As reported on ERR News, the Estonian branch of Danish Danske Bank has been ordered to close by the Finanical Supervisory Authority (FSA), ending months of speculation following revelations that as much as €200 billion in potentially illicit funds had passed through the bank over a period of several years.
Danske has been ordered to cease its activities in Estonia within eight months of the issuing of the FSA precept, in other words no later than 19 October 2019, whilst taking into account its customer interests, the FSA stated in a press release.
Danske has close to 14,700 deposit customers and 12,300 loan customers, at the time of writing, the FSA stated.
Customers' rights and what happens if Danske doesn't follow the precept
So far as customers of Danske Estonia go, no immediate changes should arise, the FSA said, and all customer agreements remain in place. The reorganisation of customer relations and return of full deposits is to take place within the eight-month time-frame, and the bank may not use the precept as a pretext to either force the early repayment of existing loans, or cancel already-agreed loans.
In fact, partly because of concerns the FSA had about the bank in 2015, Danske stopped taking on individual, private clients, as well as non-resident customers, it is debatable how disruptive the closure is likely to be to most ordinary high-street customers. The largest high street bank in Estonia is Swedbank, followed by SEB, and Coop Pank and the homegrown LHV provide private account facilities as well.
Nevertheless, Danske loan agreements must either be transferred to another bank unconnected with Danske, another creditor with the right to operate in Estonia, or loans must be re-sold or have any other legal solution imposed which ensures the loan agreement remains in place and protects borrowers rights, the FSA said.
Breaching the FSA precept will cost the bank €100,000 per day, per violation, until resolution, capped at 10% of the total annual net turnover of the bank, the FSA continued, and the bank must submit an action plan detailing how it will close down the branch, within 20 days of the issuing of the precept (ie. by 11 March 2019).
The FSA added that it will be monitoring the branch liquidation closely, and is ready to use additional supervisory measures in the interests of customer rights and the proper functioning of the financial sector, should such a need arise.
FSA overview of events leading up to the ordered closure
The FSA also detailed the circumstances leading up to the bank's closure, noting that it violated anti-money-laundering regulations for many years, by taking on high-risk clients who then made suspicious transactions via the bank.
The actual scope of Danske Bank's violations came fully into the light by Autumn 2018 following Danske Bank's own internal investigation reports, which were prepared by the bank, in part influenced by public pressure, the FSA said, and following this report, on-the-spot checks at the bank and a thorough analysis by the police Financial Intelligence Unit (FIU) caused them to draw the conclusion that the bank must cease its acitivties in Estonia.
The long-term nature of the violations and the disruption to the Estonian financial environment makes the unequivocal stance of the FSA unavoidable, it said. Whilst the bank's admission of violations presents some mitigation, this also resulted from public pressure, the FSA noted.
FSA says it is covered
''The situation where such serious and extensive violations of local rules have been committed via the branch of a foreign bank has resulted in the greatest blow to the transparency, trust and reputation of the Estonian financial market, and whilst the regulatory authority in the bank's country of origin [ie. Denmark-ed.] treated the bank too gently, the FSA reserves the right to bring closure to this exceptional case" , said FSA Chair Kilvar Kessler, as quoted in the FSA press release.
Mr Kessler added that in 2015, the FSA had already ordered the bank to cease activities connected with non-resident customers in Estonia in the light of evidence available at that time, in fact the only authority either in Estonia or in Denmark to do so.
Update: Danske to cease all its banking activities in Baltic States and Russian Federation
In addition to agreeing to closing the Estonian branch as per the FSA requirements, Danske has announced it will close all of its banking activities in the Baltic countries and Russia, it is reported.
The bank had reportedly been considering the future of its remaining activities in Estonia, Latvia and Lithuania, as well as the activities in Russia, independently of the FSA decision, and has now decided to close down all of these activities, the bank said.
The move is also in line with its strategy of focusing on its Nordic core markets, it said, and its shared services center in Lithuania, which undertakes a number of administrative functions, will continue its operations, it is reported.
Editor: Andrew Whyte