Estonia to tighten supervision of savings and loan associations
The Ministry of Finance is ready to propose amendments that would see savings and loan associations turned into association banks to allow Estonia to exercise closer supervision over their activities. Several recent cases have seen people lose money in savings and loan associations due to managers' activities.
Minister of Finance Annely Akkermann said that supervision of savings and loan associations (S&L) needs to become more effective, which is why associations will be given five years in which to either register as association banks or close shop.
"People do not realize today that a savings and loan association is not the same thing as a bank and its deposits are not protected by the Guarantee Fund. This has resulted in several ongoing trials where people could end up losing their savings," Akkermann said in terms of why changes are needed.
"To avoid such situations in the future, we need more effective control of associations. Savings and loan associations will have to boost their share capital to at least €1 million, apply for a banking or cooperative banking license that will bring them under FSA supervision," the finance minister added. "I'm sure there are associations that welcome the changes and are willing to take the next step as FSA supervision gives member depositors additional security," Akkermann remarked.
The ministry introduced the planned changes to take effect in two stages to sector organizations on Tuesday.
The first stage will obligate S&L associations to give members additional information about their account and the association's financial situation. Delegation will be limited, with additional financial audit and credibility requirements for association managers introduced. A ban on advertising deposit interest rates should enter into force from July 1, 2023.
In the second stage, S&L associations need to secure a banking or cooperative banking license from the Estonian Financial Supervision Authority by December 31, 2027, at the latest if they want to continue operating. This will see savings and loan associations subjected to all the same requirements as banks, with the exception of share capital which can be €1 million instead of €5 million.
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Editor: Mait Ots, Marcus Turovski