Estonia: The Riigikogu received an overview of the activities of the Financial Supervision Authority

NordenBladet — At today’s sitting, the Riigikogu received an overview of the 2018 Annual Report of the Financial Supervision Authority from Kilvar Kessler, Chairman of the Management Board of the Financial Supervision Authority.

Kessler said that, under the law, the central task of the Financial Supervision Authority was the stability and credibility of the financial market. “The Estonian market has stayed relatively stable, market participants are solvent, and are thereby giving people confidence that the financial market is able to successfully perform its task as economic circulation and risk bearer,” Kilvar Kessler noted in his report.

“We protect the interests of depositors, policy holders and others by checking if the capital, organisational management and provision of financial services of financial intermediaries are in compliance with law, and their adequacy in terms of the business model implemented and the risks taken,” Kessler pointed out.

The Chairman of the Management Board said that, where possible and necessary, the Financial Supervision Authority also helped investigative bodies in the unravelling of complicated financial market violations. “In my opinion, cooperation and in particular two-way information exchange between various government bodies is very important for addressing risks comprehensively,” he said.

“Besides the routine supervision, from autumn 2018 to spring 2019, in connection with prevention of money laundering, the Financial Supervision Authority implemented a special project with regard to all banks operating in Estonia who provide payment services,” Kessler noted. “On the positive side, we can state that the risks related to the servicing of non-residents have decreased. Most of the banks take seriously the continuing reduction of risks and better monitoring of risks. However, there are weaknesses in banks’ systems and in the risk sensibility of risk management systems,” he said. Kessler pointed out that legislation as well as the Financial Supervision Authority wished to see risk-sensible management systems where larger potential risks were addressed more thoroughly while well-known ordinary clients were treated more leniently.

“A large share of the Estonian market is comprised of banking groups. Three or four larger universal banks and smaller banks can be singled out here. They all share a common denominator in that they are very strongly capitalised,” Kessler said. “Loan damages are small, that is, the banks have credited responsibly in general. No reproaches can be made to the overall level of digitalisation either. From the euro area perspective, the Estonian banking is among the most highly digitalised,” he noted.

“This year, Luminor was established in Estonia by cross-border merger of many different credit institutions. It is the largest bank in Estonia which also includes risks from Latvia and Lithuania. The bank portfolios of the relevant countries are even larger than that of Estonia. This means that supervision must also be able to perceive and mange cross-border risks as well as to prevent and resolve crises,” Kessler said. He pointed out that the Baltic, Scandinavian and European Union financial supervisors and other parties concerned had joined their forces last year and had played through a theoretical regional financial crisis at the beginning of this year. “The results of the exercise have been analysed and the shortcomings have been sorted out, and the parties have been given feedback. As a general assessment I state that the Estonian authorities who participated in the game were well up to their tasks,” Kessler said.

Kessler pointed out that the year 2018 had been significant to the whole euro area as the European Central Bank had decided to revoke the licence of Versobank on the basis of a statement by the Financial Supervision Authority after a thorough deliberation. “That credit institution had been significantly violating money laundering prevention rules for a long time, and had ignored precepts to improve its activities from a supervisory authority. Estonia gave a very strong signal there that Estonia did not tolerate banks that engaged in suspicious business,” Kessler noted.

“The current systems are however very mechanistic and at the same time vulnerable at places. Banks earn decent profits and there is no reason to withhold investments in the necessary systems. Why not make them the best among their kind, and thereby support the image of e-Estonia a well,” Kessler said.

Kessler noted that, since 2004, the Financial Supervision Authority had consistently been drawing its partners’ attention to the fact that fines in the financial sector were not effective. He also touched on the issue of long-term proceedings and noted that such proceedings were ineffective and had to be replaced with simpler proceedings. “We are going to make our proposals in the form of a legislative draft to the Governmental committee for the coordination of money laundering prevention,” the Chairman of the Management Board said.

In Kessler’s words, the central task of the Financial Supervision Authority is to maintain financial stability and to see to the fair and transparent functioning of financial markets as a whole.

During the debate, Riina Sikkut from the Social Democratic Party Faction and Jürgen Ligi from the Reform Party Faction took the floor.

The Riigikogu passed three Resolutions:

The Resolution of the Riigikogu “Formation of the State Budget Control Select Committee” (11 OE), submitted by the Constitutional Committee, provides for the formation of the State Budget Control Select Committee which includes one member from each faction.

The purpose of the committee is to ensure, in cooperation with the National Audit Office, control over the Government of the Republic in terms of the implementation of the state budget and sustainable, efficient, effective and lawful use of the state assets and state budget funds.

74 members of the Riigikogu voted in favour of the Resolution.

The Resolution of the Riigikogu “Formation of the Security Authorities Surveillance Select Committee” (12 OE), submitted by the Constitutional Committee, provides for the formation of the Security Authorities Surveillance Select Committee. The committee exercises supervision over authorities of executive power in matters relating to the activities of the security authorities and surveillance agencies, including guarantee of fundamental rights and efficiency of the work of the security authorities and surveillance agencies, and also in matters relating to supervision exercised over the security authorities and surveillance agencies.

The Draft Resolution provides that the membership of the committee will be formed based on the principle of parity so that the committee will include one member from each faction.

The committee submits an overview of the activities of the committee and the results thereof to the Riigikogu at least once a year.

75 members of the Riigikogu voted in favour of the Resolution.

The Resolution of the Riigikogu “Formation of the Anti-Corruption Select Committee” (13 OE), submitted by the Constitutional Committee, provides for the formation of the Anti-Corruption Select Committee which includes one member from each faction.

The committee performs the functions provided for in § 9 of the Anti-corruption Act, and exercises the rights arising from the Anti-corruption Act and the Riigikogu Rules of Procedure and Internal Rules Act to perform its functions.

76 members of the Riigikogu voted in favour of the Resolution.

At the beginning of the plenary sitting, the Minister of Foreign Trade and Information Technology Kert Kingo took her oath of office.

Arto Aas announced his resignation from the Riigikogu in connection with taking up the post of Director of the Estonian Employers’ Confederation.

Source: Parliament of Estonia