provisions of this Subchapter concerning the cross-border provision of services apply to a foreign investment firm that wishes to provide investment services and ancillary services in Estonia through the medium of an investment agent located in a home country.

(7) Upon provision of investment services in Estonia, a foreign investment firm shall comply with the requirements established for its activities by this Act and legislation established on the basis thereof as well as other requirements arising from Estonian legislation established for operating in Estonia.

§ 66. Branch of third country investment firm in Estonia

(1) In order to establish a branch in Estonia, a third country investment firm shall apply for a permission (hereinafter in this Subchapter permission) from the Supervision Authority.

(2) The following information and documents shall be submitted to the Supervision Authority in the application:

1) the name and address of an investment firm in a home country and the business name and address of the branch in Estonia;

2) the scope of the authorisation granted to the investment firm and the agency that granted the authorisation;

3) information on managers of branch pursuant to the provisions of clause 5 of subsection 1 of § 54 of this Act which certifies the compliance of the managers with the requirements provided for in § 79;

4) the information on persons having a qualifying holding in the investment firm pursuant to the provisions of subsection 1 of § 74 of this Act;

5) the information pursuant to the provisions of clauses 1, 3 and 5 of subsection 2 of § 386 of the Commercial Code;

5¹) a copy of the articles of association or partnership agreement of the company, certified according to the laws of the country of location, where the articles of association or partnership agreement must be submitted to a register also in the country of location of the company;

6) the annual reports of the applicant for the past two financial years;

7) a programme of operations of the branch which sets out at least a description of the planned activities, applicant’s organisational structure and outsourced functions, accompanied by a description of the relationship with the investment firm;

8) information on the financial situation of the applicant, including the size of its own funds, capital adequacy and solvency, and on the investor protection scheme in the home country.

(3) In addition to the items specified in subsection 2 of this section, a third country investment firm shall submit the following to the Supervision Authority from the securities market supervisory agency of its home country:

1) a consent to the establishment of a branch in Estonia;

2) a confirmation that the investment firm holds a valid authorisation in its home country, that it pursues its activities in a correct manner and in accordance with good practices and that it complies with the international standards of money laundering and terrorist financing prevention.

(4) The information and documents specified in this section which are in a foreign language shall be submitted together with a translation into Estonian made by a sworn translator or notarially certified. With the consent of the Supervision Authority, the above-mentioned information and documents may be submitted in another language.

§ 67. Processing of application for permission and revocation of permission

(1) Unless otherwise provided in this Subchapter, applications for permission and the review, grant and revocation thereof shall be subject to the provisions of §§ 51–53, subsections 1–4¹ of § 55, §§ 55¹, 56 and 58 of this Act regulating the authorisations and applications therefor.

(2) In addition to the reasons provided for in § 56 of this Act, the Supervision Authority may refuse to grant a permission if:

1) the legislation or the securities market supervisory agency of the home country of the applicant does not guarantee adequate supervision over the applicant;

2) no agreement specified in subsection 2 of § 60 of this Act has been entered into and co-operation between the Supervision Authority and the securities market supervisory agency of the home country is insufficient;

3) no agreement complying with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital, including no multilateral tax agreement ensuring an effective exchange of information in tax matters, has been entered into between the third country and Estonia;

4) the applicant is not part of the investor protection scheme complying with the requirements prescribed in the European Union;

5) persons responsible for the management of a branch do not comply with the requirements for managers provided for in § 79 of this Act.

(3) A third country investment firm that has established a branch in Estonia is required to notify the Supervision Authority and the securities market supervisory agency of the relevant country of its intention to change the information specified in clauses 1, 3, and 7 of subsection 2 of § 66 of this Act at least one month in advance.

(4) The Supervision Authority may revoke permission if circumstances provided for in § 58 of this Act or in subsection 2 of this section become evident.

§ 67¹. Reporting obligation of branch of third country investment firm

(1) A third country investment firm shall submit to the Supervision Authority with regard to a branch established in Estonia within one month after the end of the financial year:

1) data on the activities and services carried out in Estonia;

2) monthly minimum, average and maximum exposure to persons located in the European Union if the investment firm is providing the service specified in clause 3 of subsection 1 of § 43 of this Act;

3) data on the total value of securities issued by or originating from legal persons established in the European Union if the investment firm has guaranteed the offer, emission or sale of such securities during the last 12 months;

4) data on the turnover of services and activities carried out in Estonia and on the total value of assets;

5) detailed description of the investor protection arrangements available to the clients of the branch, including the rights of the clients arising from the investor protection scheme applied;

6) risk management policy and procedure applied by the branch in the case of services and activities carried out in Estonia;

7) governance arrangements of the branch, including the names of the persons responsible for the management of the branch and other key function holders.

(2) The Supervision Authority may demand the submission of other necessary information in addition to the provisions of subsection 1 of this section in order to monitor the activities of the branch.

§ 69. Branch of investment firm of Contracting State in Estonia and provision of investment services through the medium of investment agent

(1) An investment firm of a Contracting State shall inform the Supervision Authority through the securities market supervisory agency of its Contracting State of its intention to establish a branch in Estonia or to provide investment services through the medium of an investment agent if the investment agent is not located in the home country. The following information and documents shall be submitted to the Supervision Authority:

1) a programme of operations setting out information on all the planned services;

2) upon establishment of a branch, organisational structure of the branch and information on whether the branch intends to use an investment agent and, upon the use of an agent, the name, place of residence or registered office, personal identification code or, in the absence of the personal identification code, the date of birth or registry code of the agent;

3) the contact address in Estonia where documents required may be obtained;

4) the information on managers of branch or persons responsible for the management of the investment agent;

5) upon the use of an investment agent, a description of the investment agent, including information on reporting lines and on how the agent fits into the corporate structure of the investment firm;

6) the description of the investor protection scheme applicable in the Contracting State.

(2) The information and documents specified in subsection 1 of this section which are in a foreign language shall be submitted together with a translation into Estonian made by a sworn translator. With the consent of the Supervision Authority, the above-mentioned information and documents may be submitted in another language.

(3) The Supervision Authority shall promptly inform the securities market supervisory agency of the Contracting State of receipt of the information and documents specified in subsection 1 of this section.

(4) An investment firm of a Contracting State may establish a branch and commence activities after receipt of a notice specified in subsection 3 of this section or two months after the date on which the information and documents specified in subsection 1 were received by the Supervision Authority.

(5) Where possible, the Supervision Authority shall be notified of changes in the information or documents specified in subsection 1 of this section at least one month in advance.

(6) Confirmation from the Supervision Authority concerning receipt of the information specified in subsection 1 of this section shall be submitted upon the entry of a branch in the commercial register.

(7) Upon provision of services in Estonia, a branch of an investment firm of a Contracting State shall perform the obligations provided for in subsections 2 and 4 of § 79¹, subsection 1 of § 85, §§ 85², 85⁴–87⁶ and 89¹ of this Act and Articles 14–26 of Regulation (EU) No 600/2014 of the European Parliament and of the Council and legislation established on the basis thereof.

§ 70. Cross-border provision of services in Estonia by investment firm of Contracting State

(1) An investment firm of a Contracting State that wishes to provide investment services and ancillary services in Estonia on a cross-border basis, including through the medium of an investment agent located in its home country, shall inform the Supervision Authority thereof through the securities market supervisory agency of the Contracting State. The following information and documents shall be submitted to the Supervision Authority:

1) a programme of operations setting out information on all the planned services;

2) information on whether the investment firm intends to use an investment agent and, upon the use of an agent, the name, place of residence or registered office, personal identification code or, in the absence of the personal identification code, the date of birth or registry code of the agent.

(2) The information and documents specified in subsection 1 of this section which are in a foreign language shall be submitted together with a translation into Estonian made by a sworn translator. With the consent of the Supervision Authority, the above-mentioned information and documents may be submitted in another language.

(3) An investment firm of a Contracting State may start cross-border provision of investment services in Estonia after the Supervision Authority has received the information specified in subsection 1 of this section from the securities market supervisory agency of the corresponding Contracting State.

(4) Provision of operation services of a multilateral trading facility or an organised trading facility on a cross-border basis may be commenced in Estonia after the Supervision Authority has received the relevant notice from the securities market supervisory agency of the corresponding Contracting State and, if available, information on measures facilitating access to becoming a member of the aforementioned trading facility or participating therein.

(5) The Supervision Authority may apply for information on the members of and participants in the multilateral trading facility or organised trading facility of the investment firm of the corresponding Contracting State providing investment services in Estonia on a cross-border basis from the securities market supervisory agency of the Contracting State.

(6) The Supervision Authority has the right to disclose the information on the investment agents of an investment firm of a Contracting State providing investment services in Estonia on a cross-border basis, including the name, registered office, personal identification code or, in the absence of the personal identification code, the date of birth or registry code of agents.

§ 70¹. Cross-border provision of services in Estonia by third country investment firm

(1) A third country investment firm for the home country of which the European Commission has adopted an equivalence decision in accordance with Article 47 of Regulation (EU) No 600/2014 of the European Parliament and of the Council shall be governed by the provisions of Article 46 of the Regulation concerning the cross-border provision of investment services in Estonia and by the provisions of § 70 of this Act concerning the submission of information and documents.

(2) In the case not specified in subsection 1 of this section, the provisions of subsections 3–9 shall apply to a third country investment firm.

(3) In order to provide investment services in Estonia on a cross-border basis, a third country investment firm is required to apply for a permission (hereinafter in this section authorisation for the cross-border provision of services) from the Supervision Authority. Upon applying for an authorisation for the cross-border provision of services, the following information and documents shall be submitted to the Supervision Authority:

1) the name and address of an investment firm in a home country;

2) the scope of the authorisation granted to the investment firm and the agency that granted the authorisation;

3) the information on managers of the investment firm pursuant to the provisions of clause 5 of subsection 1 of § 54 of this Act which certifies the compliance of the managers with the requirements provided for in § 79;

4) the information on persons having a qualifying holding in the investment firm pursuant to the provisions of subsection 1 of § 74 of this Act;

5) the information pursuant to the provisions of clauses 1, 3 and 5 of subsection 2 of § 386 of the Commercial Code;

5¹) a copy of the articles of association or partnership agreement of the company, certified according to the laws of the country of location, where the articles of association or partnership agreement must be submitted to a register also in the country of location of the company;

6) the audited annual reports of the applicant for the past two financial years;

7) a programme of operations of the applicant setting out information on all the services;

8) information on the financial situation of the applicant, including the size of its own funds, capital adequacy and solvency, and on the investor protection scheme in the home country.

(4) In addition to the information specified in subsection 3 of this section, a third country investment firm shall submit the following to the Supervision Authority from the securities market supervisory agency of the home country:

1) a consent to the cross-border provision of services in Estonia;

2) the confirmation that the investment firm holds a valid authorisation in its home country, that it pursues its activities in a correct manner and in accordance with good practices and that it complies with the international standards of money laundering and terrorist financing prevention.

(5) The information and documents specified in this section which are in a foreign language shall be submitted together with a translation into Estonian made by a sworn translator. With the consent of the Supervision Authority, the above-mentioned information and documents may be submitted in another language.

(6) Unless otherwise provided in this section, applications for authorisation, review of applications and the grant and revocation of authorisations shall be subject to the provisions of §§ 51–53, subsection 1–4¹ of § 55 and §§ 55¹, 56 and 58 of this Act regulating the authorisations of investment firms and applications therefor.

(7) In addition to refusal on the bases provided for in § 56 of this Act, the Supervision Authority may refuse to grant an authorisation for the cross-border provision of services if:

1) the legislation or the securities market supervisory agency of the home country of the applicant does not guarantee adequate supervision over the applicant;

2) no agreement specified in subsection 2 of § 60 of this Act has been entered into and co-operation between the Supervision Authority and the securities market supervisory agency of the home country is insufficient;

3) no agreement complying with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital, including no multilateral tax agreement ensuring an effective exchange of information in tax matters, has been entered into between the third country and Estonia;

4) the applicant is not part of the investor protection scheme complying with the requirements prescribed in the European Union.

(8) The Supervision Authority may revoke an authorisation for the cross-border provision of services if circumstances specified in § 58 of this Act or subsection 7 of this section become evident.

(9) An investment firm is required to notify the Supervision Authority and the securities market supervisory agency of the relevant country of its intention to change the information specified in clauses 1, 3, and 7 of subsection 3 of this section at least one month in advance.

§ 72. Requirements for persons acquiring or having qualifying holding

Qualifying holdings in an investment firm may be acquired, held and increased and control over an investment firm may be gained, held and increased by every person:

1) who has impeccable business reputation and whose activities in connection with the acquisition comply with the principles of sound and prudent management of the investment firm;

2) who after the acquisition or increase of the holding shall elect, appoint or designate only such persons as managers of the investment firm which comply with the requirements provided for in § 79 of this Act;

3) whose financial situation is sufficiently secure to ensure regular and reliable operation of the investment firm, and in the case of a legal person if such financial statements exist, they allow for a correct assessment to be made of its financial situation;

4) who is able to ensure that the investment firm is able to meet the prudential requirements provided for in this Act, in the case of a legal person above all the requirement that the consolidation group, which part the investment firm will form, has a structure which enables exercise of efficient supervision, exchange of information and co-operation between the financial supervision authorities;

5) with regard to whom there is no justified reason to believe that the acquisition, holding or increase of a holding in or control over the investment firm is related to money laundering or terrorist financing or an attempt thereof or increases such risks.

§ 72¹. Conditions and special rules of designation of holding

(1) In designation of qualifying holding, in addition to the provisions of §§ 9 and 10 of this Act, the provisions of subsection 1 of § 185⁴ and clauses 1 and 2 of subsection 1 of § 187¹and subsection 2 of the same section of this Act should also be taken into account.

(2) In designation of qualifying holding, there are not taken into account the voting rights related to the share capital which an investment firm or a credit institution may acquire or hold in relation with the provision of the service specified in clause 6 of subsection 1 of § 43 of this Act on the conditions that these rights shall not be exercised in any way to interfere in the management of this company and these rights shall be transferred within one year as of the acquisition.

(3) In calculation of qualifying holding, there shall not be totalled in case of a management company of a UCITS and a parent undertaking of a management company of a UCITS of a Contracting State the holdings specified in subsection 1 of § 185 of this Act with the holdings which the management company manages by itself, provided that the management company exercises its voting rights independently from the parent undertaking.

(4) In calculation of qualifying holding, there shall not be totalled in case of a parent undertaking of an investment firm of Estonia and a Contracting State the holdings specified in subsection 1 of § 185 of this Act with the holdings which this investment firm manages separately for each client, taking into account the terms and conditions provided for in subsection 7 of § 187¹ of this Act.

§ 73. Giving notification of acquisition of holding

(1) A person who intends to directly or indirectly acquire a qualifying holding in an investment firm or to increase such holding so that the proportion of the share capital of the investment firm or votes represented by shares exceeds 20, 30 or 50 per cent, or to conclude a transaction as a result of which the investment firm will become a company controlled thereby (hereinafter acquirer) shall notify the Supervision Authority of its intention beforehand and submit the information and documents provided for in subsection 1 of § 74 of this Act and the regulation established on the basis of subsection 1¹ of § 74 of this Act.

(2) The provisions of this Chapter also apply if a person acquires a qualifying holding in an investment firm or increases such holding so that the proportion of the share capital of the investment firm or votes represented by shares exceeds 20, 30 or 50 per cent due to any other event or as a result of any other transaction or, due to the event or as a result of the transaction, the investment firm becomes a company controlled by the person. In such case, the person shall give notification to the Supervision Authority promptly after becoming aware of the control gained over the investment firm or the acquisition or increase of qualifying holding in the investment firm.

(3) The Supervision Authority shall notify the acquirer in writing within two working days after receipt of the notice specified in subsection 1 or 2 of this section or the additional information and documents specified in subsection 3 of § 74 of this Act and the possible termination date of terms in proceedings provided for in § 74¹ of this Act.

§ 74. Information submitted upon giving notification of acquisition of holding

(1) The Supervision Authority shall be notified of the name of the company in which a qualifying holding is acquired or increased or which becomes controllable by the acquirer and the size of the holding acquired in this company, and the following information and documents shall be submitted:

1) description of the company acquired which contains an extract of the share register, information on the type of shares and number of votes acquired or owned by the acquirer and other information if necessary;

2) a curriculum vitae of the acquirer who is a natural person which contains, inter alia the name, residence, education, work and service experience and personal identification code of the acquirer or date of birth in the absence of a personal identification code;

3) the name, registered office, registry code, authenticated copy of a registration certificate and a copy of the articles of association, if they exist, of the acquirer if the acquirer is a legal person or of the legal person administering the pool of assets;

4) a list of the owners or members of the acquirer if the acquirer is a legal person and information on the number of shares held by or the size of the holding and number of votes of each owner or member;

5) the information on the members of the management board and supervisory board of the acquirer if the acquirer is a legal person, including, for each person, the name and surname, personal identification code or date of birth in the absence of a personal identification code, education, work and service experience, and documents which prove the trustworthiness, experience, competence and impeccable reputation of such persons;

6) the confirmation that the persons becoming managers of the investment firm as a result of acquiring a holding have not been punished for an economic offence, official misconduct or offence against property or offence against public trust and information concerning the punishment has been expunged from the criminal records database pursuant to the Criminal Records Database Act. In the case of a citizen of a foreign state, a certificate of the criminal records database or an equivalent document of a competent court or administrative authority of the country of origin of the person which has been issued less than three months earlier is accepted;

7) a description of the business activities of the acquirer and a description of the economic and non-economic interests of persons connected with the acquirer;

8) a confirmation that in the case of a person specified in clause 6 of this subsection no such circumstances have existed or exist which in accordance with law preclude his or her right to be a manager of an investment firm;

9) the last three annual reports of the acquirer, if they exist. If more than nine months have passed since the end of the previous financial year, an audited interim report for the first six months of the financial year shall be submitted. The sworn auditor’s report shall be added to the reports if preparation of the report is prescribed by legislation;

10) if possible, the ratings required for assessing the financial situation of the acquirer who is a natural person and companies connected with the acquirer and reports intended for the public; in the case of the acquirer if the acquirer is a legal person the credit ratings issued to the acquirer and the consolidation group;

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

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

13) information and documents concerning the sources of monetary or non-monetary resources for which it is intended to acquire a qualifying holding or increase it or gain control;

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

15) the size of the qualifying holding owned by the person after acquisition of the holding and the circumstances related to the holding pursuant to §§ 10 and 72¹ of this Act;

16) upon gaining control over an investment firm, the business plan and other circumstances related to the acquisition and execution of control pursuant to § 10 of this Act;

17) a review of the strategy applied in the investment firm, provided the investment firm does not become a controlled company as a result of the acquisition.

(1¹) The minister in charge of the policy sector may establish a regulation which specifies the information and documents to be submitted to the Supervision Authority and specified in subsection 1 of this section.

(1²) The information and documents submitted to the Supervision Authority shall be in Estonian. With the consent of the Supervision Authority, the above-mentioned information and documents may be submitted in another language.

(2) If a management company, investment firm, credit institution, insurance undertaking or investment fund of a third country or another person of a third country subject to financial supervision wishes to acquire a qualifying holding, confirmation from the relevant financial supervision authority of the third country to the effect that the person of the third country holds an authorisation and to the knowledge of the corresponding financial supervision authority observes the requirements established thereto shall also be submitted to the Supervision Authority in addition to the information and documents specified in subsection 1 of this section.

(3) The Supervision Authority may request in writing additional information or documents in order to specify or verify the documents specified in subsection 1 of this section. In such case it is specified which additional information shall be submitted to the Supervision Authority.

(4) The Supervision Authority may waive the demand for the information or documents specified in subsection 1 of this section in part or in full.

§ 74¹. Legislative proceeding and term in proceeding

(1) The Supervision Authority shall assess the compliance of the acquirer with the requirements provided for in § 72 of this Act and shall resolve on prohibition on acquisition of holding or granting authorisation for acquisition of holding within 60 working days (hereinafter time-limits of proceedings) as of submission of the notice provided for in subsection 3 of § 73 of this Act concerning receipt by the Supervision Authority of the information and documents required for the assessment.

(2) The Supervision Authority has the right to demand the additional information and documents specified in subsection 3 of § 74 of this Act within 50 working days as of the beginning of the time-limits of proceedings.

(3) The time-limits of proceedings shall suspend for the period between the first demand by the Supervision Authority of the additional information and documents specified in subsection 2 of this section and the receipt from the acquirer of the demanded additional information and documents. The suspension shall not last longer than 20 working days.

(4) The time-limits of proceedings shall not suspend if additional information and documents are demanded.

(5) If no financial supervises is exercised over the acquirer or a financial supervision authority of a third country exercises supervision over the acquirer, the Supervision Authority may extend the time-limits of proceedings specified in subsection 3 of this section to up to 30 working days.

(6) During the time-limits of proceedings specified in this section, the Supervision Authority cooperates with the competent supervision authority of another Contracting State in the case a management company, credit institution, investment firm, investment fund, insurance undertaking, another person subject to financial supervision or a person belonging to the same consolidation group with a specified person or a person controlling a specified person, where registered in the Contracting State, is the acquirer.

(7) The Supervisory Authority consults with the supervision authorities of other Contracting States in the framework of the co-operation specified in subsection 6 of this section. The Supervision Authority immediately forwards to other financial supervision authorities all the information that is essential upon assessment of acquisition and increase of the qualifying holding and gaining control over the investment firm. At the request of other financial supervision authorities, the Supervision Authority also immediately forwards any information relevant to the assessment.

(8) If more than one person wish to acquire a qualifying holding simultaneously, the Supervision Authority shall treat them equally under equal circumstances.

§ 75. Conditions for acquisition of holding

(1) The Supervision Authority has the right to specify a time-limit for the acquirer during which the acquirer has the right to acquire or increase the qualifying holding or gain control over an investment firm. The Supervision Authority may extend the prescribed time-limit where appropriate. The acquirer is required, within the specified time-limit, to promptly give notification to the Supervision Authority of conclusion of a transaction or a decision not to conclude a transaction by which qualifying holding is acquired or increased or control is gained over an investment firm.

(2) A qualifying holding may be acquired or increased or the investment firm may be turned into a controlled company if the Supervision Authority does not prohibit, by a precept, acquisition or increase of a qualifying holding or turning of the investment firm into a controlled company based on the provisions of § 74¹ and subsection 1 of § 76 of this Act.

§ 76. Bases for prohibition on acquisition of holding and decision on acquisition

(1) The Supervision Authority may prohibit, by a precept, acquisition and increase of the qualifying holding and gaining control over the investment firm if:

1) the acquirer does not conform to the requirements provided for in § 72 of this Act;

2) the acquirer fails to submit the information or documents provided for in this Act or requested pursuant to this Act to the Supervision Authority;

3) The information or documents submitted to the Supervision Authority do not comply with the requirements provided by legislation or are incorrect, misleading or incomplete or based on the information and documents submitted the Supervision Authority cannot exclude reasonable doubt with respect to unsuitability of the acquisition and with respect to that the acquisition does not comply with the requirements provided for in this Act;

4) the investment firm would become a company controlled by a person residing or located in a third country and sufficient supervision is not exercised over the person in the country of residence or location of the person or the financial supervision authority of the third country has no legal basis or possibility to co-operate with the Supervision Authority.

(2) The Supervision Authority shall submit a decision to the acquirer concerning the authorisation to acquire the qualifying holding or a prohibiting precept within two working days after adoption of the corresponding decision but prior to the expiry of the time-limits of proceedings. If financial supervision over the acquirer is exercised by the financial supervision authority of another Contracting State, its assessment of the acquisition or increase of the qualifying holding or gaining control over the investment firm must be inter alia indicated in the decision.

(3) If the circumstances specified in subsection 1 of this section become evident after acquisition or increase of qualifying holding or gaining control over the investment firm, the Supervision Authority may issue a precept according to which acquisition of qualified holding or gaining control over the investment firm is deemed to be contrary to this Act.

(4) Each time, the Supervision Authority has the right to prohibit or restrict, by its precept, the acquirer or a person who holds a qualifying holding in an investment firm or who controls an investment firm to exercise voting rights or other rights enabling control regarding the investment firm if circumstances provided for in subsections 1 or 3 of this section exist. The Supervision Authority may issue a precept regardless of issue of a precept provided for in subsection 1 or 3 of this section. The Supervision Authority may publish the precept on its website, and the acquirer may also demand publication of the precept.

(5) If an acquirer or a person who holds a qualifying holding in an investment firm or who controls an investment firm is a credit institution, management company, investment fund, investment firm, insurance undertaking, another person subject to financial supervision or a person belonging to the same consolidation group with a specified person, if registered in another Contracting State, the Supervision Authority shall inform the competent financial supervision authority of the Contracting State of issue of a precept specified in subsection 3 or 4 of this section.

(6) Compliance with a precept provided for in subsections 1, 3 and 4 of this section is also mandatory for an investment firm, the person maintaining its share register or another similar person who organises the exercise of voting rights.

§ 77. Consequences of illegal acquisition of holding

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

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

2) the Supervision Authority has issued a precept specified in subsection 3 or 4 of § 76 of this Act;

3) the Supervision Authority has not been informed of the transaction pursuant to the procedure provided for in §§ 73 and 74 of this Act;

4) the transaction is conducted after the expiry of the term specified in subsection 1 of § 75 of this Act or before acquisition of qualifying holding is permitted pursuant to this Act;

(2) If any of the circumstances specified in subsection 1 of this section exist with regard to a transaction, the person who conducted the transaction does not have any rights arising from the transaction which would entitle the person to gain control over the investment firm.

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

(4) Upon exercise of the rights enabling control arising from a transaction by which an investment firm is turned into a company controlled by a person and in the case of which any of the circumstances specified in subsection 1 of this section exist, a court may declare the exercise of the rights null and void on the basis of a petition of the Supervision Authority, a shareholder or a member of the supervisory board or management board of the company, if the petition is submitted within three months as of the exercise of the rights.

§ 78. Giving notification of changes in holding

(1) If a person intends to transfer shares in an amount which would result in the person losing a qualifying holding in an investment firm or if the person reduces the holding thereof such that it falls below one of the limits specified in subsection 1 of § 73 of this Act or foregoes control over the investment firm, the person is required to inform the Supervision Authority of the intention immediately and indicate the number of shares which the person owns and transfers and holds after the transaction.

(2) The provisions of subsection 1 of this section also apply if a person loses control over an investment firm or qualifying holding in an investment firm due to any other event or as a result of any other transaction or if the holding of the person is reduced such that it falls below one of the limits specified in subsection 1 of § 73 of this Act. In such case, the person shall inform the Supervision Authority promptly after becoming aware of the loss of qualifying holding or control or the reduction of holding.

(3) Upon becoming aware of transactions specified in § 73 of this Act and subsections 1 and 2 of this section, an investment firm is required to promptly inform the Supervision Authority thereof.

(4) An investment firm shall, together with its annual financial report, submit to the Supervision Authority information concerning shareholders who have a qualifying holding in the investment firm as at the end of the financial year and shall set out the size of holding owned by the shareholders.

§ 78¹. Registered office and head office of investment firm

(1) The registered office and head office of an investment firm entered in the commercial register in Estonia and authorised by the Financial Supervision Authority shall be in Estonia.

(2) The partnership agreement or articles of association of an investment firm shall determine that the registered office and head office of the investment firm is in Estonia.

§ 79. Requirements for election, competence and activities of managers and key function holders of investment firms, investment holding companies and mixed financial holding companies

(1) An investment firm must ensure that a member of its management board or supervisory board (hereinafter in this Chapter manager) and a key function holder has the necessary knowledge, skills, and experience, the necessary education, professional suitability and impeccable business reputation, and fits into the composition of managers by knowledge, experience and skills.

(1¹) A key function holder is a person who has significant influence on the management of an investment firm but who is not a member of a management body. A key function holder is primarily the chief financial officer and the head of the compliance, risk management or internal audit unit. In addition to the provisions of this Act concerning employees, subsections 1 and 2 of this section apply to key function holders.

(2) The business reputation specified in subsection 1 of this section is, among other things, not impeccable if:

1) an act or omission of the person has resulted in the bankruptcy or the revocation of the authorisation of an investment firm or other person subject to financial supervision at the initiative of a financial supervision authority;

2) the person has been punished for a crime in the first degree and the relevant information concerning the punishment has not been deleted from the criminal records database pursuant to the Criminal Records Database Act;

3) a court has imposed on the person an occupational ban or a prohibition on engaging in enterprise in accordance with § 49 or 49¹ of the Penal Code, also if a prohibition on business prescribed by law or a court decision or a prohibition on working in a particular profession or position has been imposed on the person or the person has been punished for the violation of such a prohibition, and the relevant information concerning the punishment has not been deleted from the criminal records database pursuant to the Criminal Records Database Act;

4) the person is not capable of organising the activities of an investment firm in such a way that the interests of clients are sufficiently protected;

5) the person has submitted false information to the Supervision Authority or failed to submit important information;

6) the person has been punished for an economic offence, official misconduct, offence against property or offence against public trust or the financing or supporting of an act of terrorism or activities aimed at the commission thereof, and the relevant information concerning the punishment has not been deleted from the criminal records database pursuant to the Criminal Records Database Act or an international sanction has been imposed on the person.

(3) As a result of election or appointment of managers, the composition of the managers must be adequately diverse for management of an investment firm, at least taking account of the requirements specified in subsection 1 of this section, and in compliance with the principles of diversity in the composition of the managers established in the investment firm. All managers must have sufficient knowledge, skills and experience to understand the activities of the investment firm, including the main risks to which the investment firm is exposed, and the impact of their decisions in the short, medium and long term, taking into account, among other things, environmental, social and governance factors.

(4) The management board of an investment firm shall consist of at least two members.

(4¹) The managers and key function holders of an investment firm must act with honesty and integrity and be free to make their own decisions.

(5) The managers of an investment firm shall define measures of effective and prudent management of the investment firm and are accountable for the implementation and regular review thereof, taking account of the orderly functioning of the securities market and the interest of clients. Upon implementation of measures, clear areas of responsibility and the prevention of conflicts of interest are established in the investment firm.

(6) Upon defining the measures specified in subsection 5 of this section, the managers of an investment firm shall, among other things:

1) determine the structure of the organisation for the provision of investment services, including the requirements for knowledge and skills of personnel, as well as the resources and the procedures for the provision of services, taking into account the nature, scale and level of complexity of the activities of the investment firm;

2) confirm a general policy as to the provision of services and offering of products, considering the needs and interests of the clients and proceeding from the risk tolerance of the investment firm, as well as the arrangements for carrying out appropriate stress testing;

3) confirm a remuneration policy of persons involved in the provision of investment services aiming to ensure responsible business conduct and equal treatment of clients, including avoiding of conflict of interest in the relationships with clients.

(7) The managers of an investment firm shall periodically review the adequacy of the strategic objectives and governance arrangements of the investment firm in the provision of investment services and ancillary services and the policies relating to the provision of services to clients and take appropriate steps to address any deficiencies detected.

(7¹) In addition to the provisions of subsections 5–7 of this section, the supervisory board of an investment firm is, among other things, competent and required to:

1) appoint and remove the head of the internal audit unit of the investment firm and, on the proposal of the head of the internal audit unit, appoint and remove employees of the relevant units;

2) approve the competence, rights and principles of activities of the risk committee, the nomination committee and the remuneration committee;

3) approve the principles of remuneration of the members of the management board and the employees of the investment firm provided in subsection 1 of § 79² of this Act, and monitor the implementation of such principles, unless a remuneration committee has been established within the investment firm;

4) approve, where applicable, the financial recovery plan prepared on the basis of the Financial Crisis Prevention and Resolution Act;

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

(7²) In addition to the provisions of subsections 5–7 of this section, the management board of an investment firm is, among other things, required to:

1) establish and review on a regular basis the principles and procedures of the investment firm for risk-taking, management, monitoring and mitigation, covering both existing and potential risks, including risks arising from the macroeconomic environment related to the phase of the economic cycle;

2) continuously identify and assess all risks involved in the activities of the investment firm and ensure the monitoring and control of the extent of such risks;

3) develop the organisational structure of the investment firm on the basis of the principles provided in the articles of association, and approve the structure of the investment firm;

4) develop and implement systems for monitoring the activities of the investment firm, including the internal audit system, and implement these, as well as ensure adherence to such systems, assess the adequacy thereof regularly and improve them where necessary;

5) ensure that all the employees of the investment firm are aware of the provisions of legislation relating to their duties of employment and of the principles provided in the documents approved by the management bodies of the investment firm, and ensure monitoring of the compliance of the activities of the investment firm and the managers and employees thereof with legislation and the documents approved by the management bodies of the investment firm;

6) inform the supervisory board, to the extent and pursuant to the procedure established thereby, of all discovered violations of legislation and internal rules and other rules established by the management bodies of the investment firm;

7) ensure the existence and functioning of systems to guarantee that information necessary for the employees of the investment firm to perform their duties is communicated to them in a timely manner;

8) ensure the safety and regular monitoring of information technology systems used by the investment firm and systems used for the safekeeping of the assets of the clients;

9) monitor that adequate separation of functions is guaranteed in all the activities of the investment firm and avoid the creation of conflict of interests;

10) arrange that the investment firm discloses the information required by legislation;

11) approve and submit, where applicable, to the Supervision Authority the financial recovery plan prepared on the basis of the Financial Crisis Prevention and Resolution Act and be apprised of the relevant information on a regular basis.

(8) A manager of an investment firm shall have adequate access to information and documents that are needed to oversee and monitor management decision-making related to the investment firm.

(9) The managers of an investment firm must have and commit sufficient time to perform their duties in the management of the investment firm, including commit sufficient time and resources to ensure the proper performance of the duties specified in clause 1 of subsection 7² of this section. An investment firm must allocate sufficient resources for the guidance of managers appointed to the office and improvement of their professional knowledge in order to comply with the requirements for the position, including by taking into account environmental, social and governance risks and impacts, and the ICT risk as defined in Article 4(1)(52c) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.

(9¹) An investment firm verifies that its managers and key function holders comply at all times with the requirements established by this Act for managers and key function holders, and ensures and is responsible for this by conducting an internal suitability assessment and documenting the necessary process.

(9²) An investment firm assesses the compliance of managers and key function holders with the requirements prior to their election and in the event that new facts or other circumstances appear which may affect the suitability of a manager or key function holder. An investment firm also conducts regular suitability assessments.

(9³) Where the majority of the members of the management body are to be replaced by new members at the same time, and the leaving members should conduct the suitability assessment of the new members, the investment firm conducts the internal suitability assessment after the authority of the newly elected or appointed members has taken effect.

(9⁴) An investment firm is required to keep the information on the suitability of the manager and key function holder up to date.

(9⁵) Where an investment firm becomes aware of facts due to which its manager or key function holder fails to comply with the established requirements:

1) that person must not be appointed to office;

2) the said manager or key function holder is removed immediately; or

3) where appropriate, measures are implemented to ensure that the manager or key function holder is or becomes suitable for the position.

(9⁶) An investment firm implements measures to ensure due performance of the duties of a key function holder, including replaces the key function holder where they no longer meet the suitability requirements.

(10) The provisions of this section shall also apply to the members of management boards and supervisory boards of investment holding companies specified in point (57) of Article 4(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council and mixed financial holding companies specified in point (21) of Article 4(1) of Regulation (EU) 575/2013 of the European Parliament and of the Council to the appropriate extent, taking account of their specific role.

§ 79¹. Requirements for managers and employees of investment firms

(1) The managers and employees of an investment firm are required to act with the prudence and competence expected of them according to the requirements for their positions in line with the interests of the investment firm and the clients thereof. The managers and employees of an investment firm are required to give priority to the economic interests of the investment firm and the clients thereof over their own personal economic interests.

(2) An investment firm shall ensure that employees giving information about securities, investment services or ancillary services or giving investment advice to clients on behalf of the investment firm possesses the necessary knowledge and competence to fulfil their obligations under §§ 86–87² of this Act.

(3) The provisions of subsections 1¹–2 of § 49 and § 84 of the Credit Institutions Act apply to the managers and employees of an investment firm and persons related to the investment firm in connection with granting loans. Where the Supervision Authority has granted the manager of an investment institution the authorisation specified in clause 3 of subsection 1³ of § 49 of the Credit Institutions Act, the Supervision Authority notifies the European Securities and Markets Authority thereof.

(5) The Supervision Authority shall publish, by its guidelines, criteria for the assessment of knowledge and competence of employees of an investment firm specified in subsection 2 of this section.

§ 79². Remuneration of managers and employees of investment firms

(1) An investment firm shall ensure that the bases and principles of determining the remuneration and office related benefits of its employees, including severance payments and pension benefits and other benefits, (hereinafter principles of remuneration) do not contradict the obligation of the investment firm to proceed from the best interests of the client in its activities, and the investment firm may not influence its employees to recommend a certain security to a retail client instead of another security which better meets the needs of the client.

(2) The following persons are deemed to be employees for the purposes of this section, subsections 1–9 of § 79³ and § 79⁴ of this Act:

1) members of management board or supervisory board;

2) employees whose duties involve taking of risks on behalf of the company (hereinafter risk takers);

3) employees engaged in internal control functions;

4) employees whose remuneration is equal to at least the smallest remuneration of members of management board or risk takers;

5) employees whose professional activities have a material impact on the risk profile of the investment firm or the risk profile of the assets under management.

(3) The principles of remuneration of the employees of an investment firm shall:

1) be clear and documented and comply with the size, internal organisation and the nature, scope and complexity of the activities of the investment firm;

2) comply with the principles specified in the Gender Equality Act;

3) comply with sound and efficient risk management principles;

4) be based on the business strategy and objectives of the investment firm and take into account the long-term impact of investment decisions;

5) incorporate measures to avoid conflicts of interest, promote responsible business practices, risk awareness and careful risk-taking.

(4) Principles of remuneration shall be established and applied in a manner which is appropriate taking into account the size and internal organisation and the nature, scope and complexity of the activities of the investment firm.

(6) As part of its control functions, the investment firm conducts at least annually a central and independent internal review of the implementation of the principles of remuneration.

(7) The remuneration of the senior officers in the risk management and compliance functions is directly overseen by the supervisory board of the investment firm or, if such a committee has been established, by the remuneration committee.

(8) Employees engaged in internal control functions must be independent from the business units they oversee, have appropriate authority and be remunerated in accordance with the achievement of the objectives of the function they perform, independent of the performance of the business areas they control.

(9) Principles of remuneration make a clear distinction between the following remunerations:

1) basic pay which reflects relevant professional experience and organisational responsibility of the employee as set out in a job description as part of the employee’s employment contract;

2) performance pay which reflects a sustainable and risk adjusted performance as well as performance in excess of that required to fulfil the job description.

(10) Basic pay shall make up a sufficiently high proportion of the total remuneration and allow the application of a flexible remuneration policy, including the possibility to pay no performance pay.

(11) In order to apply subsection 9 of this section, an investment firm shall set the appropriate ratios between the basic and the performance component of its remuneration policy. Ratios shall be set taking account of the activities of the investment firm and the risks relating thereto, and the impact of each category of staff on the risk profile of the investment firm.

(12) The Supervision Authority shall publish more specific requirements for sound remuneration policies of investment firms by guidelines.

§ 79³. Principles of payment of performance pay

(1) The following shall be taken into account upon determination and payment of performance pay:

1) performance pay is performance related and is based on the assessment of the performance of the employee and of the business unit concerned and of the overall results of the investment firm which is calculated on the basis of a multi-year period and which takes account of the business cycle and business risks of the investment firm;

2) upon the assessment of the performance of an employee, financial and non-financial criteria of the investment firm are taken into account;

3) performance pay shall not limit the ability of the investment firm to ensure a strong capital base;

4) performance pay shall not be guaranteed, except for new employees on their first year of employment if the investment firm has a strong capital base;

5) payments relating to the early termination of an employment contract reflect performance achieved by the employee over time and, in the case of failure to perform or inadequate performance of duties, performance pay shall be reduced accordingly;

6) remuneration packages relating to compensation or buy out from contracts in previous employment must align with the long-term interests of the investment firm;

7) the measurement of performance used to calculate pools of performance pay includes an adjustment for all types of current and future risks and takes into account the cost of the capital and the liquidity required pursuant to Regulation (EU) 2019/2033 of the European Parliament and of the Council;

8) all current and future risks shall be taken into account upon the payment of performance pay;

9) discretionary pension benefits shall be in compliance with the business strategy, objectives, values and long-term interests of the investment firm.

(2) At least 50 per cent of performance pay shall consist of the following:

1) shares;

2) share-linked instruments or equivalent non-cash instruments;

3) Additional Tier 1 instruments, Tier 2 instruments or other instruments which can be fully converted to Common Equity Tier 1 instruments or written down that adequately reflect the credit quality of the investment firm as a going concern;

4) non-cash instruments which reflect the instruments of the portfolios managed.

(3) Where an investment firm does not issue any of the instruments specified in subsection 2 of this section, the Supervision Authority may, as an exception, approve the use of alternative arrangements fulfilling the same objectives.

(4) For the purposes of subsection 2 of this section, the instruments specified therein are subject to appropriate transfer restrictions which are in compliance with the long-term interests of the investment firm and its creditors and clients. The Supervision Authority may place restrictions on the types and designs of the instruments specified in subsection 2 of this section or prohibit the use of certain instruments for the payment of performance pay.

(5) Depending on the business cycle of the investment firm, the nature of its business, its risks and the activities of the employee in question, at least 40 per cent of the performance pay is deferred by the investment firm over a three- to five-year period as appropriate. Where the performance pay is of a particularly high amount, the proportion of the performance pay deferred is at least 60 per cent. The unpaid amount of performance pay is not paid to the employee before the basic pay paid in proportion.

(6) In accordance with the criteria established by the investment firm, performance pay is reduced or the return of up to 100 per cent of the paid performance pay is demanded, where the financial performance of the investment firm is subdued or negative, including in situations where:

1) the person participated in or was responsible for conduct which resulted in significant losses for the investment firm;

2) the person is unable to perform the duties due to insufficient work skills, non-suitability for the position or inadaptability or has, in spite of a warning of the employer, disregarded the employer’s reasonable instructions or breached the duties.

(7) Employees of investment firms are not allowed to enter into liability insurance contracts or use other similar measures which would reduce the performance of the results set as an objective by the principles of remuneration specified in § 79² of this Act.

(8) For the purposes of clause 9 of subsection 1 of this section, if an employee leaves the investment firm before retirement age, discretionary pension benefits shall be held by the investment firm for a period of five years in the form of instruments specified in subsection 2. Where an employee reaches retirement age and retires, discretionary pension benefits are paid to the employee in the form of the instruments specified in subsection 2 of this section, subject to the transfer restriction of five years.

(9) Subsections 2, 5 and 8 of this section shall not apply if:

1) the value of on and off-balance sheet assets of an investment firm is on average equal to or less than 100 million euros over the four-year period immediately preceding the given financial year;

2) the annual performance pay of the employee does not exceed 50,000 euros and does not represent more than one fourth of the annual remuneration of the employee.

(10) If an investment firm receives extraordinary public financial support specified in subsection 1 of § 8 of the Financial Crisis Prevention and Resolution Act, the investment firm shall:

1) not pay performance pay to members of the supervisory board or the management board;

2) establish a restriction on the payment of performance pay to the employees of the investment firm as a percentage of their net revenues where the payment of performance pay would be inconsistent with the maintenance of a sound capital base of the investment firm and its timely exit from extraordinary public financial support.

(11) The financial resources and methods used for the payment of performance pay must ensure compliance not only with the requirements of this Act but also with the requirements of Regulation (EU) 2019/2033 of the European Parliament and of the Council.

§ 79⁴. Remuneration committee

(1) A remuneration committee consisting of members of the supervisory board must be established by an investment firm the value of on and off-balance sheet assets of which is on average more than 100 million euros over the four-year period immediately preceding the given financial year. The composition of a remuneration committee must be balanced with respect to gender.

(2) An investment firm need not establish a remuneration committee if a remuneration committee has been established at group level and its activities involve the whole group.

(3) A remuneration committee shall:

1) exercise supervision over remuneration of the management board members and employees, including the persons managing the performance of internal control functions;

2) assess professionally and independently the implementation of the principles of remuneration and the impact of the remuneration related decisions on compliance with the requirements provided for risk management, own funds and liquidity, and, as appropriate, make of proposals for updating the principles of remuneration;

3) prepare draft remuneration decisions for the supervisory board of the investment firm.

(4) A remuneration committee proceeds in its activities from the long-term interests of the shareholders, clients, investors and other stakeholders of the investment firm, and public interest.

§ 79⁵. Nomination committee and its duties

(1) Where this is proportional to the nature, scope and level of complexity of the activities of an investment firm, a nomination committee consisting of the members of the supervisory board of the investment firm must be established within the investment firm.

(2) The duties of the nomination committee are:

1) to submit candidates for members of the management board of the investment firm to the supervisory board, along with a description of their duties and the length of their term of office, ensuring, among other things, a balance between the knowledge, skills, and experience of the candidates, and taking into account the diversity policies for the composition of management bodies established in the investment firm;

2) to set a target for the representation of the underrepresented gender on the management board, and to develop a policy on how to increase the number of such persons in order to reach the set target level, and to disclose information regarding the target level, policy, and its implementation specified in Article 435(2)(c) of Regulation (EU) No 575/2013 of the European Parliament and of the Council;

3) to assess the composition, structure and activities of the management board at least once a year and, where necessary, to propose amendments;

4) to assess the suitability of the professional knowledge, skills and experience of the individual members of the management board and the management board as a whole at least once a year, and to inform the supervisory board of the results;

5) to develop the diversity policies for the composition of the management body and the procedure for electing the management board applicable in the investment firm, and to regularly assess these and, where necessary, to propose amendments.

(3) In order to perform its duties, the nomination committee must monitor on an ongoing basis and ensure to the extent possible that the decision-making process of the management board is not unduly influenced by the interests of any one person or a small group of persons, which is not in compliance with the interests of the investment firm as a whole.

(4) The nomination committee has the right to use an external evaluator upon the performance of its duties.

§ 80¹. Giving notification of manager

(1) An investment firm notifies the Supervision Authority of the intention to elect or appoint a manager or of the intention to extend the term of office of a manager at least ten days before deciding on this matter, and submits the information and documents specified in subsection 4 of this section. The time limit is not applied where the prior submission of documents is impossible for good reason.

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

(3) In the event of the emergence of new facts or other circumstances that may affect the suitability of a manager, the investment firm notifies immediately the Supervision Authority thereof.

(4) In order to elect or appoint a manager, the following information and documents are submitted to the Supervision Authority:

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

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

3) information concerning the term of office and position of the person;

4) documents relating to the suitability assessment carried out by the investment firm, except in the case provided in subsection 3 of this section;

5) information concerning the companies in which the holding of the person exceeds 20 per cent;

6) information concerning potential conflicts of interest and the time committed by the person to the performance of their duties;

7) a confirmation by the person that no circumstances provided in this Act exist which would preclude the right to be a manager of an investment firm;

8) in the case of a citizen of a foreign state, an extract from the criminal records database of their country of origin or residence, or an equivalent document issued by a competent judicial or administrative authority less than three months earlier;

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

(5) The information specified in subsection 4 of this section is submitted in the format and scope approved by the Supervision Authority.

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

(7) An investment firm notifies the Supervision Authority of the resignation or initiation of removal of a manager before the expiry of their term of office at least ten days before deciding on the matter. The above time limit is not applied where the prior notification is impossible for good reason.

§ 80². Suitability assessment procedure of Supervision Authority

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

(2) The Supervision Authority may specify a time limit for conducting the suitability assessment upon the election or appointment of a manager of a significant investment firm.

(3) In the case of deficiencies in the information or documents specified in subsection 4 of § 80¹ of this Act, the Supervision Authority may require that the manager does not take office prior to the submission of all relevant information and documents.

(4) The Supervision Authority may require additional information, documents, and explanations to clarify and verify the information specified in subsection 4 of § 80¹ of this Act.

(5) The Supervision Authority has the right to obtain personal data and other information from the criminal records database and other sources to verify the information specified in subsection 4 of § 80¹ of this Act.

(6) The Supervision Authority may require an investment firm to implement appropriate measures to ensure the suitability for office and compliance with the requirements of a manager.

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

§ 81. Failure to elect or appoint and removal of manager of investment firm

(1) The Supervision Authority may issue a precept to an investment firm to remove a manager where:

1) the manager does not comply with the requirements established for a manager of an investment firm;

2) the manager has submitted misleading or incorrect information or documents in connection with their election or appointment;

3) the activities of the manager of an investment firm have shown that the manager is not capable of sound and prudent management of the investment firm;

4) the information or documents prescribed by law or required by the Supervision Authority on the basis of this Act for the purpose of conducting a suitability assessment of a manager have not been submitted to the Supervision Authority.

(2) If an investment firm fails to comply with a precept specified in subsection 1 of this section in full or within the prescribed term, the Supervision Authority has the right to demand the removal of the manager by a court.

§ 81¹. General organisational requirements

(4) An investment firm shall establish, implement and maintain legal, technical and organisational measures in order to ensure sustainable and regular provision of investment services.

(9) An investment firm complies with the requirements provided in Regulation (EU) 2022/2554 of the European Parliament and of the Council on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011 (OJ L 333, 27.12.2022, pp 1–79), has adequate and proportionate information and communication technology systems and manages these according to the provisions of Article 7 of the Regulation.

§ 81². Requirements for risk management and monitoring, and establishment of risk committee

(1) An investment firm and the companies belonging to the same consolidation group as the investment firm must not, in their activities, take risks which could endanger the solvency of the investment firm or the consolidation group.

(2) Upon establishment, measurement and management of risks, an investment firm and companies belonging to the same consolidation group must have adequate and uniform strategies, procedures and systems proportionate to the nature, extent and level of complexity of their activities, which are regularly reviewed and updated and which are determined in the corresponding internal rules of procedure and are in effect in the investment firm and the companies belonging to the same consolidation group.

(3) The procedures, strategies, systems and corresponding internal rules specified in subsection 2 of this section must guarantee adequate possibilities for identifying and checking transactions carried out between an investment firm and its parent company which is a mixed-activity holding company, and between an investment firm and other subsidiaries of its parent company which is a mixed-activity holding company. An investment firm is required to inform the Supervision Authority immediately of any significant transaction with its parent company, which is a mixed-activity holding company, or with another subsidiary of such parent company.

(4) An investment firm must establish reporting lines to ensure notification of the supervisory board of all material risks and risk management policies and any changes related thereto.

(5) A risk committee consisting of members of the supervisory board must be established by an investment firm the value of on and off-balance sheet assets of which is on average more than 100 million euros over the four-year period immediately preceding the given financial year.

(6) The following is within the competence of the risk committee:

1) advising the supervisory board and the management board on the current and future general risk appetite and risk strategy of the investment firm;

2) exercising supervision over the implementation of the risk strategy by the management board according to the instructions from the supervisory board.

(7) The supervisory board of directors is responsible for the risk strategies and policies of the investment firm.

(8) Members of the risk committee must have appropriate knowledge and skills and expertise to fully understand, manage and monitor the risk strategy and risk appetite of the investment firm and to perform the duties specified in subsection 6 of this section.

(9) The supervisory board and the risk committee of the investment firm must have access to information concerning potential risks of the investment firm.

§ 82. Policies and procedures

(1) An investment firm shall establish and apply rules of procedure regulating the activities of the investment firm and its managers and employees (hereinafter in this Chapter and Chapters 10 and 11 internal policies), which ensure that legislation regulating the activities of the investment firm is complied with and that decisions taken by the directing bodies thereof are duly observed.

(2) The internal policies established and implemented by an investment firm shall ensure legitimate and regular provision of investment services. An investment firm shall regularly assess the effectiveness and correspondence to reality of the internal policies and adjust the internal policies such that the best protection of interests of clients is ensured.

(3) Among other matters, the internal policies shall determine:

1) the procedure for the communication of information and movement of documents within the investment firm, including requirements for submission and forwarding of information;

2) the procedure for the provision of investment services and ancillary services, including a plan for determination of a risk of interruption of business relating to the provision of investment services, for managing or prevention of the risk thereof;

2¹) procedures governing the operation of the internal control system, which must include, among other things, sound governance arrangements and internal accounting rules of the investment firm;

2²) policies for the identification, mitigation or prevention of legal risks arising from non-compliance with statutory obligations and other risks related thereto;

2³) an overview concerning the individual duties of all the members of the management board and the key function holders, including detailed data on reporting and accountability procedures, as well as the persons falling within the governance arrangements provided in clause 3 of subsection 3 this section and their duties;

3) criteria for selection of employees, professional or official functions, a clear organizational structure and transparent and consistent lines of responsibility and relationships of subordination, reporting lines, the procedure for reporting and the delegation of rights, and provide the separation of functions upon assumption of obligations in the name of the investment firm, the recording of services for accounting and reporting purposes and the assessment of risks;

3¹) procedure for suitability assessments of managers and key function holders;

4) the procedure for maintaining databases and processing of data;

5) internal rules of procedure for imposing international sanctions established on the basis of the International Sanctions Act and application of the Money Laundering and Terrorist Financing Prevention Act, and the code of conduct for verification of compliance therewith.

§ 82². Internal capital and liquidity adequacy assessment process

(1) All the essential risks of an investment firm must at all times be adequately covered by own funds.

(2) An investment firm establishes sound, effective and comprehensive procedures, strategies and processes to assess and maintain on an ongoing basis the amounts, types and distribution of internal capital and liquid assets that it considers adequate to cover the nature and level of the risks that it may impose on others or to which the investment firm is or might be exposed. The specified procedures, strategies and processes must comply with the nature, scope and complexity of the activities of the investment firm, and with the nature, scope and diversity of the risks associated with the business model and activities. The investment firm reviews the specified procedures, strategies and policies on a regular basis.

(2¹) The risks specified in the first sentence of subsection 2 of this section also include concentration risk arising from exposures to central counterparties, taking into account the conditions provided in Article 7a of Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.07.2012, pp 1–59).

(3) An investment firm establishes sound strategies, processes and systems and sound policies to identify, manage and monitor:

1) material sources and effects of risks to clients, including any material effect on own funds;

2) material sources and effects of risks to market, including any material effect on own funds;

3) material sources and effects of risks to the investment firm, in particular the ones that may reduce the level of own funds;

4) liquidity risk over appropriate periods of time, including during working days, in order to ensure that the investment firm maintains an adequate level of liquid assets, including in relation to the treatment of the material sources of risks specified in clauses 1–3 of this subsection;

5) the material sources and effects of concentration risk arising from exposures to central counterparties, as well as any material effects on own funds.

(3¹) The strategies, policies, processes and systems specified in subsection 3 of this section must comply with the investment firm's complexity, risk profile, scope of activities and the risk tolerance determined by a management body, and must reflect the significance of the investment firm in every Contracting State in which it operates.

(4) Upon the application of clause 1 of subsection 3 and subsection 3¹ of this section, the provisions of § 88 of this Act are taken into account.

(5) An investment firm shall consider obtaining professional indemnity insurance as an instrument for efficient management of the risks specified in clause 1 of subsection 3 of this section.

(6) For the purposes of clause 3 of subsection 3 of this section, the following shall be deemed to be material sources and effects of risks to the investment firm:

1) changes in the book value of assets, including any claims on tied agents;

2) the failure of clients or counterparties;

3) positions in securities, foreign currencies and commodities;

4) obligations to defined benefit pension schemes.

(6¹) For the purposes of clause 5 of subsection 3 of this section, an investment firm must develop specific plans and measurable targets in accordance with the requirements of Article 7a of Regulation (EU) No 648/2012 of the European Parliament and of the Council to monitor and address concentration risk arising from exposures to central counterparties that offer systemically important services in one or more Contracting States.

(7) An investment firm shall give consideration to any material effect on own funds if such risks are not appropriately captured by the own funds requirements calculated under Article 11 of Regulation (EU) 2019/2033 of the European Parliament and of the Council.

(8) If an investment firm winds down or ceases its activities, the investment firm, by taking into account the viability and sustainability of its business models and strategies, give consideration to requirements and necessary resources which are realistic, in terms of maintenance of own funds and liquid resources, throughout the process of exiting the market.

§ 82³. Personal transaction by manager, employee or other connected persons of investment firm

(1) An investment firm shall set out by internal policies the procedure for conclusion of personal securities transactions of the persons associated with the investment firm and ensure the protection of the interests of clients and lawful and regular operation of the market.

§ 82⁴. Managing and avoiding conflicts of interests

(1) An investment firm shall establish and implement legal, technical and organisational measures by its internal policies to identify and manage or prevent conflicts of interests in the investment firm upon the provision of investment services and ancillary services, a conflict of interests of a person having a control relationship with the investment firm, a conflict of interests between the investment firm and a client or between clients and the adverse effect thereof on the interests of its clients. The provisions of the first sentence of this subsection also apply to the receipt of monetary or non-monetary inducements in connection with the provision of investment services and ancillary services and to remuneration of managers and employees of an investment firm.

(4) An investment firm shall notify a client of the general nature or source of a conflict of interest before the provision of investment services or ancillary services and steps taken to mitigate those risks if the measures taken by the investment firm specified in subsection 1 of this section do not guarantee avoiding damage to the interests of clients.

(8) The notification provided for in subsection 4 of this section shall be made in a durable medium and include sufficient detail, taking into account the type of the client to enable that client to take a carefully considered decision with respect to the service in the context of the conflict of interest.

(9) “Durable medium” means any instrument enabling reproduction of information within the meaning of § 11¹ of the Law of Obligations Act.

§ 82⁶. Outsourcing of important operational functions or operations

(1) An investment firm shall establish, by its internal policies, a procedure for outsourcing operational functions or operations which are important for the continuing and proper provision of investment services within the meaning of Article 30 of Commission Delegated Regulation (EU) 2017/565, and implement internal policies and other reasonable measures to avoid undue operating risks.

(2) For the purposes of this Act, outsourcing shall have the meaning provided for in Article 2(3) of Commission Delegated Regulation (EU) 2017/565.

(3) Outsourcing may not impair the quality of internal control of an investment firm or prevent the exercise of sufficient supervision over the investment firm.

(4) Upon outsourcing, the requirements provided in Commission Delegated Regulation (EU) 2017/565, and upon outsourcing of information and communication technology services, additionally the requirements provided in Regulation (EU) 2022/2554 of the European Parliament and of the Council and arising from this Act must be complied with, and an investment firm has sound security mechanisms to guarantee the security and authentication of the means of transfer of information, minimise the risk of data corruption and unauthorised access and to prevent information leakage maintaining the confidentiality of the data at all times.

§ 82⁹. General organisational requirements for investment firm manufacturing securities

(1) An investment firm shall establish, by its internal policies, a process for the approval of a security manufactured by the investment firm for sale and for significant adaptations of existing securities and apply the process to the offering or marketing of each security manufactured.

(2) The manufacture of a security is the creation, development, issuance of a security or design of characteristics thereof.

(3) By the application of internal policies specified in subsection 1 of this section and other legal, technical and organisational measures, an investment firm shall ensure that the principles of manufacturing securities and remuneration of employees involved therein are in accordance with the internal policies specified in subsection 1 of § 82⁴ of this Act. The structure and characteristics of a security may not damage the interests of clients and sound and orderly functioning of the securities market or enable the investment firm to mitigate or dispose of its own risks related to the underlying assets of the security, which the investment firm already holds on own account.

(4) Before launch of the security an investment firm shall ensure that the security manufactured does not represent a threat to the sound and orderly functioning of the securities market or to the stability of the financial system. An investment firm shall analyse potential conflicts of interests each time a security is manufactured, monitoring, in particular, that the security manufactured does not damage the interests of clients if an end client takes an exposure opposite to the one previously held by the investment firm itself or to the one that the investment firm wants to hold after the sale of the security manufactured.

(5) An investment firm shall ensure that the employees involved in the manufacturing of securities possess the necessary expertise to understand the characteristics and risks of the securities to be manufactured.

(6) An investment firm shall ensure that the managers of an investment firm have control over the process for the approval of securities and that the reports specified in Article 22(2)(c) of Commission Delegated Regulation (EU) 2017/565 include information about the securities manufactured by the investment firm and on the distribution strategy thereof. The investment firm shall submit the reports specified in the first sentence of this subsection to the Supervision Authority on request.

(7) An investment firm shall ensure that the compliance function specified in Article 22(2) of Commission Delegated Regulation (EU) 2017/565 monitors the periodic review and updates of internal policies specified in subsection 1 of this section and legal, technical and organisational measures taken by the investment firm in order to detect any risks that may affect the ability of the investment firm to comply with the requirements provided for in Part 3 of this Act.

(8) If an investment firm manufactures a security in collaboration with another investment firm or another person, the mutual responsibilities of the parties shall be outlined in a written agreement.

(9) The provisions of subsections 3–8 of this section and §§ 8210–82¹⁴ of this Act apply to an investment firm manufacturing securities in a way that is appropriate and proportionate, taking into account the nature of the security and target group thereof as well as the nature of the investment service.

§ 82¹⁰. General organisational requirements for investment firm distributing securities

(1) An investment firm offering, selling or recommending securities manufactured by another investment firm or another person (hereinafter distributing investment firm) establishes internal policies and introduce other legal, technical and organisational measures to ensure that securities or services to be distributed by them are compatible with the needs, characteristics, and objectives, including sustainability objectives, of an identified target group, and that the intended distribution strategy is consistent with the target group.

(2) The provisions of subsections 6–8 of § 82⁹ of this Act concerning the manufacturers of securities apply to the distributing investment firm with regard to the securities and services to be distributed.

(3) A distributing investment firm shall ensure that the employees involved in the manufacturing of securities possess the necessary expertise to understand the characteristics and risks of the securities and services to be distributed as well as the needs, characteristics and objectives of the target group.

(4) A distributing investment firm is also required to comply with the provisions of this section and §§ 82¹¹–82¹⁴ of this Act if the securities are manufactured by a person who is not subject to the provisions of Part 3 of this Act.

(5) The provisions of subsections 1 and 2 of this section and §§ 8211–82¹⁴ of this Act concerning a distributing investment firm apply in a way that is appropriate and proportionate, taking into account the nature of the securities to be distributed and target group thereof as well as the nature of the investment service.

§ 82¹¹. Additional organisational requirements for identification of target group of securities

(1) In the course of the process for the approval of a security established by internal policies specified in subsection 1 of § 82⁹ of this Act, an investment firm shall identify a target group of each security manufactured by types of end clients and assess all relevant risks related to the security and consistency of the intended distribution strategy with the target group.

(2) An investment firm manufacturing securities identifies at a sufficiently granular level the target group for securities, specifying the types of clients for whose needs, characteristics and objectives, including sustainability objectives, the security is compatible.

(2¹) An investment firm manufacturing securities specified types of clients for whose needs, characteristics and objectives, including sustainability objectives, the security is not compatible.

(3) If an investment firm does not distribute the securities manufactured, it shall determine the needs and characteristics of clients for whom the product is compatible based on the theoretical knowledge of and past experience with the security or similar securities, the financial markets and the needs, characteristics and objectives of potential clients.

(4) Where an investment firm manufactures a security in collaboration with another investment firm or another person, the investment firm shall identify one target group for the security. Where an investment firm distributes securities manufactured by itself, the target group may be identified once.

(5) An investment firm shall determine whether a security meets the needs, characteristics and objectives of the target group, examining, among other things, that the risk and reward profile of the security is consistent with the target group, where appropriate, the sustainability factors of a security meet the target group, and that the security structure is driven by the interests of the client and not by a business model that relies on poor client outcomes to be profitable.

(5¹) Sustainability factors are deemed to be the factors specified in point (24) of Article 2 of Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability-related disclosures in the financial services sector (OJ L 317, 09.12.2019, pp. 1–16).

(6) A distributing investment firm shall identify and assess the circumstances and needs of the clients they intend to focus on when distributing securities, so as to ensure that clients’ interests are not compromised as a result of pressure arising from commercial interests or treasury financing needs of the investment firm. A distributing investment firm shall, among other things, identify any groups of clients for whose needs, characteristics and objectives the security or service is not compatible.

(7) Where the target market of the security has not been defined by the manufacturer of the security, a distributing investment firm shall determine the target group for the respective security and the distribution strategy of the security on the basis of the information obtained from the manufacturer of the security and available on clients of the distributing investment firm.

(8) A distributing investment firm shall reconsider the target group of the security or update the internal policies specified in subsection 1 of this section if it appears that the investment firm has wrongly identified the target group for a security or service or that the security or service no longer meets the conditions of the target group, including in the case where the security becomes illiquid or very volatile due to market changes.

§ 82¹². Additional organisational requirements for design of security to be manufactured

(1) An investment firm shall analyse potential developments of the security to be manufactured for clients, assessing the risks of poor outcomes posed by the security and circumstances in which such risk may materialise, among other things, if:

1) the market conditions deteriorate;

2) the manufacturer of the security or a person involved in manufacturing or functioning of the security experiences financial difficulties or other counterparty risk materialises;

3) the financial instrument fails to become commercially viable; or

4) demand for the security is much higher than anticipated, putting a strain on the investment firm’s resources or trading in the underlying assets of the security.

(2) When determining the charging structure proposed for the security, an investment firm shall examine, among other things, that:

1) the security’s costs and charges are compatible with the needs, characteristics and objectives of the target group;

2) charges do not undermine the security’s return expectations, such as where the costs or charges equal or exceed the expected tax advantages linked to a security or remove such advantages in another manner;

3) the charging structure of the security is appropriately transparent and understandable for the target group and does not enable the investment firm to disguise charges.

§ 82¹³. Additional organisational requirements for periodic review of security

(1) An investment firm shall periodically review securities manufactured by it, taking into account any event that could materially affect the potential risk to the target group, including prior to any further issue or re-launch, if upon assessing the circumstances specified in this subsection the investment firm knows at least whether:

1) the security remains consistent with the needs, characteristics and objectives, including sustainability objectives, of the target group;

2) the distribution strategy of the security remains appropriate for the target group;

3) the security is only distributed to the target group;

4) the security functions as intended.

(2) When determining the intervals of the review specified in subsection 1 of this section, an investment firm shall take into account relevant factors, including the complexity and the innovative nature of the investment strategies pursued.

(3) An investment firm shall identify crucial events that would affect the potential risk or return expectations of the security manufactured by the investment firm, such as the crossing of a threshold that will affect the return profile of the security or the solvency of such issuers whose securities or guarantees may impact the performance of the security.

(4) Upon occurrence of circumstances specified in subsection 3 of this section, an investment firm shall take appropriate action which, among other things, consist of:

1) the provision of any relevant information on the event and its consequences on the security to the clients or the distributors of the security if the investment firm does not engage in selling the security;

2) changing the security approval process;

3) stopping further issuance of the security;

4) changing the security to avoid unfair contract terms;

5) considering whether the distribution channels are appropriate where the security is not being distributed as envisaged;

6) making a proposal to the distributor to initiate a modification of the distribution process;

7) cancelling a contract entered into with the distributor;

8) informing the Supervision Authority.

§ 82¹⁴. Additional organisational requirements for exchange of information by security manufacturer and distributing investment firm

(1) An investment firm shall make available to any distributor all appropriate information on the security and the security approval process, including on the target group of the security and appropriate channels for distribution, which must be adequate to enable distributors to understand the characteristics of the security and distribute the security.

(1¹) In addition to the information specified in subsection 1 of this section, an investment firm makes available in a transparent manner to any distributor information on the sustainability factors of the security, which allows to take into account the sustainability objectives of a client or potential client.

(2) A distributing investment firm shall take measures to obtain from the manufacturer of the security the information specified in subsection 1 of this section.

(3) Where the manufacturer of the security is a person not governed by the provisions of Part 3 of this Act and the information specified in subsection 1 of this section is not publicly available, clear or reliable or it has not been disclosed as regulated information in accordance with the requirements provided for in law, the distributing investment firm is subject to the provisions of subsection 2 of this section in a way that is reasonable and proportionate, taking into account the availability of the disclosed information and the complexity of the security.

(4) A distributing investment firm shall provide a manufacturer of the security with information on sales of the security and, where appropriate for the assessment of the manufacturer of the security, information on the reports specified in subsection 6 of § 82⁹ of this Act.

(5) Where a distributing investment firm distributes products or provides services in collaboration with another investment firm, the investment firm with the direct relationship with an end client has responsibility to meet the requirements established for the distributing investment firm in this section and §§ 82¹⁰–82¹³ of this Act. An intermediary investment firm shall:

1) communicate relevant information from the manufacturer of a security to the final distributor thereof;

2) upon the request of the manufacturer of the security, communicate information on security sales required to comply with the obligations of the manufacturer;

3) comply with the provisions of this section and §§ 82⁹–82¹³ of this Act concerning the manufacturer of the security, as relevant in relation to the service to be provided.

§ 82¹⁵. Additional organisational requirements for investment firm engaged in algorithmic trading

(1) An investment firm that engages in algorithmic trading, including in applying high-frequency algorithmic trading technique, shall implement systems and risk controls suitable and effective for the business it operates to ensure that its information technology system used for algorithmic trading is resilient and has sufficient capacity, is subject to appropriate trading thresholds and limits and prevents the sending of erroneous orders or other operations that may endanger the orderly or lawful functioning of the securities market. Upon implementation of the measures specified in this subsection, an investment firm complies, among other things, with the provisions of Commission Delegated Regulation (EU) 2017/589 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the organisational requirements of investment firms engaged in algorithmic trading (OJ L 87, 31.03.2017, pp 417–448), and Regulation (EU) 2022/2554 of the European Parliament and of the Council.

(2) “Algorithmic trading” means trading in securities by using an information technology system that determines whether to initiate the order related to the securities, the timing thereof, price and quantity of the order and how to manage the order after its submission, with limited or no human intervention within the meaning of Article 18 of Commission Delegated Regulation (EU) 2017/565, or any other trading parameters. Algorithmic trading does not include the use of any system only intended for routing orders to trading venues or for the processing of orders involving no determination of any trading parameters or for the confirmation of executed orders or the post-trade processing thereof by an investment firm.

(3) “High-frequency algorithmic trading technique” means an algorithmic trading technique characterised by:

1) use of infrastructure intended to minimise network and other types of latencies, including at least one of the following facilities for algorithmic order entry: co-location, proximity hosting or high-speed direct electronic access;

2) use of a system of automatic initiation, generation, routing or execution of orders;

3) high rate of intraday messages transmitted in the system, including orders, quotes or cancellations, within the meaning of Article 19 of Commission Delegated Regulation (EU) 2017/565.

(4) The systems and risk controls specified in subsection 1 of this section shall be adequate to prevent the use of the trading system in a manner contrary to Regulation (EU) No 596/2014 of the European Parliament and of the Council or to the rules of a trading venue to which the system is connected.

(5) An investment firm must have in place an effective business continuity procedure which includes among other things information and communication technology business continuity policy and plans as well as information and communication technology response and recovery plans in accordance with Article 11 of Regulation (EU) 2022/2554 of the European Parliament and of the Council, to deal with any failure of its trading systems.The investment firm ensures that its systems specified in subsection 1 of this section are fully tested and meet the requirements provided in this section and in Chapters II and IV of the Regulation.

(6) An investment firm that engages in algorithmic trading to pursue a market making strategy shall take into account the liquidity, scale and nature of the specific market and the characteristics of the securities traded as well as meet the following conditions:

1) it shall act as a market maker continuously during a specified proportion of the trading venue’s trading hours, except under exceptional circumstances, with the result of providing liquidity on a regular and predictable basis to the trading venue;

2) it has agreed on detailed conditions of the fulfilment of the obligations specified in clause 1 of this subsection with the trading venue;

3) it uses effective systems and controls to ensure that it fulfils the obligations specified in clause 1 of this subsection at all times.

(7) For the purposes of this section and §§ 125¹ and 125², subsections 5–7 of § 132 and §§ 134⁴ and 136¹ of this Act, an investment firm that engages in algorithmic trading shall be considered to be pursuing a market making strategy when it deals, as a participant of one or more trading venues, on own account, by posting binding, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more securities on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the securities market.

(8) An investment firm shall notify the Supervision Authority that it engages in algorithmic trading in Estonia and notify the same to the competent supervisory agency of the relevant Contracting State exercising supervision over the trading venue at which the investment firm engages in algorithmic trading as a participant or member.

(9) The investment firm shall, upon request, provide the Supervision Authority with information, on a regular or ad-hoc basis, on its algorithmic trading and systems used therefor, including a description of the nature of its algorithmic trading strategies, details of the trading parameters or limits to which the system is subject, details of the testing of its systems and the key compliance and risk controls that the investment firm has in place to ensure the conditions provided for in subsections 1, 4 and 5 of this section are satisfied.

(10) The Supervision Authority shall communicate the information specified in subsection 9 of this section upon request and without delay to the competent supervisory agency of the relevant Contracting State exercising supervision over the trading venue at which the investment firm engages in algorithmic trading as a participant or member.

(11) The investment firm shall keep records in relation to the algorithmic trading pursuant to the procedure provided for in this Act. An investment firm that engages in a high-frequency algorithmic trading technique shall store accurate and time sequenced records of all its placed orders, cancellations of orders and executed orders as well as quotations on trading venues and shall make them available to the Supervision Authority upon request.

(12) An investment firm that acts as a member of a securities settlement system shall implement effective systems and risk controls in accordance with the provisions of Articles 24–26 of Commission Delegated Regulation (EU) 2017/565 to ensure that services are only provided to persons who are suitable and meet clear criteria on the basis of a binding written agreement. When engaging in algorithmic trading, the investment firm shall, inter alia, take appropriate measures with respect to the aforementioned persons to mitigate risks to the investment firm and to the orderly functioning of the securities market.

§ 82¹⁶. Additional organisational requirements for provision of direct electronic access

(1) Upon provision of direct electronic access to a trading venue, an investment firm shall apply effective systems and controls to assess the suitability of clients using the service, to review such assessment on a regular basis, to ensure that clients comply with the appropriate trading thresholds and limits and to properly monitor the trading by clients. Appropriate risk controls must prevent trading that may create risks to the operations of the investment firm or to the orderly or lawful functioning of the securities market or is contrary to Regulation (EU) No 596/2014 of the European Parliament and of the Council or the rules of the trading venue. The provision of direct electronic access to a trading venue without application of the aforementioned measures is prohibited.

(2) For the purposes of this Act, “direct electronic access” means granting of the use of its rights of access by the investment firm acting as a participant, member or client of a trading venue to a client so the client can electronically transmit orders relating to securities directly to the trading venue, using thereby the infrastructure of the investment firm or any other system or without using such infrastructure or system and taking into account the provisions of Article 20 of Commission Delegated Regulation (EU) 2017/565.

(3) An investment firm that provides direct electronic access to a trading venue shall be responsible for ensuring that trading by clients using that service complies with the requirements provided for in this Act and the rules of the trading venue. The investment firm shall monitor the transactions in order to identify infringements of the requirements and rules specified in the first sentence of this subsection, conditions of an order that may endanger the orderly or lawful functioning of the securities market or conduct that may involve market abuse that is to be reported to the Supervision Authority.

(4) The investment firm shall enter into a binding written agreement with the client regarding the provision of direct electronic access, under which the investment firm retains responsibility for compliance with the requirements arising from this Act.

(5) An investment firm that provides direct electronic access to a trading venue shall notify the Supervision Authority and the competent supervisory agency of the Contracting State exercising supervision over the trading venue to which the investment firm provides direct electronic access thereof.

(6) The investment firm shall, upon request, provide the Supervision Authority, on a regular or ad-hoc basis, with information on the measures provided for in subsection 1 of this section and application thereof.

(7) The Supervision Authority shall communicate the information specified in subsection 6 of this section upon request and without delay to the competent supervisory agency of the Contracting State exercising supervision over the trading venue in relation to which the investment firm provides direct electronic access.

(8) The investment firm shall keep records in relation to the provisions of direct electronic access pursuant to the procedure provided for in this Act.

§ 82¹⁷. Failure to comply with requirements upon offer and manufacture of securities

(1) An investment firm need not comply with the requirements provided for in subsection 1 of § 82⁹, subsection 1 of § 82¹¹, subsection 1 of § 82¹³, subsection 1 of § 82¹⁴ and clauses 6¹ and 6² of subsection 1 of § 85 of this Act if:

1) the service provided by the investment firm is related to bonds with no other characteristics of derivative instruments than the early redemption agreement;

2) securities are distributed or offered only to eligible counterparties.

(2) Early redemption agreement is an agreement according to which upon early redemption of a bond, the issuer is required to pay to the investor holding the bond an amount equal to the sum of the principal amount of the bond to be redeemed and the net present value of the remaining coupon payments expected until maturity.

§ 82¹⁸. Notification of incidents and cyber threats

(1) An investment firm notifies the Supervision Authority and the Estonian Information System Authority of a major incident related to information and communication technology in accordance with the provisions of Article 19 of Regulation (EU) 2022/2554 of the European Parliament and of the Council.

(2) Upon submission of the initial notification and reports in the case provided in subsection 1 of this section, the investment firm uses the notification templates and complies with the time limits established on the basis of Article 20 of Regulation (EU) 2022/2554 of the European Parliament and of the Council, unless a technical impossibility prevents the submission of the initial notification using the template.

(3) Where an investment firm decides to notify the Supervision Authority of a major cyber threat in accordance with Article 19(2) of Regulation (EU) 2022/2554 of the European Parliament and of the Council, the investment firm also forwards the notification to the Estonian Information System Authority.

§ 83. Internal control mechanisms

(1) An investment firm must have a constantly functioning internal control system which is proportionate to the nature, scope and level of complexity of its activities, and which ensures adherence to the good practices of management of the firm and internal audit.

(2) The internal control system of an investment firm must cover all levels of management and operation of the investment firm in order to ensure the effective operation of the investment firm, the reliability of financial reporting and compliance with law, other legislation, documents approved by the management bodies of the investment firm, and the adoption of resolutions based on reliable and relevant information.

(3) The internal control system consists of the compliance function and, where necessary, of the internal audit and risk management functions (hereinafter internal control functions). Internal control functions must be organisationally independent and separated from the activities related to taking risks.

(4) Performers of internal control functions must:

1) ensure the proper identification, measurement and reporting of all material risks;

2) provide an overview of all risks to which the investment firm is exposed.

(5) The internal audit function may not be combined with any other business line or control function of the investment firm.

(6) The compliance function may be combined with the function of another control unit, provided that this is proportionate to the nature, scope and complexity of the activities of the investment firm, and does not affect the independence and ability of the performer of the compliance function to perform their duties.

(7) More detailed requirements regarding internal audit, risk management and compliance are provided in Articles 22–24 of Commission Delegated Regulation (EU) No 2017/565.

§ 83². Internal audit unit

(2) The person carrying out the duties of the internal audit unit provided for in Article 24 of Commission Delegated Regulation (EU) 2017/565 and the conditions of the contract to be entered into with such person shall be specified by the supervisory board of the investment firm. The person carrying out the duties of the internal audit unit shall be governed by the requirements and the legal bases for the activities established for a certified internal auditor internal in the Auditors Activities Act.

(4) The management board of an investment firm shall ensure that the person carrying out the duties of the internal audit unit has the rights and working conditions necessary to perform his or her duties, including the right to obtain explanations and information from the managers of the investment firm and the right to observe the elimination of any deficiencies discovered and compliance with any precepts issued.

(5) The person carrying out the duties of the internal audit unit is required to forward any information concerning the investment firm which becomes known to him or her and which indicates a violation of law or damage to the interests of clients to the managers of the investment firm and the Supervision Authority.

§ 84. Application of this Chapter

(1) The requirements for investment firms established in this Chapter also apply to investment firms registered in a foreign state which provide investment services to persons whose place of residence or registered office is in Estonia unless otherwise provided for in this Act concerning investment firms registered in a Contracting State.

(2) The requirements for investment firms established in this Chapter do not apply to investment firms registered in a Contracting State specified in subsection 1 of this section who provide investment services solely in a foreign state and whose investment services are not offered to persons in Estonia.

(3) Investment services are deemed as being offered to persons in Estonia if the services are advertised in Estonia or if the manner of the offer or the contents thereof, including the language of the offer, enable the conclusion to be made that the offer is aimed at persons whose residence or registered office is in Estonia.

(4) Where an investment service is provided as part of another financial service or product that is subject to the requirements for provision of information to a client relating to consumer credit contracts provided for in Subchapter 2 of Chapter 22 of the Law of Obligations Act, the provision of investment services shall not be subject to the requirements for provision of information to a client provided for in this Chapter.

(5) If investment services are provided to a consumer as a prerequisite of a consumer credit agreement relating to residential immovable property specified in subsection 2 of § 402 of the Law of Obligations Act in relation to bonds issued to secure the financing of and having identical terms as the consumer credit agreement relating to residential immovable property, in order for the loan to be payable, refinanced or redeemed, the provisions of § 87¹ of this Act do not apply.

§ 85. General principles of activities of investment firms (järg)

(1) Upon the provision of investment services and ancillary services, an investment firm is required to:

1) provide services lawfully with due professionalism, precision and care, proceeding primarily from the best interests of the client;

2) to take the reliable and regular operation of the securities market into consideration when pursuing its activities;

3) comply with the provisions of his Act and legislation established on the basis thereof and its internal policies;

4) determine the client’s experience for operating in securities market and knowledge of financial market and the intended investment services by classifying clients on the basis of the provisions of §§ 46 and 46¹ of this Act;

5) inform the client sufficiently of the nature of the investment services and the risks relating thereto;

6) assess the suitability and appropriateness of the investment service and security for the client;

6¹) ensure that securities manufactured by the investment firm for sale meet the needs of end clients belonging to an identified target group of the security within the relevant category of clients, that the strategy for distribution of the security is compatible with the target group and that the security is only distributed to the target group;

6²) understand the characteristics of the securities offered or recommended to clients, assess the compatibility of the securities with the needs of the clients, taking account of the target group of the security, and offer or recommend securities only when this is in the interests of the client;

7) execute the client’s order in the best manner and handle the client’s order pursuant to the provisions of this Act and legislation established on the basis thereof;

8) hold and protect the client’s money and securities deposited with or placed at the disposal of the investment firm;

9) regularly provide information to the client concerning the provision of investment services;

10) register and store the information collected upon the provision of investment services and required to be registered and stored by this Act and legislation established on the basis thereof and by Commission Regulation 1287/2006/EC;

11) settle the client’s complaints concerning the provision of investment services as expeditiously and transparently as possible;

12) ensure the continuous existence of financial resources necessary for the activities of the investment firm;

(2) If an investment firm provides recommendations in the framework of investment advice regarding units of voluntary pension fund or if an investment firm operates in offering units of voluntary pension fund on behalf of a management company or account administrator, the investment firm shall provide the necessary information and assess the suitability of such units for the client and potential client pursuant to the provisions of the Funded Pensions Act.

(3) If an investment firm is the manufacturer or person selling a packaged retail and insurance-based investment product specified in Article 4(3) of Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) (OJ L 352, 09.12.2014, p. 1–23) for the purposes of points (4) and (5) of the same Article or if the firm makes recommendations regarding such product, the firm is required to follow the requirements provided for in the said Regulation.

§ 85¹. Provision of investment services through the medium of another investment firm

An investment firm receiving an order to provide investment services or ancillary services on behalf of a client from another investment firm may rely on recommendations in respect of the service or transaction that have been provided to the client by the investment firm that gave the order and shall remain responsible for the execution of the order given for the provision of the investment services or ancillary services. The investment firm that transmits orders shall remain responsible for the correctness, accuracy and completeness of the information transmitted and suitability of the recommendations provided to the client.

§ 85². Inducements in connection with provision of investment service or ancillary service

(1) An investment firm may provide monetary or non-monetary inducements (hereinafter inducements) in connection with the provision of an investment service or an ancillary service to any party except the client or a representative of the client or receive inducements from any party except the client or a representative of the client only if such inducements:

1) do not, by their nature or proceeding from their function, create a conflict of interests between the investment firm and the client;

2) are designed to enhance the quality of the service provided to the client;

3) do not prevent the investment firm from providing investment services honestly, professionally and in accordance with the best interests of its clients.

(2) Inducements are designed to enhance the quality of the service provided to the client within the meaning of clause 2 of subsection 1 of this section if the provision of relevant service to the client is not biased or distorted as a result of the inducement and if during the period of the receipt or provision of the inducement all of the following conditions are met:

1) the inducement is justified by the provision of an additional or higher level service to the relevant client, the additional scope or higher level of which is proportional to the inducements;

2) the inducement does not directly benefit the investment firm, its shareholders or employees without tangible benefit to the relevant client;

3) the inducement is justified by the provision of an on-going benefit to the relevant client in relation to an on-going inducement received or provided.

(3) An investment firm shall evidence that any inducements provided or received by the investment firm are designed to enhance the quality of the service provided to the client as follows:

1) by keeping a list of all the inducements provided to or received from a third party in relation to the provision of investment services or ancillary services;

2) by documenting reasons how the inducements provided, received or intended enhance the quality of the services provided to the relevant clients and how the investment firm ensures that the inducement does not to prevent the investment firm from providing services honestly, professionally and in accordance with the best interests of the client.

(4) For the purposes of clause 1 of subsection 2 of this section, the provision of additional or higher level service means, inter alia:

1) the provision of such investment advice that is non-independent within the meaning of subsection 21 of § 87¹ of this Act (hereinafter dependent investment advice) and that includes a wide range of suitable securities along with the provision of access to such securities, including a sufficient number of securities from a third party having no close links with the investment firm;

2) the provision of dependent investment advice combined with an offer to the client, at least on an annual basis, to assess the continuing suitability of the recommended securities in which the client has invested or with another on-going service that is likely to be of value to the client such as advice about the suggested optimal asset allocation of the client;

3) the provision of access, at a competitive price, to a wide range of securities that are likely to meet the needs of the client, including an appropriate number of securities from a third party having no close links with the investment firm, together with either the provision of added-value tools, such as objective information tools helping the relevant client to take investment decisions or enabling the relevant client to monitor, model and adjust the range of securities in which the client has invested, or providing periodic reports of the performance and costs and charges associated with the securities.

(5) Inducements that are strictly necessary for the provision of investment services, such as fees related to the safekeeping and administration of securities, settlement and transfer fees, fees related to a regulated market, supervision fees, state fees, legal fees and other similar fees which proceeding from their nature do not cause a conflict of interests between the investment firm and the client upon the provision of investment services honestly, professionally and in accordance with the best interests of the client, shall not be deemed to be contrary to the conditions provided for in subsection 1 of this section.

§ 85⁴. Disclosure of inducements to client

(1) Prior to the provision of the relevant investment service or ancillary service, an investment firm shall disclose to the client in a manner that is understandable, correct, accurate and complete the existence, nature and amount of the inducement referred to in subsection 1 of § 85² of this Act, or, where the amount cannot be ascertained, the method of calculating that inducement, and the manner of transferring to the client the inducement received by the investment firm where the investment firm is required to transfer the inducement received to the client.

(2) In addition to the provisions of subsection 1 of this section, an investment firm shall disclose to the client the following information concerning any inducement provided or received in connection with the provision of investment service or ancillary service, taking into account the provisions of subsection 2 of § 87 of this Act and Article 50 of Commission Delegated Regulation (EU) 2017/565, including if the security is distributed by several investment firms:

1) the exact amount of the inducement provided or received if, in the absence of the exact amount, the investment firm has previously disclosed to the client the method of calculating the inducement;

2) an individual notification concerning the actual amount of the inducement provided or received at least once a year during the receipt of the on-going inducement.

(3) Minor non-monetary inducements provided or received in connection with the provision of an investment service or ancillary service may be described in a generic way and other non-monetary inducements are priced and disclosed separately.

§ 85⁵. Inducements upon provision of independent investment advice or securities portfolio management service

(1) When providing independent investment advice or securities portfolio management service, an investment firm shall not retain any inducements received from any party except the client or a representative of the client, except minor non-monetary benefits that comply with provisions of subsection 1 of § 85² of this Act and subsections 4 and 5 of this section and that are expressly disclosed to the client prior to the provision of the relevant investment service or ancillary service. When providing independent investment advice or securities portfolio management service, an investment firm is prohibited from accepting non-monetary inducements that do not meet the conditions provided for in the first sentence of this subsection.

(2) An investment firm shall transfer any monetary inducements received from any party except the client or a representative of the client in connection with the provision of independent investment advice or securities portfolio management service to the client in full and as soon as reasonably possible after receipt of the inducement.

(3) An investment firm shall establish and implement a procedure to ensure a client-based allocation and transfer of any inducements specified in subsection 2 of this section. The investment firm shall inform clients about the inducements transferred to them through reports to be submitted periodically or in any other manner.

(4) The minor non-monetary benefits specified in subsection 1 of this section shall be reasonable and proportionate and of such a scale that they are unlikely to influence the investment firm’s behaviour in any way that is detrimental to the interests of the relevant client.

(5) The provision or receipt of minor non-monetary benefits is only allowed if they are:

1) generic or personalised information or documentation relating to an investment service or security;

2) written material from a third party that is commissioned and paid for by an issuer or potential issuer to market a new issuance, or where the third party firm is contractually engaged and paid by the issuer to produce such material on an ongoing basis, provided that the contractual relationship is clearly disclosed in the material and that the material is made available at the same time to any investment firms wishing to receive it or to the general public;

3) participation in conferences, seminars and other training events on the benefits and features of a specific investment service or a security;

4) elementary hospitality, such as food and drink offered during a business meeting or an event mentioned in clause 3 of this subsection;

5) other minor non-monetary benefits which are capable of enhancing the quality of service provided to a client and, having regard to the total level of benefits provided by one entity or group of entities of an investment firm, are of a nature and scale that are unlikely to prevent the investment firm from providing services honestly, professionally and in the best interests of the client.

(6) The Supervision Authority may, by its guidelines, limit the prerequisites for permissibility of other non-monetary benefits specified in clause 5 of subsection 5 of this section and provide the relevant sample list.

§ 85⁶. Inducements in relation to research by third parties

(1) Research provided by a third party to an investment firm providing securities portfolio management services or other investment services or ancillary services is not regarded as an inducement for the purposes of subsection 1 of § 85², where:

1) the investment firm and the third party providing execution services and research have entered into an agreement determining the principles of remuneration, including how the total costs of research are generally taken into account when determining the total cost of investment services;

2) the investment firm informs its clients whether it decides to pay for the execution services and research provided by a third party as a joint payment or separately, and makes available to them the principles of payment for the services and research, including the type of information to be submitted depending on the payment method chosen by the investment firm and, where relevant, how the investment firm prevents or manages conflicts of interest in accordance with the provisions of § 82⁴ of this Act, where it pays for the execution services and research provided by a third party as a joint payment;

3) the investment firm assesses annually the quality, usefulness and value of the research used and its ability to contribute to better investment decisions;

4) where payment for the execution services and for the research provided by a third party is made separately, payment for the research is made either by direct payments by the investment firm out of its own resources, or by payments from a separate research payment account controlled by the investment firm (hereinafter research payment account).

(1¹) Research provided to the investment firm by a research provider who does not provide execution services and does not belong to the same consolidation group as an investment firm providing execution services or brokerage services is not regarded as an inducement for the purposes of subsection 1 of § 85². In this case, the investment firm complies with the requirement provided in clause 3 of subsection 1 of this section.

(1²) The investment firm documents the total costs attributable to the research provided by a third party, where such costs are known to the investment firm and, upon request, makes this information available to its clients on an annual basis.

(2) Upon administration of the research payment account, the following conditions must be met:

1) the research payment account is funded by a specific research charge to the client (hereinafter research charge) meeting the conditions provided for in subsection 3 of this section;

2) as part of establishing a research payment account and requesting the research charge from its clients, an investment firm sets and regularly reviews a research budget as an internal control measure;

3) the investment firm is responsible for the research payment account.

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(3) The estimated research charge may be based only on the research budget prepared by the investment firm in respect of research provided by a third party that is necessary for the provision of investment services to its clients, and it may not be linked to the volume or value of transactions executed on behalf of the clients.

(4) Where an investment firm makes use of the research payment account, before the provision of an investment service to clients it provides clients with information about the budgeted amount for research and the amount of the estimated research charge required from the clients and once a year information on the total costs of the investment firm incurred for third party research.

(5) An investment firm which decides to pay separately for execution services and research and which uses a research payment account provides, upon request by a client or the Supervision Authority, all the following information:

1) a list of the research providers financed from the research payment account;

2) the total amount of payments made over a defined period to the research providers specified in clause 1 of this subsection;

3) the benefits and services received by the investment firm from the research providers specified in clause 1 of this subsection;

4) a comparison of the total amount of payments made from the research payment account with the research budget established by the investment firm for that period, and information concerning a rebate or carry-over where residual funds remain in the specified account.

(6) An investment firm specified in subsection 5 of this section presents the research charge separately for each time the research charge is collected and must fully comply with the conditions provided in subsections 2 and 4 of this section.

(7) The total amount of research charges received by an investment firm specified in subsection 5 of this section must not exceed the research budget established by the investment firm.

(8) The investment firm specified in subsection 5 of this section fixes, by an agreement with clients, the research charge based on the research budget and the frequency with which the research charge will be requested over the year. Increases in the research budget may only take place after the provision of clear information to clients about such intention. The investment firm establishes a procedure under which the investment firm rebates a surplus in the research payment account at the end of an accounting period or offset it against the research charge determined on the basis of the budget for the following period.

(9) An investment firm specified in subsection 5 of this section is solely responsible for managing the research budget. The research budget is based on a reasonable assessment of the need for third-party research. Upon allocation of the funds from the research budget necessary for purchasing third-party research, the investment firm employs control and oversight, which is considered objectively appropriate, over the managers of the investment firm to ensure that the budget is managed and used in the best interests of the clients. To employ such controls, the investment firm preserves, among other things, data evidencing payments made for the research to providers thereof and data on how the amounts paid were determined with reference to the quality criteria specified in the first sentence of subsection 11¹ of this section. The investment firm may not use the research budget and research payment account to fund research made by the investment firm.

(10) The administration of the research payment account may be delegated to a third party, provided that this facilitates the purchase of third party research and payments to research providers without any undue delay in the name of the investment firm and in accordance with the investment firm's order.

(11¹) Regardless of how the investment firm pays for the execution services and research, the annual assessment of the research specified in clause 3 of subsection 1 of this section is based on reliable quality criteria which enable the investment firm to objectively assess the quality, usefulness and value of the research and its ability to contribute to better investment decisions. An investment firm takes necessary measures where assessments indicate a lack of quality, usefulness or value in the research, or where the research does not contribute to better investment decisions.

(12) An investment firm shall determine separate charges for the provision of execution services of orders related to a security, reflecting only the costs of executing the order. The charge for a benefit or service provided by the investment firm to an investment firm of the Contracting State or the charge received for a benefit or service by the investment firm from an investment firm of the Contracting State shall be identified separately and, thereby, the supply of such benefit, provision of the service or the charge for those benefits or services shall not be conditioned or influenced by levels of payment of the charge for execution of orders.

(14) For the purposes of this section and § 85⁸ of this Act, research means research material or services:

1) concerning one or several securities or other assets, or the issuers or potential issuers of securities, or closely related to a specific industry or market such that it informs views on securities, assets or issuers within that industry or market;

2) that explicitly or implicitly recommend or suggest an investment strategy and provide a substantiated opinion as to the present or future value or price of securities or assets, or otherwise contain analysis and original insights and reach conclusions based on new or existing information that could be used to inform an investment strategy and be relevant and capable of adding value to the investment firm’s decisions on behalf of clients being charged for that research.

(15) For the purposes of this section and § 85⁸ of this Act, trading commentary or other targeted trading advisory services which are inextricably linked to the execution of securities transactions are not regarded as research.

§ 85⁸. Research provided by investment firm or third party

(1) Research provided by an investment firm or a third party, which is used by or disseminated to the investment firm, its clients or potential clients, must be fair and clear and must not be misleading. Research must be clearly identifiable by that name or a similar designation, provided that all the conditions set out in Commission Delegated Regulation (EU) 2017/565 applicable to research are complied with.

(2 An investment firm providing securities portfolio management services or other investment or ancillary services must ensure that the research it disseminates to clients or potential clients and for which the issuer has paid in full or in part is referred to as issuer-sponsored research only in the case it has been produced in accordance with the European Union code of conduct for issuer-sponsored research which has been established by the regulatory technical standards developed by the European Securities and Markets Authority pursuant to Article 24(3c) of Directive 2014/65/EU (hereinafter in this section code of conduct).

(3) The front page of the research referred to as issuer-sponsored research must clearly and visibly state that it has been produced in accordance with the code of conduct. Any other research material for which the issuer has paid in full or in part but which has not been produced in accordance with the code of conduct must be designated as a marketing communication.

(4) An investment firm which produces or disseminates issuer-sponsored research must have organisational arrangements in place to ensure that such research is produced in accordance with the code of conduct and complies with subsections 1–3 of this section.

§ 86. Notifying client

(1) A client of an investment firm has the right to access all information subject to mandatory disclosure and the investment firm is required to present such information to the client at the request thereof.

(2) The information presented to a client and potential client by an investment firm shall be understandable, timely, precise and complete.

(3) The information on the investment service to be provided and the nature and risks of the security relating thereto pursuant to the provisions of § 87 of this Act and monetary or non-monetary inducements provided or received by the investment firm in connection with the provision of an investment service or ancillary service pursuant to the provisions of §§ 85²–85⁶ shall be provided in a form that enables clients or potential clients to understand the nature of the investment service or the security that is being offered and risks relating thereto and to take carefully considered investment decisions. Thereby it is not permitted to emphasise any potential benefits of an investment service or security without clear indication of any risks related to that investment service or security.

(5) At the request of a client or potential client, an investment firm is required to provide information to the client:

1) on shareholders having a qualifying holding in the investment firm (with regard to legal persons at least the business name and the registry code if applicable; with regard to natural persons at least the given name and surname, and personal identification code or date of birth in the absence of a personal identification code) and the size of their holding in the share capital of the investment firm;

2) on the legal form, organisational structure and accessibility of the annual financial report of the investment firm;

3) on managers of the investment firm (given name and surname, personal identification code or date of birth in the absence of a personal identification code, educational background, and a complete list of places of employment and positions held during the last five years);

4) on the functions of the members of the management board of the investment firm;

5) on the investment services and ancillary services provided.

(6) An investment firm shall provide all information required to be provided by this Act to a client or potential client in electronic format. A client or potential client who is not a qualified investor may request the information on paper free of charge.

(7) An investment firm shall inform clients who are not qualified investors and who have received information on paper of the fact that they will receive that information in electronic format at least eight weeks before sending that information in electronic format. The investment firm shall inform those clients that:

1) they have the right to continue receiving information on paper if they wish;

2) an automatic switch to the electronic format will occur if they do not request the continuation of the provision of the information on paper within eight weeks.

§ 87. Notification upon provision of services

(1) Upon the provision of services, an investment firm is required:

1) to inform clients and potential clients of treating them as a certain type of clients and request information from its clients or potential clients regarding their knowledge of or experience in investment services and ancillary services provided, and regarding the goals and circumstances related to the provision of the services;

2) to submit to its clients or potential clients all relevant information pertaining to transactions which are being contemplated and risks related thereto, taking into account the interests and expertise of the client or potential client and the type and volume of the transactions which are being contemplated;

3) to submit to its clients and potential clients information on the security and the proposed investment strategy related to the provision of investment services and ancillary services, including guidance on and warnings of the risks associated with such security and investment strategy, and provide information on whether the security is intended for retail or professional clients, taking account of the target group identified for the security;

4) to submit to its clients or potential clients information on execution venues of orders;

5) to submit to its clients or potential clients information on costs and charges associated with the service;

6) to notify the client or potential client of the investor protection scheme applicable;

7) to inform the client of any situation where the investment firm is the other party to a transaction conducted on the basis of the client's transaction order, unless the investment firm and the client have expressly agreed otherwise in writing or in a form reproducible in writing or enabling identification of the person;

8) upon the request of the client, to provide the client at least once every three months with information regarding the transactions conducted with the assets of the client when managing the securities portfolio, and regarding the value of the assets, the composition of the securities portfolio and other circumstances related to the provision of services.

(2) The information specified in clause 5 of subsection 1 of this section must be provided for both investment services and ancillary services and include the cost of advice, the cost of the security recommended or marketed to the client and how the client may pay for the service, also encompassing any third-party payments. The information about all costs and charges, including in connection with the service and the security, which are not caused by the occurrence of market risk, shall be aggregated or, where the client so requests, itemised to allow the client to understand the overall cost as well as the cumulative effect thereof on return of the investment. Where applicable, such information shall be provided to the client at least annually during the life of the investment.

(2¹) If the agreement to buy or sell a security is concluded using a means of communication which prevents the prior delivery of the information on costs and charges, the investment firm may provide such information without undue delay after the conclusion of the transaction, provided that the following conditions are met:

1) the client consents to receiving the information without undue delay after the conclusion of the transaction;

2) the investment firm gives the client the option of delaying the conclusion of the transaction until the client has received the information;

3) the disclosed information complies with the requirements provided for in subsection 2 of § 86 of this Act;

4) the investment firm gives the client the option of receiving the information over the phone prior to the conclusion of the transaction.

(3) When an investment firm provides an investment service together with another service or product as part of a package or as a condition for the same package or agreement, the investment firm shall inform the client whether it is possible to provide the services or buy the products included in the package separately and shall provide information on the costs and charges of each component of the package. Where the risks associated with such a package or agreement offered to a retail client are likely to be different from the risks associated with the services or products included in such package, the investment firm shall provide a description of the relevant services and products of the package or agreement and the way in which offering of them as a package affects the risks associated therewith.

(4) An investment firm shall inform the client in good time before it provides investment advice of:

1) whether the investment advice is provided on an independent basis;

2) whether the investment advice is based on a broad or on a more restricted analysis of different classes of securities, including where the investment advice is only based on the analysis of securities issued or provided by the investment firm and a person having close links with the investment firm or any other, including contractual, relationship with the investment firm, which may pose a risk of impairing the independent basis of the investment advice;

3) whether the investment firm will periodically assess the suitability of the service or security recommended to that client.

(5) When providing investment advice, the investment firm shall, before the transaction is made, provide the client with a statement on suitability in a durable medium specifying the personal recommendation given to the client and how that advice meets the preferences, investment objectives and other indicators of the retail client. Where the statement on suitability cannot be provided to the client before the transaction is made using a means of communication, the statement on suitability may be provided in a durable medium immediately after the transaction is made, provided that the following conditions are met:

1) the investment firm has given the client the option of delaying the transaction until the provision of the statement on suitability;

2) the client has consented to receiving the statement on suitability without delay after the conclusion of the transaction.

§ 87¹. Assessment of suitability and appropriateness of investment service and security

(1) An investment firm shall assess the suitability or appropriateness of the relevant service and security to a client and a potential client before the provision of investment services.

(2) In order to recommend an investment service and security suitable for the client and potential client upon provision of investment advice or securities portfolio management service, an investment firm shall obtain necessary information regarding the knowledge and experience of the person relevant to the specific type of service and security and the financial situation, including the person’s ability to bear losses and investment objectives of the person, including risk tolerance, before providing the service. This information shall enable the investment firm to recommend to the client or potential client an investment service or security that is suitable for the client and, in particular, is in accordance with the client’s ability to bear losses and risk tolerance.

(2¹) In order to provide independent investment advice to the client, an investment firm shall assess a sufficient range of different classes of securities available on the market and issued or provided by different persons, which are not only limited to securities issued or provided by the investment firm itself and by a person having close links with the investment firm or any other, including contractual, relationship with the investment firm.

(2²) If an investment firm provides investment advice or securities portfolio management services that involves selling a security and buying another security or exercising a right to make a change with regard to an existing security (hereinafter switching of securities), the investment firm shall obtain the necessary information on the client’s investment and analyse the costs and benefits of the switching of securities. When providing investment advice, the investment firm shall inform the client whether or not the benefits of the switching of securities are greater than the costs involved in such switching.

(3) Upon the provision of investment services other than provision of investment advice or securities portfolio management service, an investment firm, when assessing the appropriateness, is required to determine whether the client has the necessary knowledge and experience in the investment field relevant to the specific type of product or investment service provided or demanded by the client.

(11) An investment firm shall warn the client if the investment firm finds on the basis of the received information that the product or service is not appropriate for the client.

(12) An investment firm shall warn the client and potential client that in case of failure to submit or submission of insufficient information required for the assessment of appropriateness, it is difficult or impossible for the investment firm to determine whether a requested investment service or security is appropriate for the client.

(12¹) The warning specified in subsections 11 and 12 of this section may be provided in a standardised format.

(15) When recommending or offering a package of services or products specified in subsection 3 of § 87 of this Act, the investment firm shall assess the suitability or appropriateness of the overall package for the client and potential client.

§ 87². Failure to assess the suitability and appropriateness in case of certain investment services

(1) The appropriateness of the investment service or security need not be assessed upon the provision of investment services provided for in clause 1 or 2 of subsection 1 of § 43 of this Act with or without the provision of ancillary services, excluding the ancillary services specified in clause 2 of § 44 that do not comprise of existing credit limits of loans, current accounts and overdraft facilities of clients, if all the following conditions are met:

1) the provision of investment services or ancillary services is connected with non-complex securities;

2) the investment service or ancillary service is provided at the initiative of the client or potential client;

3) an investment firm has clearly warned the client or potential client that under the conditions provided for in this subsection the investment firm does not assess the appropriateness of the security and service offered and provided and that, therefore, the interests of the client may be less protected.

(1¹) For the purposes of this Act, non-complex securities are:

1) shares of companies or UCITS not embedding derivatives admitted to trading on a regulated market or on an equivalent third country market or on a multilateral trading facility;

2) bonds not embedding derivatives admitted to trading on a regulated market or on an equivalent third country market or on a multilateral trading facility, the structure of which does not make it difficult to understand the risks associated therewith or any other debt obligation equivalent to such bond;

3) money market instruments not embedding derivatives, the structure of which does not make it difficult to understand the risks associated therewith;

4) shares or units in UCITS, excluding shares or units in structured UCITS within the meaning of Article 36(1) of the Commission Regulation (EU) No 583/2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website (OJ L 176, 10.7.2010, p. 1–15);

5) investment risk deposits specified in subsection 2 of § 89¹ of the Credit Institutions Act, the structure of which does not make it difficult to understand the risk of return and the cost of exiting the deposit before term;

6) other non-complex securities within the meaning of Article 57 of Commission Delegated Regulation (EU) 2017/565.

(2) A regulated third country market specified in clauses 1 and 2 of susbection 1¹ of this section is a market for which the European Commission has adopted an equivalence decision. In the absence of the decision, the Supervision Authority shall submit a request to the European Commission for the adoption of the equivalence decision in respect to the market of the third country, indicating in the request the reasons why the legal order and organisation of supervision of the third country can be considered equivalent.

(2¹) In the case provided for in the second sentence of subsection 2 of this section, the Supervision Authority may assess that the legal order and organisation of supervision of the third country is equivalent if at least the following conditions are met:

1) an operator of a market operating in a third country is subject to authorisation and constant supervision;

2) markets operating in third countries have clear and transparent rules regarding the admission of securities to trading and securities admitted to trading are capable of being traded in a fair and orderly manner, and are freely negotiable;

3) issuers are subject to periodic and ongoing information requirements to ensure a high level of investor protection;

4) transparency and integrity of the market are ensured by the prohibition on market abuse.

§ 87³. Best execution of client orders

(1) An investment firm shall establish and implement legal, technical and organisational measures for best execution of client orders. An investment firm shall determine the procedure and rules for best execution of client orders by internal policies.

(2) An investment firm shall execute a client order in the best possible manner for the client pursuant to rules for best execution of client orders applied in the investment firm by taking into account the price, costs, speed, likelihood of execution and settlement, size, nature or any other circumstances relevant to the execution of the order. If there is a specific instruction from the client the investment firm shall execute the order following the specific instruction.

(3) At the request of a client, an investment firm is required to prove to the client that the investment firm has executed the client’s order in compliance with the rules for best execution of client orders applied in the investment firm.

(7) Where an investment firm executes an order on behalf of a retail client, the best possible result shall be determined in terms of the total consideration, representing the price of the security and the costs related to execution, which shall include all expenses incurred by the client which are directly related to the execution of the order, including execution venue fees, settlement fees and any other fees paid to third parties involved in the execution of the order.

(8) If there are several competing venues to execute an order, the investment firm shall compare and assess the results for the client that would be achieved on each of the execution venues listed in the investment firm's rules for best execution of client orders that is capable of executing that order. Upon the comparison and assessment of execution venues an investment firm shall take into account the firm’s own commissions and costs for executing the order on each of the execution venues.

(10) Following execution of an order on behalf of a client the investment firm shall inform the client where the order was executed.

§ 87⁴. Rules for best execution of client orders

(1) An investment firm shall provide in the rules for best execution of client orders, in respect of each class of securities, information on the different execution venues where the investment firm executes its client orders and the circumstances determining the choice of the execution venue. The investment firm shall at least specify those execution venues that make it possible to obtain on a consistent basis the best result for the execution of client orders.

(2) An investment firm shall disclose the rules for best execution of client orders to the client and potential client, including appropriate information and clear explanation in sufficient detail regarding how orders will be executed by the investment firm for the client. An investment firm shall notify a client of any material changes in the rules for best execution of client orders.

(3) An investment firm shall inform clearly its clients about the possibility to execute client orders outside a trading venue if the rules for best execution of client orders provide for such a possibility.

(4) An investment firm may accept a client’s order for execution only after obtaining of consent from the client with respect to the rules for best execution of client orders.

(5) The client’s consent specified in subsection 4 of this section may be obtained each time before the execution of an order or be included in the contract entered into with the client.

(6) An investment firm reviews the rules for best execution of client orders and measures of executing client orders at least once a year and updates the rules and measures where deficiencies become evident, notifying clients of any material changes to their rules. Upon review of the rules and measures and determination of the need to make changes, it is also assessed whether the execution venues chosen by the investment firm provide for the best possible result for the client.

§ 87⁵. Handling client orders

(1) An investment firm shall establish and implement legal, technical and organisational measures for expeditious and impartial execution of client orders as compared to other client orders or the trading interests of the investment firm. An investment firm shall establish the procedure for ensuring it by internal policies.

(2) An investment firm shall execute otherwise comparable client orders in accordance with the time of their reception for execution by the investment firm.

(3) An investment firm shall apply increased care for managing the risks of damage to the interests of clients upon aggregation and allocation of client orders.

(13) An investment firm is required to retain the records which set out the respective rights and obligations of the investment firm and the client under a contract to provide investment services or ancillary services, or the terms on which the investment firm provides the services to the client for at least the duration of the contractual relationship or other legal relationship related to the provision of investment services or ancillary services with the client.

§ 87⁶. Disclosure of limit orders

(1) If a client limit order in respect of shares admitted to trading on a trading venue is not immediately executed due to prevailing market conditions, an investment firm shall make that order immediately public in a manner which is easily accessible to other market participants to ensure the earliest possible execution of that order, unless the client expressly instructs otherwise.

(3) The Supervision Authority has the right to exempt an investment firm from the obligation provided for in subsection 1 of this section for one or several times or permanently under the conditions and pursuant to the procedure provided for in Article 4 of Regulation (EU) No 600/2014 of the European Parliament and of the Council if, in the opinion of the Supervision Authority, the limited order is large in scale for the market compared with a normal order.

(4) A limited order is an order for purchasing or selling securities where the volume and price of the securities or the minimum accepted price is determined by concrete numerical indices.

§ 87⁷. Sale of subordinated eligible liabilities

Eligible liabilities that meet the conditions specified in Article 72a of Regulation (EU) No 575/2013 of the European Parliament and of the Council other than point (b) of Article 72a(1) and Article 72b(3)–(5) of that Regulation may be sold to a client that is not a qualified investor only if:

1) the nominal value of the subordinated eligible liability is at least 50,000 euros;

2) the requirements for the provision of an investment service provided in this Act are complied with.

§ 88. General requirements for maintenance and protection of assets of client

(1) An investment firm is required to keep the assets of the client entrusted to it separate from its own assets and those of other clients of the investment firm, unless the investment firm and the client have expressly agreed otherwise in a format which can be reproduced on a durable medium. The agreement of the client in a format which can be reproduced on a durable medium is also necessary to hold the securities of the client in a nominee account.

(2) An investment firm is required to take adequate measures to protect assets belonging to the client and the rights of the client and to ensure that the assets of the client are maintained and invested in accordance with the agreed conditions.

(3) An investment firm is not permitted to use securities belonging to a client in its own interests, unless the client has expressly agreed to this in writing or in a form reproducible in writing or enabling identification of the person. The client's money may be used in own interests exclusively for the account and in the name of a credit institution in accordance with the provisions of subsections 1 and 2 of § 4 of the Credit Institutions Act.

(4) An investment firm may pledge assets of a client in its own name only with the express written consent of the client.

(4¹) An investment firm may not conclude financial collateral arrangements concerning transfer of a right of claim to money or title to securities with retail clients for the purpose of securing or covering present or future, actual or contingent or prospective obligations of clients. In the event of a professional client or an eligible counterparty, the investment firm shall describe to the client the risks involved in such arrangement and their effect on the client assets.

(4²) Where an investment firm enters into an arrangement specified in subsection 4¹ of this section with a professional client or an eligible counterparty, the investment firm shall carefully consider the relationship between the client’s obligation to the investment firm and the client assets subjected to collateral arrangements, as well as the appropriateness of the use of such arrangements and, where necessary, demonstrate the same, taking into account and documenting all of the following circumstances:

1) whether there is a weak connection between the client’s obligations and the need for entry into the arrangements specified in subsection 4¹, including where the clients’ liability to the investment firm is low or the likelihood for the occurrence thereof is negligible;

2) whether the value of client’s assets covered by the arrangements specified in subsection 4¹ far exceeds the client’s obligations to the investment firm, or is unlimited if the client has no obligations to the investment firm;

3) whether all clients’ assets are made subject to arrangements specified in subsection 4¹, without distinguishing each client’s obligations to the investment firm.

(5) An investment firm which keeps the assets of clients in a nominee account or in a securities account or bank account opened in the name of the investment firm is required to keep separate account of the assets of each client.

(6) Assets of clients managed and maintained by an investment firm, including assets of clients maintained in the name of the investment firm as well as assets acquired on account of such assets, belong to the respective clients and shall not be included in the bankruptcy estate of the investment firm, nor shall the claims of the creditors of the investment firm be satisfied on account of such assets.

(6¹) An investment firm shall appoint a person who is responsible for compliance by the investment firm with its obligations regarding the safeguarding of client securities and funds and who has sufficient skills and authority therefor. The investment firm may assign additional responsibilities to the person responsible, provided that compliance by the investment firm with its obligations provided for in this Act is ensured and the performance of other responsibilities does not prevent the responsible person from carrying out their function.

(7) An investment firm shall establish the principles for the maintenance and protection of the assets of client by internal policies. An investment firm shall ensure that its auditor’s report regarding the compliance with the above-mentioned principles in the investment firm, including regarding the compliance of the activities of the investment firm with the provisions of this section and §§ 88¹–88⁴ of this Act, is submitted to the Supervision Authority at least once a year.

(8) An investment firm may not provide a third party with security interests, liens or rights of set-off over client funds or securities enabling a third party to fulfil its claims on account of the client’s funds or securities in order to perform obligations that do not relate to the client or provision of services to the client, except where this is required by applicable law in a third country jurisdiction in which the client funds or securities are held.

(9) Where the investment firm cannot avoid entry into an agreement that creates the rights of a third party specified in subsection 8 of this section, the investment firm shall notify clients thereof and of the risks associated with this arrangement. Where the rights specified in subsection 8 are granted or where the client has been informed that the rights are granted, the rights shall be recorded in client contracts and the internal accounts, information and records of the investment firm to make the ownership status of client assets clear.

(10) An investment firm shall submit to the Supervision Authority and trustee in bankruptcy upon request of the latter or, in the case provided by law, to other persons information pertaining to client funds and securities without delay, including, inter alia, the following:

1) internal accounts, information and records of the investment firm that make it possible to identify the funds and securities held for each client at all times without delay;

2) details of persons where client funds are held by the investment firm in accordance with the provisions of § 88³ of this Act, and details on the accounts and on the relevant agreements related to the persons;

3) details of persons where client securities are held by the investment firm in accordance with the provisions of § 88² of this Act, and details on the accounts and on the relevant agreements related to the persons;

4) details of persons carrying out any outsourced operations related to the investment service for the investment firm;

5) details of key individuals, including the person specified in subsection 6¹ of this section involved in the processes of holding client funds and securities;

6) agreements that make it possible to establish client ownership over assets.

§ 88¹. Safeguarding of client’s securities and funds

For the purposes of safeguarding clients’ interests in relation to securities and funds belonging to them, an investment firm is required to:

1) preserve information and keep such records and accounts as are necessary to enable it at any time and without delay to distinguish assets held for one client from assets held for any other client, and from the assets of the investment firm;

2) preserve information and keep records and accounts in a way that ensures their accuracy and their correspondence to the securities and funds held for clients in a manner that they may be used as an audit trail;

3) conduct, on a regular basis, reconciliations between its internal accounts, information and records and those of any third parties by whom those assets are held;

4) take the necessary steps to ensure that any client securities deposited with a third party are identifiable separately from the securities belonging to the investment firm and from the securities belonging to that third party, by means of differently titled accounts on the books of the third party or other equivalent measures that achieve the same level of protection;

5) take the necessary steps to ensure that client funds are held in an account or accounts identified separately from any accounts used to hold funds belonging to the investment firm;

6) take relevant organisational measures to manage the risk of the loss or diminution of client assets, or of rights in connection with those assets, as a result of misuse of the assets, fraud, poor administration, inadequate record-keeping or negligence.

§ 88². Depositing client securities

(1) An investment firm is permitted to deposit securities on behalf of their clients into an account or accounts opened with a third party provided that the investment firm exercises all due skill, prudence and diligence in the selection, appointment and periodic review of the third party and of the arrangements for the holding of those securities. An investment firm shall take into account the expertise and reputation of the third party as well as any legal requirements or market practices related to the holding of those securities that could adversely affect clients’ rights.

(2) An investment firm may only deposit securities with a third party in a jurisdiction where the holding of securities for the account of another person is subject to specific requirements and supervision and with a third party who is subject to this specific requirements and supervision.

(3) It is prohibited for an investment firm to deposit securities held on behalf of clients with a third party in a third country that does not regulate the holding and safekeeping of securities for the account of another person unless one of the following conditions is met:

1) the nature of the securities or of the investment services connected with those securities requires them to be deposited with a third party in that third country;

2) where the securities are held on behalf of a professional client and that client provides the investment firm with a written consent to deposit them with a third party in that third country.

(4) The provisions of subsections 2 and 3 of this section shall also apply when the third-party, with whom the investment firm deposits securities on behalf of clients, has outsourced any of its operations concerning the holding and administration of securities to another third party.

§ 88³. Depositing client funds

(1) An investment firm is required, upon receiving any client’s money, to promptly deposit the money to one or more accounts opened with a credit institution that has been granted an authorisation in a central bank or a Contracting State or a third country or, based on an explicit consent of the client, to invest the money in the shares or units of the relevant money market fund.

(2) The money market fund provided for in subsection 1 of this section shall comply with the requirements of the Investment Funds Act or other equivalent requirements of legislation of a Contracting State on the basis of which supervision is exercised over the money market fund and it shall comply with the following requirements:

1) its primary investment objective is to maintain its asset value either constant at par, net of earnings, or at the value of the investors’ initial capital plus earnings;

2) in order to achieve the investment objective specified in clause 1 of this subsection, the assets of the fund must be invested exclusively in deposits with credit institutions or high quality money market instruments with the redemption or maturity date of up to 397 days or regular interest adjustments consistent with such a maturity, and the weighted average maturity date of the securities and deposits belonging to the assets of the fund is 60 days;

3) the fund must provide liquidity through same day or next day settlement.

(3) For the purposes of clause 2 of subsection 2 of this section, a money market instrument shall be considered to be of high quality if this is confirmed by the assessment of the credit quality performed and documented by the investment firm, which takes into account the credit ratings provided to the money market fund by rating agencies registered by the European Securities and Markets Authority.

(4) If an investment firm does not deposit client funds with a central bank, it must exercise all due skill, care and diligence in the selection and periodic review of the credit institution or money market fund where the funds are placed and the arrangements for the holding of those funds as well as in the assessment of the need for diversification of placement of the funds. Investment firms shall take into account the expertise and reputation of such credit institutions or money market funds or management companies managing thereof with a view to ensuring the protection of clients’ rights, as well as avoiding any legal requirements or market practices related to the holding of client funds that could adversely affect clients’ rights.

(5) An investment firm may only rely on the consent of the client specified in subsection 1 of this section if the investment firm has informed the client that the holding of client funds in the money market fund that complies with the conditions provided for in subsection 2 is not subject to the requirements for holding and safeguarding client funds set out in this Act.

(6) Where an investment firm deposits client funds on accounts opened with a credit institution or with a money market fund of the same consolidation group as the investment firm, the investment firm may not deposit more than 20% of client funds on such account or money market fund. The provisions of the first sentence of this subsection shall not apply if this is not proportionate on the basis of the assessment of the investment firm, taking account of the nature, scale and complexity of its business, measures taken by the credit institution or money market fund specified in the first sentence of this subsection and the small balance of the amount deposited in any case.

(7) An investment firm shall periodically review the assessment specified in the second sentence of subsection 6 of this section and shall notify the Supervision Authority of any assessment provided and changes therein.

§ 88⁴. Use and disposal of client securities

(1) It is prohibited for an investment firm to conclude securities financing transactions with securities held by it on behalf of a client, or otherwise use or dispose of such securities for their own account or the account of another client of the investment firm or of any other person. An investment firm may use the securities specified above only if the following conditions are met:

1) the client has given a prior express consent to the use of the securities on specified terms in writing or in a form reproducible in writing or enabling identification of the person and such a consent may be contained in the contract for provision of services entered into with the client;

2) the use of that client’s securities must be restricted to the specified terms.

(2) It is prohibited for an investment firm to conclude securities financing transactions with securities which are held on behalf of a client in an omnibus account of a third party or any other equivalent account, or otherwise use or dispose of the securities for their own account or for the account of another client of the investment firm or of any other person, unless, in addition to the conditions set out in subsection 1 of this section, at least one of the following conditions is met:

1) each client whose securities are held together in an omnibus account or an equivalent account must have given prior consent in accordance with clause 1 of subsection 1 of this section;

2) the investment firm must have in place systems and controls which ensure that only securities belonging to clients who have given prior consent in accordance with clause 1 of subsection 1 of this section are so used.

(3) An investment firm must keep records of the details of the clients on whose instructions the use of the securities has been effected, as well as the number of securities used belonging to each client who has given his or her consent, so as to enable the correct allocation of any loss.

(3¹) An investment firm shall take appropriate measures to prevent the use of client securities for their own account or the account of any other person without the consent of the client. The investment firm shall, inter alia:

1) specify measures to be taken by the investment firm in an agreement to be entered into with a client in case the client does not have enough provision on its account on the settlement date to settle the transaction, such as borrowing of the securities on behalf of the client or unwinding the position;

2) monitor that the investment firm is able to deliver on the settlement date and establish remedial measures if the settlement cannot be done;

3) monitor the correct settlement of transactions and request promptly undelivered securities outstanding on the settlement date and beyond.

(3²) An investment firm shall take measures to ensure the borrowing of client securities against the appropriate collateral. The investment firm shall monitor the continued appropriateness of such collateral and take steps to maintain the balance of the collateral with the value of client securities.

(4) “Securities financing transaction” means a transaction provided for in point (11) of Article 3 of Regulation (EU) 2015/2365 of the European Parliament and of the Council on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (OJ L 337, 23.12.2015, p. 1—34).

§ 88⁶. Application of obligations of systematic internalisers of client orders

(3) "Systematic internaliser of client orders" (hereinafter systematic internaliser) means an investment firm which, on an organised, frequent and systematic basis, executes client orders relating to equity securities on own account outside a trading venue and without operating a multilateral system or which assumes the status of a systematic internaliser.

(4) For the purposes of §§ 88⁷–88¹² of this Act, "price quotation" means a firm quote for purchasing or selling of a certain amount of shares.

(8) If an investment firm is deemed to be a systematic internaliser, it shall notify the Supervision Authority thereof. The Supervision Authority shall communicate the relevant information to the European Securities and Markets Authority.

§ 89¹. Reports on services provided to clients

(1) An investment firm shall provide the client with adequate reports on the services provided to the client in a durable medium. The reports shall include periodic information, taking into account the type and the complexity of securities involved, the nature of the service provided to the client and, where applicable, the costs associated with the transactions and services undertaken on behalf of the client.

(2) An investment firm shall submit to its client a report on at least the execution of securities orders and securities portfolio management operations and on the safekeeping of the money and securities of the client.

(3) Where an investment firm provides securities portfolio management service and where it has informed the client that it will carry out a periodic assessment of suitability of the security or service recommended to the client, the investment firm shall submit to the client periodically updated information on how the investment meets the client’s preferences, objectives and other indicators of the retail client.

§ 89². Specifications for application of requirements to qualified investors

(1) The requirements provided for in clause 5 of subsection 1 of § 87 of this Act shall apply to qualified investors only upon the provision of investment advice and securities portfolio management services.

(2) The requirements provided for in subsection 5 of § 87, subsection 2¹ of § 87¹ and subsections 1 and 3 of § 89¹ of this Act shall not apply to professional securities market participants unless they have notified the investment firm of their wish to use the rights established by such provisions. The investment firm shall preserve the notifications of the client in a format which can be reproduced in writing.

§ 90. Record-keeping and retention obligation

(1) An investment firm and a branch of a foreign investment firm entered in the Estonian commercial register shall keep records of the services provided and the transactions concluded and the communication between the client and the investment firm and retain the records.

(2) The records specified in subsection 1 of this section shall enable the Supervision Authority to exercise supervision and to perform the actions in order to ensure the compliance with requirements established by legislation specified in subsection 1 of § 230 of this Act and to ascertain that the investment firm and a branch of a foreign investment firm has complied with all the obligations, including those with respect to its clients and potential clients and to the securities market as a whole.

§ 90¹. Recording of telephone conversations and electronic communications

(1) An investment firm shall record and maintain, pursuant to the procedure provided for in § 90 of this Act, telephone conversations and electronic communications for the purpose of, at least, the conclusion of transactions made with a security when dealing on own account, the reception and transmission of orders related to the security and the conclusion of transactions related to the execution on behalf or on account of the client, including if the telephone conversations and electronic communications do not result in the conclusion of such transactions or in the provision of services.

(2) An investment firm shall record the telephone conversations and electronic communications specified in subsection 1 of this section carried out by the use of equipment provided by the investment firm to an employee or service provider or the use of which by an employee or service provider has been accepted or permitted by the investment firm. An investment firm shall take all reasonable steps to prevent an employee or service provider from using privately-owned equipment for conversations and communications specified in subsection 1 of this section, the use of which has not been accepted or permitted by the investment firm, if the investment firm is unable to record or copy conversations and communications carried out by the use of such equipment.

(3) Prior to the provision of investment services, an investment firm shall notify clients and potential clients that the investment firm will record telephone conversations and electronic communications that result or may result in transactions.

(4) An investment firm shall not provide, by telephone, investment services in relation to the reception or transmission of client orders or execution thereof on behalf or on account of clients if clients have not been notified about the recording of their telephone conversations.

(5) An investment firm shall record orders received in any other manner in a durable medium in writing or in a format which can be reproduced in writing and pursuant to the provisions of this section.

(6) The recordings specified in subsection 1 of this section shall be kept for a period of five years and, where requested by the Supervision Authority, for a period of up to seven years. The investment firm shall provide the recordings of communications with the client to the client upon request.

§ 93. Share capital and initial capital of investment firm

(1) Upon the establishment of an investment firm as a new company its share capital or, in case of an operating company, the start-up capital shall at least amount to:

1) 750,000 euros, if the firm is providing investment services specified in clauses 3 or 6 of subsection 1 of § 43 of this Act;

2) 750,000 euros, if the firm is providing investment services specified in clause 9 of subsection 1 of § 43 of this Act, if the investment firm deals on own account or is allowed to do so;

3) 75,000 euros, if the firm is providing investment services specified in clauses 1, 2, 4, 5 or 7 of subsection 1 of § 43 of this Act, provided that the firm has no right to store the money of clients or securities belonging to clients;

4) 150,000 euros in the case investment firms providing investment services other than the services specified in clauses 1, 2 or 3 of this subsection.

(2) The initial capital shall consist of the funds specified in Article 9 of Regulation (EU) 2019/2033 of the European Parliament and of the Council.

§ 94. Prudential ratios

(1) In order to guarantee the financial soundness and to reduce the risks related to providing investment services, an investment firm is required at all times to adhere to prudential ratios, which requirements and accounting procedure are established in Regulation (EU) 2019/2033 of the European Parliament and of the Council.

(2) The Supervision Authority may decide to apply prudential requirements prescribed in Regulation (EU) No 575/2013 of the European Parliament and of the Council and the Credit Institutions Act pursuant to point (c) of Article 1(2) of Regulation (EU) 2019/2033 of the European Parliament and of the Council to a investment firm who is engaged in the activities specified in clause 3 or 6 of subsection 1 of § 43 of this Act if the total value of the consolidated assets of the investment firm is equal to or exceeds five billion euros, calculated as an average of the previous 12 months, and at least one of the following criteria apply:

1) the failure or the distress of the investment firm could lead to systemic risk on the financial system;

2) the investment firm is a clearing member specified in point (3) of Article 4(1) of Regulation (EU) 2019/2033 of the European Parliament and of the Council;

3) the size and the nature, scope and complexity of the activities of the investment firm and the interconnectedness of the investment firm with the financial system are important for the economy of the European Union or Estonia.

(4) The own funds of an investment firm shall at all times be equal to or exceed the minimum amount of the initial capital provided for in § 93 of this Act.

(5) The management and internal control systems, the organisation of accounting and the system for documentation and preservation of all transactions and operations of an investment firm shall provide the Supervision Authority with the opportunity at any moment to monitor the compliance with the requirements arising from legislation and ensure the accuracy of the calculation of and reporting on prudential ratios.

(6) If an investment firm is part of a financial conglomerate for the purposes of § 1101 of the Credit Institutions Act, the firm shall comply with the provisions of Chapter 9¹ of the Credit Institutions Act.

(7) Subsection 2 of this section does not apply to commodity and emission allowance dealers, fund managers or insurance undertakings.

(8) If the Supervision Authority declares a decision made on the basis of subsection 2 of this section invalid, including in the case the total value of the consolidated assets of the investment firm no longer meets the threshold calculated on the basis of twelve consecutive months, the Supervision Authority shall immediately notify the investment firm thereof.

(9) The Supervision Authority shall immediately inform the European Banking Authority of its decision made on the basis of subsections 2 and 8 of this section.

§ 94¹

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§ 104. Liquidity

(1) An investment firm shall invest its assets such that the satisfaction of justified claims of creditors, i.e. the liquidity, is guaranteed at all times. For that purpose, an investment firm shall maintain the necessary ratio of liquid assets and current liabilities.

(2) If necessary due to the nature of the services provided by an investment firm or the financial situation of an investment firm, the Supervision Authority may establish a separate liquidity requirement for each investment firm.

§ 106. Notification obligation

An investment firm shall promptly inform the Supervision Authority and provide an explanation if the size of the own funds of the investment firm decreases by more than five per cent.

§ 107. Organisation of Accounting

(1) The accounting and reporting of investment firms shall be organised pursuant to the Accounting Act, this Act, other legislation and the articles of association of the investment firm.

(2) The accounting of an investment firm shall provide truthful information relating to the business activities and the financial situation of the investment firm.

(3) The parent undertaking of a consolidation group of an investment firm is required to organise consolidated accounting.

§ 108. Reports

(1) An investment firm shall prepare and submit to the Supervision Authority reports pursuant to the procedure prescribed by law and established on the basis of Regulation (EU) 2019/2033 of the European Parliament and of the Council.

(2) If an investment firm belongs to a consolidation group, its parent undertaking over which the Supervision Authority exercises supervision on a consolidated basis shall prepare and submit consolidated reports to the Supervision Authority.

(3) The contents, methods of preparing and procedure for the submission of reports of investment firms and parent undertakings of investment firms shall be established by regulation of the minister in charge of the policy sector.

(4) The contents, methods of preparing and procedure for the submission of reports of branches of foreign investment firms may be established by regulation of the minister in charge of the policy sector.

(5) The Supervision Authority has the right to require additional or more frequent reports and information necessary for the exercise of supervision to the extent provided in this Act, as well as the information and reports concerning the services provided by an investment firm, which are necessary for the performance of the duties of the Supervision Authority on the basis of Regulation (EU) No 1095/2010 of the European Parliament and of the Council establishing a European Supervisory Authority (European Securities and Markets Authority) (OJ L 331, 15.12.2010, p. 84–119).

(5¹) For the purposes of § 82², subsections 1¹ and 5 of § 230 and subsections 4–6 of § 236¹⁰ of this Act, as well as Regulation (EU) 2019/2033 of the European Parliament and of the Council, the Supervision Authority has the right to impose additional or more frequent reporting requirements to those provided in this Act and the specified Regulation, including reporting on capital and liquidity positions, provided that one of the following conditions is met:

1) it is a case specified in clauses 1 and 2 of subsection 1¹ of § 230 of this Act;

2) the Supervision Authority considers it necessary to collect the evidence specified clause 2 of subsection 1¹ of § 230 of this Act;

3) additional information is required for the supervisory review and assessment provided in subsection 5 of § 230 of this Act.

(6) Where possible, the Supervision Authority requires additional or more frequent information so that it takes into account the information already received. The Supervision Authority does not require the submission of additional information on the basis of subsections 5 and 5¹ of this section where the information is available to it in another form or with different level of detail and this does not prevent it from deriving information of the same quality and reliability from such information.

(7) A parent undertaking of an investment firm, which is either a financial holding company or mixed financial holding company, provided that the Supervision Authority exercises supervision over the investment firm on a consolidated basis, is subject to the regulation applicable to reporting of a financial holding company and a mixed financial holding company provided in § 911 of the Credit Institutions Act. For the purposes of § 91¹ of the Credit Institutions Act, an investment firm means a credit institution.

(8) In order to exercise supervision, the Supervision Authority has the right to require from an investment firm additional information and explanations concerning participation in a payment system, including in a settlement system provided in the Payment and Settlement Systems Act.

(9) Eesti Pank has the right to request regular reports from an investment firm for the performance of duties arising from the Eesti Pank Act and the Payment and Settlement Systems Act. The contents of reports and the frequency, procedure and terms for the submission of reports are established by Eesti Pank.

§ 109. Term for submission of reports

(1) An investment firm providing investment services provided for in this Act shall submit to the Supervision Authority the supervision reports:

1) once a month, within 20 days after the end of the reporting period, if the investment firm is authorised to provide services specified in clauses 3 or 6 of subsection 1 of § 43 of this Act;

2) once a month, within twenty days after the end of the reporting period, if the investment firm is authorised to provide services specified in clauses 1, 2, 4, 5, 7 or 8 of subsection 1 of § 43 or clause 1 of § 44 of this Act.

(2) The parent undertaking of a consolidation group of an investment firm shall submit the reports specified in subsection 1 of this section once a quarter within one month after the end of the reporting period.

§ 110. Disclosure of reports

(1) An investment firm shall disclose the annual report, the proposal for and the resolution on the distribution of profits or the covering of losses and the sworn auditor's report within two weeks after the general meeting of shareholders, but no later than four months after the end of the financial year.

(2) An investment firm authorised to provide services specified in clauses 3–8 of § 43 or clause 1 of § 44 of this Act shall disclose and submit to the Supervision Authority the public annual reports regarding six months and twelve months within two months after the end of the period under review.

(3) The list of information to be disclosed, the methods of preparing the reports, the procedure for disclosure and submission to the Supervision Authority of the reports may be established by regulation of the minister in charge of the policy sector.

(4) Reports subject to disclosure by an investment firm shall be available at the registered office and all branches and representative offices of the investment firm as well as on its website. If the investment firm does not have its own website, it shall submit the report subject to disclosure to the Supervision Authority for disclosure thereof on the website of the Supervision Authority.

(5) A branch of a foreign investment firm shall disclose at least the last annual report of the investment firm which has been prepared according to the legislation of the home country of the investment firm and translated into Estonian.

(6) The Supervision Authority may require the investment firm to use media, in particular its website, for publications other than the annual report.

(7) In the event of a serious mistake in the disclosed information, the public shall be informed thereof on its website at the earliest opportunity and the adjusted report shall be published in the manner provided for in subsection 4 of this section.

(8) The information provided for in § 110² and subsection 2 of § 110³ of this Act may be published as a reference to the location of disclosure.

§ 110². Information concerning investment firm’s branches and subsidiaries that are financial institutions subject to disclosure

For the purposes of point (26) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, an investment firm shall disclose together with the annual report disclose the following information concerning its branches and subsidiaries that are financial institutions established in other states:

1) geographical location, business name and nature of activities;

2) turnover or sales revenue;

3) the number of employees on a full-time basis;

4) profit or loss before tax;

5) income tax or another tax on profit or loss;

6) the amount of public subsidies received.

§ 110³. Disclosure of other information concerning investment firm

(1) An investment firm forwards at the date of disclosure of its annual report the information specified in Article 51(1)(c) and (d) of Regulation (EU) 2019/2033 of the European Parliament and of the Council and the information concerning the gender pay gap to the Supervision Authority who uses it for the comparison of remuneration trends and practices. The investment firm also provides the Supervision Authority with information on the number of natural persons employed by the investment firm that are remunerated 1 million euros or more per financial year, in pay brackets of 1 million euros, including information on their job responsibilities, the business area involved, basic pay, performance pay, bonus and pension contribution. The Supervision Authority forwards the information to the European Banking Authority.

(2) The Supervision Authority has, inter alia, the right to require:

1) the investment firm to disclose the information specified in Article 46 of Regulation (EU) 2019/2033 of the European Parliament and of the Council more than once a year and to set deadlines for that publication;

2) the parent undertaking to publish annually, either in full or by way of reference to equivalent information, a description of their legal structure and general governance and organisational structure of the consolidation group of the investment firm in accordance with this Act;

3) the investment firm to provide the information concerning the total remuneration figures for each member of the management body or senior management.

§ 111. Audit

(1) The annual accounts of investment firms must be audited. Companies belonging to the same consolidation group as an investment firm shall be audited by at least one common auditor.

(2) As a result of auditing an investment firm, an auditor shall submit a report to the investment firm and the Supervision Authority, assessing, inter alia, prudential requirements established for own funds and the sufficiency and efficiency of the internal audit system.

§ 112. Appointment of auditor

(1) A trustworthy person with adequate expertise and experience to audit investment firms may be appointed auditor of an investment firm.

(2) The auditor of an investment firm may be appointed to conduct a single audit or for a specific term which shall not exceed five years.

(3) An auditor shall be appointed by a court of the location of the investment firm on the basis of a petition from the Supervision Authority if:

1) the general meeting has not appointed an auditor;

2) the auditor appointed by the general meeting refuses to conduct an audit and the general meeting of the investment firm fails to appoint another auditor within one month;

3) in the opinion of the Supervision Authority, the auditor is no longer trustworthy.

(4) The authority of a court-appointed auditor shall continue until appointment of a new auditor by the general meeting.

§ 113. Notification obligation of auditor

(1) Upon the issue of a sworn auditor's report or cancellation of a client contract, an auditor is required to immediately notify the Supervision Authority in writing of any circumstances of which the auditor becomes aware in the course of conducting an audit of the investment firm and which result or may result in:

1) material violation of legislation regulating the activities of investment firms;

2) interruption of the activities of the investment firm;

3) interruption of the activities of a subsidiary of the investment firm;

4) a modified sworn auditor's report concerning the annual accounts or consolidated accounts of the investment firm;

5) a situation, or the risk of a situation arising, in which the investment firm is unable to perform its obligations;

6) an act by a manager or employee causing significant proprietary damage to the investment firm or to a client or clients thereof.

(1¹) Upon the issue of a sworn auditor's report or cancellation of a client contract, an auditor is required to immediately notify the Supervision Authority in writing of any circumstances of which the auditor becomes aware in the course of conducting an audit of a person having close links with the investment firm and which result or may result in the circumstances provided in subsection 1 of this section.

(2) An obligation not to disclose information, which is imposed on an auditor by legislation or a contract, does not apply to the requirement to forward information to the Supervision Authority.

§ 114. Prohibition of division and cross-border transformation

Division and cross-border transformation of an investment firm are prohibited.

§ 115. Special merger rules

(1) The merger of an investment firm shall be performed pursuant to the procedure prescribed in the Commercial Code, unless otherwise prescribed in this Chapter.

(2) Investment firms may be merged only with investment firms founded according to the law of a Contracting State, except as a firm being acquired with a credit institution in the case provided for in clause 2 of subsection 1 of § 65 of the Credit Institutions Act.

(3) If investment firms merge by founding a new company, the authorisations of all the merging investment firms expire.

§ 116. Merger agreement and merger report

(1) The merger agreement of an investment firm shall not be entered into with a suspensive or resolutive condition.

(2) The Supervision Authority shall be notified of entry into a merger agreement between investment firms within three working days as of the merger agreement being entered into.

(3) Upon the merger of investment firms, a merger report shall be prepared and the report shall be audited by an auditor.

(4) The auditor's report shall provide an opinion on the exchange ratio of shares and the determination thereof and on whether the acquiring investment firm or the investment firm being founded meets the prudential ratios provided for in this Act.

§ 117. Authorisation for merger

(1) Authorisation is necessary from the Supervision Authority for the merger of investment firms (hereinafter authorisation for merger).

(2) In order to be granted authorisation for merger, the acquiring investment firm or, in the case prescribed in subsection 3 of § 115 of this Act, the merging investment firms jointly shall submit an application to the Supervision Authority to which the following information and documents are appended:

1) the merger agreement or a notarised copy thereof;

2) the merger report;

3) merger resolutions if the adoption thereof is required;

4) the auditor’s report;

5) the business plan specified in clause 11 of subsection 1 of § 54 of this Act for the three years following the merger;

6) the information and documents specified in clauses 4, 5, 12 and 13 of subsection 1 of § 54 of this Act;

7) the decision by the Competition Authority to grant permission to concentrate, where the obligation to apply for such permission arises from the Competition Act, or a confirmation from the acquiring investment firm that it has applied to the Competition Authority for permission to concentrate and such permission has been granted pursuant to subsection 5 of § 27 of the Competition Act;

8) the decision by the Consumer Protection and Technical Regulatory Authority to grant a foreign investment authorisation, where the obligation to apply for such authorisation arises from the Foreign Investment Reliability Assessment Act, or a confirmation from the acquiring investment firm that it has applied to the Consumer Protection and Technical Regulatory Authority for a foreign investment authorisation and such authorisation has been granted pursuant to subsection 1 of § 11 of the same Act.

(3) The provisions of § 53 and subsections 1–4¹ of § 55 of this Act regarding applications for authorisations and the review thereof shall apply with respect to applications for authorisation for merger.

(4) Where the shareholders of an investment firm being acquired acquire a qualifying holding in the acquiring investment firm, the provisions of §§ 73–78 of this Act apply to the acquisition of the holding.

§ 118. Decision regarding authorisation for merger

(1) A decision to grant or to refuse to grant authorisation for merger or to grant an authorisation to an investment firm founded as a result of a merger shall be taken by the Supervision Authority not later than within thirty days as of submission of all the required information and documents. The applicant shall be informed of the decision immediately.

(2) The Supervision Authority may refuse to grant authorisation for merger if:

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

2) the applicant fails, within the prescribed term, or refuses to submit the information or documents subject to submission to the Supervision Authority upon applying for authorisation for merger;

3) the investment firm founded as a result of the merger does not meet the requirements provided for in this Act or legislation established on the basis thereof or if the merger harm the interests of clients of the investment firm for some other reason;

4) in the opinion of the Supervision Authority, a manager or person carrying out the duties of the internal audit unit of the investment firm resulting from the merger or a person having a qualifying holding therein does not meet the requirements provided for in this Act;

5) the merger would significantly reduce effective competition in the securities market or would harm the regular operation of the securities market for some other reason.

(3) The Supervision Authority shall decide to terminate an authorisation upon merger of investment firms whereby a new investment firm is founded at the same time when it decides to grant an authorisation to an investment firm founded as a result of a merger, and the decision does not enter into force before the date of entry of the new investment firm in the commercial register.

(4) The Supervision Authority shall decide to terminate an authorisation of an investment firm being acquired upon merger of investment firms at the same time when it decides to grant an authorisation for merger, and the decision does not enter into force before the date when the merger is entered in the commercial register.

§ 119. Merger notification

(1) Merging investment firms shall immediately publish a merger notification concerning the fact of being granted authorisation for merger in at least one national daily newspaper and on the websites of all merging investment firms.

(2¹) An investment firm shall submit an application for entry of a merger in the commercial register promptly after publication of the merger notice specified in subsection 1 of this section.

(3) The Supervision Authority shall publish the decision on the grant of an authorisation for the merger of investment firms on its website pursuant to the procedure provided on the basis of subsection 3 of § 237 of this Act.

§ 119¹. Use of investment agents

(1) An investment agent is a representative of an investment firm acting on the basis of an authorisation document who may be used by the investment firm for the advertising, introductions and sales promotion of the investment services and ancillary services provided by the firm, the receipt and forwarding of the orders related to securities of clients, including the forwarding of instructions related to investment services, the organisation of the offer or issue of securities, or for provision of consultations related to securities and the services provided by the investment firm. An investment agent may carry out such activities as an ancillary activity.

(2) The use of investment agents shall be established by the internal policies of an investment firm.

(3) An investment agent may represent only one investment firm.

(4) The provisions of § 82⁶ of this Act apply to the use of investment agents by investment firms.

(5) The provisions of this Chapter concerning investment agents do not apply to investment firms which provide services equivalent to the services provided by an investment agent.

§ 119². List of investment agents

(1) Only an investment agent included in the list of investment agents (hereinafter list) is permitted to operate as an investment agent, and an investment firm is permitted to use only the services provided by an investment agent entered in such list.

(2) An investment agent is entered in and deleted from the list by the investment firm whom the agent represents or, in cases provided by law, by the Supervision Authority.

(3) The list shall be published on the web site of the Supervision Authority.

§ 119³. Requirements for investment agents

(1) Investment agents who are natural persons and members of the management board of investment agents who are companies shall have impeccable professional and business reputation.

(2) The following shall not operate in the capacity of the persons specified in subsection 1 of this section:

1) persons whose act has resulted in the bankruptcy or compulsory liquidation of a company or the revocation of the authorisation of a company;

2) persons who are subjected to a prohibition on business;

3) persons whose activities have shown that they are not capable of organising the management of a company such that the interests of the shareholders, members, creditors and clients of the company are sufficiently protected;

4) persons who have been punished for an economic offence, official misconduct, offence against property or offence against public trust unless the information concerning the punishment has been expunged from the criminal records database pursuant to the Criminal Records Database Act.

(3) The natural persons specified in subsection 1 of this section must have sufficient experience in work related to the provision of investment and financial services and sufficient training in the area of investment.

(4) An investment firm represented by an investment agent shall provide, at the request of its investment agent, training in the area of investment to the investment agent.

§ 119⁴. Entry of investment agent in list

(1) A person is entered in the list on the basis of the person’s application.

(2) The investment firm who received an application shall make a decision on entry in the list or refusal of entry in the list within fourteen days after receipt of the application. An investment firm shall enter the applicant in the list promptly after the relevant decision is made.

(3) Persons who do not comply with the requirements provided for in subsections 1, 2, 4 and 5 of § 79¹ and § 119³ of this Act shall not be entered in the list.

(4) The given name and surname of an investment agent, his or her personal identification code, contact details and the name of the investment firm whom the investment agent represents shall be entered in the list concerning an investment agent who is a natural person.

(5) The business name, registry code and address of an investment agent, the name of the investment firm whom the investment agent represents, and the given name and surname of the member of the management board responsible for assisting the investment firm in its operation shall be entered in the list concerning an investment agent who is a legal person.

(6) The investment firm who made an entry in the list shall be responsible for the accuracy of the entry.

§ 119⁵. Deletion of investment agent from list

(1) An investment firm represented by an investment agent shall immediately delete the investment agent from the list as its representative if:

1) the investment agent requests deletion thereof from the list;

2) the investment agent is a legal person and is dissolved or the investment agent is a natural person and dies;

3) the representation relationship between the investment agent and the investment firm is terminated;

4) the investment agent does not conform to the requirements prescribed for investment agents by this Act;

5) a member of the management board of the investment agent does not meet the requirements provided for in this Act;

6) the investment agent has violated the provisions of this Act or the interests of the clients of the investment firm are insufficiently protected;

7) the Supervision Authority demands the deletion of the investment agent from the list due to the becoming evident of any of the facts specified in this subsection.

(2) Upon becoming evident of the facts specified in subsection 1 of this section, the Supervision Authority has the right to delete an investment agent from the list.

§ 119⁶. Specific duties of investment agents

(1) In addition to performing the duties of notifying clients provided by this Act and arising from legislation established on the basis thereof, an investment agent has the duty to disclose, upon contacting a client or a potential client, the name of the investment firm represented by the agent and the extent of the agent's authorities.

(2) An investment agent has no right to receive or store money or securities to be transferred by a client to the investment firm unless the investment agent itself is an investment firm or a credit institution.

§ 119⁷. Data reporting services providers

(1) “Data reporting services provider” means a publication arrangement, a consolidated tape provider and a reporting mechanism concerning securities, and an investment firm and market operator holding the right to provide data reporting services pursuant to Article 27b(2) of Regulation (EU) No 600/2014 of the European Parliament and of the Council.

(2) “Trade reports” means reports submitted under Articles 6, 7, 10, 12, 13, 20 and 21 of Regulation (EU) No 600/2014 of the European Parliament and of the Council.

(3) "Publication arrangement" means a person specified in Article 2(1)(34) of Regulation (EU) No 600/2014 of the European Parliament and of the Council.

(4) "Consolidated tape provider" means a person specified in Article 2(1)(35) of Regulation (EU) No 600/2014 of the European Parliament and of the Council.

(5) "Reporting mechanism" means a person specified in Article 2(1)(36) of Regulation (EU) No 600/2014 of the European Parliament and of the Council.

(6) In respect of a data reporting services provider who provides one or more services specified in subsections 3 and 5 of this section and complies with the conditions provided for in Commission Delegated Regulation adopted on the basis of Article 2(3) of Regulation (EU) No 600/2014 of the European Parliament and of the Council (hereinafter data reporting services provideroperating under exemption), the provisions of Regulation (EU) No 600/2014 of the European Parliament and of the Council and legislation established on the basis thereof concerning that data reporting services provider shall be applied in addition to the provisions of this Act.

§ 119⁸. Authorisation of data reporting services providers

(1) In order to operate as a data reporting services provider, a person shall hold a relevant authorisation (hereinafter in this Chapter authorisation). If the services specified in subsections 3–5 of § 119⁷ of this Act are provided by the same person, the services for the provision of which the rights have been granted are set out in a single authorisation.

(2) The provisions of subsections 2–4 of § 48 and § 57 of this Act concerning the authorisation of an investment firm shall apply to the authorisation of a data reporting services provider operating under exemption.

§ 119¹⁰. Application for authorisation, review of application and decision to grant or refuse to grant authorisation

(1) In order to provide one or more services specified in subsections 3–5 of § 119⁷ of this Act, a person (hereinafter applicant) shall submit an application for an authorisation to the European Securities and Markets Authority or, in the case provided for in subsection 6 of the same section, to the Supervision Authority.

(2) The provisions of subsection 1 of this section shall not apply to a person who has been granted an authorisation for the provision of data reporting services in another Contracting State.

(3) The provisions of Articles 27b–27d of Regulation (EU) No 600/2014 of the European Parliament and of the Council shall apply to applications for authorisations, review of applications and the grant and refusal to grant authorisations.

(4) An applicant who is a data reporting services provider operating under exemption shall submit to the Supervision Authority in addition to the information and documents established on the basis of Article 27d(4) of Regulation (EU) No 600/2014 of the European Parliament and of the Council the following:

1) the information and documents specified in clauses 1, 2, 5–8, 12 and 15 of subsection 1 of § 54 of this Act;

2) the procedures or projects thereof and system descriptions specified in Articles 27g and 27i of Regulation (EU) No 600/2014 of the European Parliament and of the Council and the internal policies specified in § 119¹⁸ of this Act.

(5) Clause 1 of subsection 4 of this section shall not apply to investment firms and market operators.

(6) In addition to the provisions of Regulation (EU) No 600/2014 of the European Parliament and of the Council, the provisions of the first sentence of subsection 1 and clauses 1 and 3 of subsection 2 of § 51, subsections 2 and 3 of § 52, subsection 1 of § 53, subsection 2 of § 54, § 55 and sections 1, 2 and 5 of § 55¹ concerning the authorisations of investment firms apply to applications for authorisations of data reporting services providers operating under exemption, review of applications and the decisions to grant or refuse to grant authorisations.

§ 119¹¹. Application for additional authorisation

(1) A data reporting services provider or data reporting services provider operating under exemption who wishes to provide a service specified in subsections 3–5 of § 119⁷ of this Act, for which it has no right on the basis of the authorisation, shall apply for an additional authorisation from the European Securities and Markets Authority or the Supervision Authority.

(2) Upon application for an additional authorisation, a data reporting services provider operating under exemption shall submit to the Supervision Authority a written application, a supplemented programme of operations and updated information and documents specified in clause 2 of subsection 4 of § 119¹⁰of this Act.

§ 119¹². Grounds for refusal to grant authorisation

The Supervision Authority may refuse to grant the authorisation of a data reporting services provider operating under exemption or the right to provide one or several data reporting services specified in subsections 3 and 5 of § 119⁷ of this Act if:

1) the applicant or managers of the applicant do not meet the requirements provided for in this Act, legislation issued on the basis thereof or Regulation (EU) No 600/2014 of the European Parliament and of the Council and Commission Delegated Regulation established on the basis of Article 27f(5) thereof;

2) the information or documents submitted upon application for the authorisation do not meet the requirements provided for in legislation specified in clause 1 of this subsection or are inaccurate, misleading or incomplete;

3) close links between the applicant and another person prevent sufficient supervision over the data reporting services provider, or the requirements arising from legislation or the implementation of legislation of the state where the person with whom the applicant has close links has been established prevent sufficient supervision over the data reporting services provider;

4) information submitted in the programme of operations are inadequate or insufficient;

5) the internal policies specified in § 119¹⁸ are not accurate or unambiguous enough to regulate the activities of the data reporting services provider;

6) the applicant or a manager of the applicant has been punished for an economic offence, official misconduct, offence against property or offence against public trust or the financing or supporting of an act of terrorism or activities aimed at the commission thereof, and the relevant information concerning the punishment has not been deleted from the criminal records database pursuant to the Criminal Records Database Act or an international sanction has been imposed on the applicant or a manager of the applicant;

7) an authorisation of a data reporting services provider granted to a public limited company has been revoked earlier, unless the authorisation has been revoked under § 119¹³ of this Act.

§ 119¹³. Grounds for revocation of authorisation

(1) The Supervision Authority may revoke an authorisation of a data reporting services provider operating under exemption in full or in part if:

1) the data reporting services provider fails to commence activities within twelve months of granting the authorisation, expressly renounces the authorisation or has provided no data reporting services for six consecutive months;

2) it has been established that the applicant has submitted inaccurate information upon application for the authorisation or obtained the authorisation by any other irregular means, as well as if other events of submission of inaccurate information to the Supervision Authority by or on behalf of the data reporting services provider occur;

3) the data reporting services provider does not meet the requirements in force with regard to the grant of authorisations;

4) the circumstances provided for in clause 3 or 4 of § 119¹² of this Act become evident;

5) the applicant or a manager of the applicant has been punished for an economic offence, official misconduct, offence against property or offence against public trust or the financing or supporting of an act of terrorism or activities aimed at the commission thereof, and the relevant information concerning the punishment has not been deleted from the criminal records database pursuant to the Criminal Records Database Act or an international sanction has been imposed on the applicant or a manager of the applicant or the acts or omissions of the data reporting services provider are contrary to good business practices;

6) the data reporting services provider has published incorrect or misleading information or advertising concerning its activities or managers;

7) the data reporting services provider is no longer able to perform obligations assumed;

8) the data reporting services provider has failed to implement a precept of the Supervision Authority within the term or to the extent prescribed;

9) elements become evident in the activities of the data reporting services provider, which, based on the reasonable doubt of the Financial Supervision Authority, might be an indication of money laundering, or the data reporting services provider violates the procedure for preventing money laundering and terrorist financing established by legislation;

10) the data reporting services provider has repeatedly or significantly violated the requirements provided by legislation;

11) according to the information submitted to the Supervision Authority by the financial supervision authority of the Contracting State, the data reporting services provider has violated the conditions provided for in the legislation of the Contracting State or established by the financial supervision authority of the Contracting State.

(2) In addition to subsection 1 of this section and Article 27e of Regulation (EU) No 600/2014 of the European Parliament and of the Council, the provisions of subsections 1 and 3–3² of § 58 of this Act concerning the revocation of authorisations of investment firms shall apply to the revocation of authorisations of data reporting services providers operating under exemption.