Estonia’s banking system is mainly based on the Banking Law that comprises several regulations in order to ensure the correct functioning of the country. The most important law on banking in Estonia is the Law on the Bank of Estonia (Eesti Pank Act).
Eesti Pank or the Bank of Estonia is the central bank of the country. Estonia is a member state of the European Union, so the main role of the Estonian Central Bank is to regulate and enforce the monetary policy of the European Central Bank. Eesti Pank must also keep and manage foreign exchange and ensure economic stability of the country. Estonia uses the currency board system to administrate the exchange rate. The Estonian kroon can be easily converted therefore free movement of capital is possible. The Estonian currency board is a system based on very strict regulations. According to the currency board, the Estonian Central Bank is required not to lend money to the government, while the Estonian Kroon Act prohibits Eesti Pank to deflate the exchange rate of the kroon (in Estonia 1 EUR= 15,6466 kroons). The most important monetary policies enforced in order to ensure the financial stability of the country are the continual possibility to buy and sell foreign currency and the requirement for commercial banks to always have a reserve of money.
All banks provide the same financial services for local and foreign individuals or Estonian companies. One of the strongest points in Estonia’s banking system is the electronic transaction network, as the number of financial transactions done online is rapidly increasing. International banks also work together with other financial institutions or mobile operators in order to provide new modern solution for their customers. Commercial banks in Estonia play a key role in providing leasing and factoring services, as during the last years, interests have decreased in order to attract more clients. The factoring services offer domestic, export, invoice services, and for foreign companies they even include managing the accounts receivable registers for their local businesses.
Investment institutions in Estonia offer different types of investment funds, contractual funds and pension funds being among the most popular, while the Estonian Central Security Depository offers public limited companies the possibility to register their securities.
The Estonian Financial Supervision Authority is the agency in charge with monitoring banks, insurance companies, investments companies, management companies and the security market. Its main role is to secure clients’ and investors’ interest thus increasing the Estonian’s monetary system credibility. The Financial Supervision Authority makes sure that financial institutions fulfill their duties towards clients and also makes sure no frauds are committed. The Financial Supervision Authority Act was enforced in June 2001.
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