EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 26 February 2021  
on the liability and audit of the national supervisory authority, the establishment of small credit 
institutions and requirements on key function holders of credit institutions  
(CON/202 1/7) 
 
Introduction and legal basis  
On 7 January 2021,  the European Central Bank (ECB) received a request from the Ministry of  Finance of 
the Republic of  Estonia for an opinion on a draft law amending the Law on banking, the Law on the Financial 
Supervis ory Authority, the Law on f inancial crisis prevention and resolution  and the Law on the National 
Audit Office1 (the ‘draft law’ ). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third and sixth indent s of Article  2(1) of Council Decision 
98/415/EC2, as the draft law relates to Eesti Pank , rules applicable to financial institutions insofar as they 
materially influence the stability of financial institutions  and markets and the specific tasks conferred on the 
ECB concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty . In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Centr al Bank, 
the Governing Council  of the ECB  has adopted this opinion.  
 
1. Purpose of the d raft law 
1.1 The primary purpose of the draft law is to transpose into Estonian law amendments to Union banking 
legislation , including the provisions of Directive (EU) 2019/878 of the European Parliament and of 
the Council3, Regulation (EU) 2019/876 of the European Parliament and of the Council4, Directive 
(EU) 2019/879 of the European Parliament and of the Council5 and Regulation (EU) 2019/877 of the 
 
1 Krediidiasutuste seaduse muutmise ja sellega seonduvalt teiste seaduste muutmise seaduse eelnõu 312 SE. The draft 
law discussed in this opinion is based on the draft law as presented to the Finance Committee of the Estonian 
Parliament for preparation for the first reading in the Estonian Parliament.  
2  Council Decision 98/415/EC of 29  June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
3  Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 
2013/36/EU as regards exempted enti ties, financial holding companies, mixed financial holding companies, 
remuneration, supervisory measures and powers and capital conservation measures  (OJ L 150, 7.6.2019, p. 253) . 
4  Regulation (EU) 2019/876 of the European Parliament and of the Council of  20 May 2019 amending Regulation (EU) 
No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible 
liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to col lective investment 
undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 
7.6.2019, p. 1) . 
5  Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending Directive 
2014/59/EU as regards the loss -absorbing and recapitalisation capacity of credit institutions and investment firms and 
Directive 98/26/EC  (OJ L 150, 7.6.2019, p. 296) . 
ECB -PUBLIC  
2 European Parliament and of the Council6. However, certain provisions of the draft law go further than 
the implementation of Union law .  
 Liability of Finantsinspektsioon  
1.2 The draft law proposes amendments to the Law on the Financial Supervis ory Authority7 concerning 
liability  for the actions of Finantsinspektsioon (FSA, the Financial Supervis ory Authority) . 
1.3 According to the draft  law, the FSA’s liability for a  violation of rights and damage caused in conducting 
financial supervision and performing resolution functions as well as the reinstatement  of the rights 
violated and compensation for the damage caused is determined on the basis of and pursuant to the 
procedure provided for in the Law on s tate liability8. 
1.4 The draft law also specifies  the FSA’s liability for damage not related to the conduct  of financial 
supervision and resolution functions . It provides that the FSA is  liable for damage not related to the 
conduct of financial supervision and the performance of resolution functions in accordance with the 
provisions of private law. If the funds prescribed in the budget of the FSA  are not sufficient, Eesti 
Pank is to pay the compensat ion. In this case, the FSA must  refund to Eesti Pank the compensation 
paid using budgetary funds for the two budgetary years following the payment of the compensation9. 
 Audit of the FSA by the National Audit Office  
1.5 The draft law proposes  amendments to the Law on the National Audit Office10, subjecting the FSA 
to the audits of Riigikontroll  (NAO, National Audit Office)11. These  audits include an assessment of 
(1) internal control, financial management, financial accounting and financial statements; (2) the 
legality of the FSA ’s economic activities, including economic transactions;  (3) the performance of the 
FSA’s management, organisation and acti vities ; and ( 4) the reliability of the FSA ’s information 
technology systems12. 
1.6 According to the d raft law, in the course of the audit in relation to the performance of the FSA ’s 
management, organisation and activities,  the NAO  only assesses  the performance of the FSA’s 
management in connection with the credit institutions and investment firms under its supervision13. 
According to the explanatory memorandum to the draft law, this means that when assessing the 
performance of the FSA’s management, the NAO  is entitled to assess the FSA’s activities in 
supervising the fulfilment of prudential requirements by credit institutions and investment firms and 
to assess the FSA’s activities in preventing or r esolving a financial cris is14. The explanatory 
memorandum expressly emphasises  that this does not mean that the NAO  itself carr ies out national 
financial supervision or intervenes  in carrying out the supervisory tasks of the FSA . The explanatory 
 
6  Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) 
No 806/2014 as regards the loss -absorbing and recapitalisation capacity of credit institutions and investment firms (OJ 
L 150, 7.6.2019, p. 226) . 
7  Law on the Financial Supervis ory Authority ( Finantsinspektsiooni seadus RT I 2001, 48, 267, RT I, 21.11.2020, 4) . 
8 See Section 2 clause 26 of the draft law.  
9  Ibid. 
10 Law on the National Audit Office (Riigikontrolli seadus  RT I 2002, 21, 117, RT I, 19.12.2019, 13).  
11  See Section 5 of the draft law.  
12  See Section 6(2) of the Law on the National Audit Office.  
13 See Section 5 clause 2 of the draft law.  
14  See the explanatory memorandum to the draft law (Krediidiasutuste seaduse ja sellega seonduvalt teiste seaduste 
muutmise seaduse eelnõu seletuskiri), p. 88.  
ECB -PUBLIC  
3 memorandum further states  that t he substantive activities of the FSA are intended to remain 
independent and that the NAO is to abstain from auditing the additional activities of the FSA  that are 
carried out  in relation to participation in the European System of Central Banks  (ESCB)15. 
1.7 To facilitate the audit function of the NAO,  the draft law also provides for  amendments to other acts 
enabling the disclosure of confidential information to the NAO . The FSA is permitted to disclos e to 
the NAO information originating from other resolution or competent authorities or from the Single 
Resolution Board or the ECB with the consent of such bodies and for the purposes specified in such 
consent16. The draft law also specifies that confidential information obtained in the course of financial 
supervision must  be held indefinitely but gives the FSA  the discretion to destroy the data after ten 
years, provided it is no longer necessary for the FSA’s purposes17. 
Establishment of credit institutions with an initial share capital  between EUR 1 million and 
EUR  5 million  
1.8 The draft law proposes to transpose into Estonian law the possibility granted in A rticle 12(4) of 
Directive 2013/36/EU18 by enabling the establishment of credit institutions with an  initial capital 
between EUR 1 million and EUR  5 million.  However, the d raft law sets out  limitations to the activities 
of such credit institutions. In particular, they may not provide investment services and the FSA has 
the power to de termine  that such credit institutions may not provide financial services in other 
countries either via a branch or through the provision of cross -border services19. 
Amendments to the definition of key personnel in  the Law on banking  
1.9 The draft law proposes to add a definition of key personnel members to the Law on banking. 
Currently , the Law on banking  sets out  specific requirement s relating to the expertise, skills, 
experience, education, professional qualifications,  and business reputation of the managers  of a 
credit institution, i.e . the members of its supervisory board and management board20. Under the draft 
law, the requirements previously applicable only to managers of credit institutions are extended to 
key personnel , which  also include chief financial officers, heads  of compliance, risk control and 
internal audit21.  
  
2. Observations  
Financial independence of Eesti Pank  
2.1 The ECB understands that, under  the Law on the Financial Supervis ory Authority, the FSA  is an 
agency with autonomous competence and a separate budget, which operates within  Eesti Pank and 
whose directing bodies act and submit reports pursuant to the procedure provided for in that law22. 
 
15  Ibid., p. 90.  
16  See Section 2 clause 24 and Section 3 clause 80 of the draft law.  
17  See Section 2 clause 23 of the draft law.  
18  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 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) . 
19  See Section 1 clause 14 of th e draft law.  
20  See Section 48 of the Law on banking  (Krediidiasutuste seadus RT I 1999, 23, 349,  RT I, 21.11.2020, 9).  
21  See Section 1 clause 15 of the draft law.  
22  See Section 4(1) of the Law on the Financial Supervisory Authority.  
ECB -PUBLIC  
4 Eesti Pank , in turn,  is organised as a public legal person23. The ECB understands that Estonian law  
does not provide  any possibility for Eesti Pank to exercise any kind of control over the activities  of 
the FSA24. The FSA  conducts f inancial supervision and resolves financial cris es only in the public 
interest25 and in the name of the S tate26.  
2.2 Article 130 of the Treaty and Article 7 of the Statute of the ESCB and of the ECB ( the ‘Statute  of the 
ESCB’) set out a principle of institutional independence of national central banks  (NCB s). The ECB 
has explained that the overall independence of an  NCB  would be jeopardised if it could not 
autonomously avail itself of sufficient funds to fulfil its mandate27. The ECB has further specified the 
principle of financial independence in rel ation to the financial liability of supervisory authorities  and 
emphasi sed that if a supervisory authority is placed within the institutional framework of the NCB  and 
the supervisory authority has an independent decision -making process, it is important to ensure that 
decisions adopted by the supervisory authority  do not endanger the finances of the NCB  as a whole.  
In such cases the national legislation should enable the NCBs  to have ultimate control over any 
decision by the supervisory authority that could affect a NCB ’s financial independenc e28. Therefore, 
Estonian law must ensure that decisions adopted by the FSA do not endanger the finances of Eesti 
Pank as a whole.  
2.3 The ECB understands that, according to existing Estonian law, the liability of the FSA  for the violation 
of rights or damage caused in the conduct of financial supervision and the bases of and the procedure 
for the reinstatement of rights  violated  and the payment of compensation for damage caused must 
be provided by law29. Given  that the FSA  conducts financial su pervision and resolution functions in 
the name of the State, the ECB understands that , ultimately, the S tate  is liable for damage caused 
in the conduct of financial supervision.  Against this backdrop, t he ECB welcomes  the clarifications 
introduced by the draft law , specifying  that the FSA’s liability for a violation of rights and damage 
caused in conducting financial supervision and performing resolution functions , as well as the 
reinstatement  of the rights violated and compensation for t he damage caused,  must be determined  
on the basis of and pursuant to the procedure provided for in the Law on s tate liability.  Since  the FSA 
conducts financial supervision and resolves financial cris es only in the public interest and in the name 
of the State30, the ECB understands  the reference in the draft law to the Law on s tate liability as 
mean ing that the FSA is  primarily liable as a public authority in accordance with the provisions of the 
Law on s tate liability31. Furthermore, the ECB understands that if the funds of the FSA  are insufficient 
to rectify the damage caused, the State is ultimately liable as the FSA carries out its duties in the 
name of the State. 
2.4 As regards  the liability of the FSA for damage caused in the process of conducting financial 
 
23  See Section 1(2) of the Law on Eesti Pank (Eesti Panga seadus RT I 1993, 28, 498, RT I, 22.04.2020, 3).  
24  See Section 4 of the Law on the Financial Supervisory  Authority.  
25  See Section 3(3) of the Law on the Financial Supervisory Authority.  
26  See Section 4(2) of the Law  on the Financial Supervisory Authority.  
27 See the ECB ’s Convergence Report 2020, 2.2.3 . Published on the ECB’s website at www.ecb.europa.eu.  
28  See the ECB ’s Convergence Report 2020, 2.2.3 . See paragraphs 6 and 8 of Opinion CON/2002/16. All ECB opinions 
are published on the ECB’s website at www.ecb.europa.eu.  
29  See Section 58(1) of the Law on the Financial Supervisory  Authority.  
30  See Sections 3(3) and 4(2) of the Law on the Financial Supervis ory Authority.  
31  Law on state liability (Riigivastu tuse seadus RT I 2001, 47, 260, RT I, 17.12.2015, 76).  
ECB -PUBLIC  
5 supervision and resolution duties , while  the ECB understands that ultimately the State is liable in 
accordance with the provisions of the Law on s tate liability, the ECB would welcome further 
clarification in the draft law that in relation to such damage Eesti Pank is not liable under the Law on 
state liability,  or that the S tate has sole liab ility. Under the draft law, it is not expressly clear that Eesti 
Pank is excluded from such liability. Rather, the possibility remains that Eesti Pank , as the legal 
person under which the FSA is  established,  could be considered liable for damage caused by the 
FSA while exercising  financial supervision and resolution functions. This  alternative interpretation is 
not specifically excluded by the wording of the Law on s tate liability32. Hence, the ECB would 
welcome the introduction of clarifications to the draft law for the purposes of avoiding legal uncertainty  
in that regard.  
2.5 In relation to liability for damage caused outside the performance of financial supervision and crisis 
resolution (i.e. damage governed by civil law), the ECB understands that, according to existing 
Estonian law, the FSA is  liable in accordance with the provisions of private law and within the limits 
of the funds prescribed in its budget. If  the funds prescribed in the FSA’s budget  are not sufficient, 
Eesti Pank must pay compensation for the damage33. Thus, if the budget of the FSA  is insufficient, 
Eesti Pank could ultimately  be liable for damage caused by the FSA outside the conduct of financial 
supervision or resolution.  In this respect , the ECB also welcomes the provisions of the draft law  
specifying that the FSA  is obliged to repay to Eesti Pank the compensat ion pai d by Eesti Pank (in  
place of the FSA ) from the F SA’s budget  during the following two budgetary years34. These 
provisions further ensure the financial independence of Eesti Pank. However,  the ECB would 
welcome two clarifications to the draft law . First, the ECB notes that the proposed amendment does 
not provide for  a compensating mechanism in cases  where the budget of the FSA during the following 
two budgetary years is insufficient. The ECB understands that the budget of the FSA  would in such 
instances be increased by payments from the State budget . However, the draft law does not provide 
for any such obligation on  the part of the S tate. Thus, notwithstanding the draft law , Eesti Pank could 
still remain at least partly  liable for damage governed by civil law caused by the FSA . The ECB would 
welcome clarification of the compensating mechanism to avoid Eesti Pank’s liability in this regard. 
Second,  the ECB would welcome an amendment reducing  the repayment period and/or requiring 
the FSA to pay interest to Eesti Pank on any unpaid sums due.  
 Auditing of the FSA  
2.6 The ECB notes that, under the draft law, the a udit by the NAO  of the FSA ’s management is limited 
to the performance of management in relation to the credit institutions and investment firms under it s 
supervision35.  
2.7 Based on the explanatory memorandum, the ECB understands that  the NAO ’s audit could assess 
the activities of the FSA in  supervising the fulfilment of prudential requirements by credit institutions 
and investment firms and the activities of the FSA in  preventing or resolving a financial crisis36. In 
 
32  See Section 2(1) of the Law on s tate liability.  
33  See Section 58(2) of the Law on the Financial Supervisory  Authority.  
34  See Section 2 clause 26 of the draft law.  
35  See Section 5 clause 2 of the draft law . 
36  See the explanatory memorandum to the draft law (Krediidiasutuste seaduse ja sellega seonduvalt teiste seaduste 
muutmise seaduse eelnõu seletuskiri ), p. 88.  
ECB -PUBLIC  
6 this regard, the ECB notes that the audit of banking supervision authorities should be in line with the 
principle of independence specific to banking supervision, as set out in Article 19 of Council 
Regulation (EU) No 1024/201337, which applies to both the ECB and the national competent 
authorities when acting within the S ingle Supervisory Mechanism (SSM) , as well as with the 
limitations provided in Article 27.2 of the Statute of the ESCB and Article 20(7) of Regulation (EU) 
No 1024/2013 in relation to the supervisory tasks conferred on the ECB. Thus, as previously  noted  
by the ECB , the audit should: (a) not extend to the application and interpretation of supervisory law 
and practices in the context of the SSM  – this is of particular importance in determining the scope of 
the abovementioned performance of the management  audit; (b) not interfere with and not include the 
tasks conferred on the  ECB by Regulation (EU) No 1024/2013, nor be extended so that it results in 
an indirect audit of the ECB; and (c) be carried out on a non- political, independent and purely 
profess ional basis38. The national legislative authorities  should assess whether  the draft law satisfies 
these conditions or if specifications should be introduced.  
2.8 As regards the disclosure to the NAO of  confidential data originating from the ECB , other resolution 
or competent authorities or from the Single Resolution Board,  the ECB notes that , under  the draft 
law, such disclosure is permitted only with the consent of the relevant institution and for the purposes 
specified by such institution . The ECB welcomes these conditions in relation to data originating from 
the ECB .  
  Establishment of credit institutions with an initial share capital between EUR 1 million and 
EUR  5 million  
2.9 The ECB acknowledges that the provisions of the draft law enabling credit institutions to be 
established with an initial capital between EUR 1 million and EUR 5 million arise  out of the discretion 
granted to Member States under A rticle 12(4) of Directive 2013/36/EU  to grant authorisation to 
particular categories of credit institutions with an  initial capital  between EUR 1 million and 
EUR  5 million . Thus, when exercising the discretion  provided for in Article 12(4) of Directive 
2013/36/EU , Member States  must  establish a special category of credit institutions  to wh ich the 
reduced initial capital requirement  applies. The ECB welcomes the fact that, under the draft law, such 
credit institutions may not provide investment services , and that the FSA has the power to determine  
that such credit institutions may not provide financial services in other countries either via a branch 
or through the prov ision of cross -border services.  However, the ECB cautions that a combination of 
a potentially large number of new entrants to the banking market having also a rather limited size 
and relatively low capital levels could lead to increased risks given the pot ential tendency of such 
market players to be less risk averse and to venture to wards  more aggressive behaviour in order to 
achieve their intended business goals. Thorough scrutiny needs to be applied in the assessment of 
such applications, for example in t he form of a careful and comprehensive challenge of the business 
plans presented, and with a strong focus on the risks of financial losses arising during the first years 
of business in a highly competitive market, including enhanced business plan stress testing. In this 
respect, the practice of requiring applicants to always prepare an exit plan is to be seen positively, 
 
37  Council Regulation (EU) No 1024/2013 of 15  October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).  
38  See paragraph 2.2 of Opinion CON/2016/24.  
ECB -PUBLIC  
7 and this should be a prerequisite before an authorisation is  granted.  
Extension of suitability r equirements to key function holders  
2.10 The ECB welcomes  the extension of the requirements applicable to managers of credit institutions 
to key function holders of credit institutions  as this contributes to the sound and prudent management 
of credit institutions. However, neither  the existing provisions of Estonian law, nor the draft law, 
establish deadlines for the FSA  or the ECB to carry out  the assessment of the suitability of the 
members of the management body and key function holders . In that regard,  consider ation could be 
given to introducing a possible maximum assessment period. For example,  the Joint E uropean 
Securities and M arkets Authority  and E uropean Banking Authority  Guidelines on the assessment of 
the suitability of members of the management body and key function ho lders  set out a maximum 
four-month assessment period39. This ensures  that all these persons are assessed in a timely 
manner  and that a transparent process  exists , which is known to market participants.  
 
This opinion will be published on EUR -Lex. 
 
 
Done at Frankfurt am Main, 26 February 2021.  
 
[signed]  
 
The President of the ECB  
Christine  LAGARDE  
 
39  See paragraphs 178 and 186 of the Guidelines on the Assessment of the Suitability of Members of the Management 
Body and Key Function Holders (EBA/GL/2017/12) , available on the European Banking Authority’s website at 
www.eba.europa.eu .