The Credit Institutions Act regulates the activities of banks. To establish a bank in Estonia, a permit from the Financial Supervision Authority is required. The share capital of a commercial bank must be at least 5 million ECU. Bank Supervision is effected by the Financial Supervision Authority pursuant to the Financial Supervision Auhtority Act and the Credit Institutions Act. The Financial Supervision Authority has broad disciplinary powers, including the power to impose limits on the types and amounts of transactions, prohibition of profit distribution, etc. The Financial Supervision Authority may also declare a credit institution’s permit to be invalid under circumstances set out in the Credit Institutions Act. These circumstances include violation of the prudential ratios established by or on the basis of the Credit Institutions Act; violation of anti-money laundering legislation and activities which significantly damage the interests of depositors or other clients, or hinder the circulation of currency or the functioning of the money or capital markets.

At the moment, there are 6 banks and a branch of a foreign bank in Estonia. Five foreign banks have representative offices in Estonia.

Securities

The Securities Market Act regulates the trade of securities. A new Securities Market Act was passed on October 17, 2001, in order to implement European union and international standards in the Estonian Securities market.

The new Act came into force on January 1, 2002, together with 30 pieces of corollary legislation. The aim of the Act is to ensure the efficient, transparent, trustworthy operation of the Estonian securities market, and its integration with other similar markets.

The Act takes into account all existing EU directives, as well as one which is still in the proposal stage. Accordingly it more than complies with Estonia’s accession obligations in this field.

In comparison with the existing Act, which was adopted in 1993, it is far more detailed and in-depth. In general, it has received very positive reactions from industry participants and commentators. The existing Act was generally accepted as being arcane. The new Act is seen as a decisive step towards increased quality and integration into the Europen market.

In addition to the fundamental definitions, it regulates public offerings and the operations of the securities market, as well as supervision.

For the first time, it imposes requirements on investment firms, as well as securities settlement systems. Furthermore, the market and stock exchange’s rights and obligations are set out in far more detail.

It also prohibits market manipulation and, together with changes to the Criminal Code of Administrative Offences, makes use of insider information and market manipulation punishable as a criminal offence.

The Tallinn Stock Exchange, (TSE) which has been operating since 1996, is relatively small in the global context. Shares of 6 companies are listed on the main list of the TSE, and 9 companies are listed on the Tallinn I-List (formerly called the secondary list). The other lists are the Tallinn Bond List, the Tallinn Fund List and the Tallinn Free Market.

(To be continued)

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