Whilst Estonia's Financial Supervisory Authority (FSA) ordered the closing of the country's branch of Danske Bank, within eight months and with guidelines as to the minimising of upheaval for existing customers at the bank, the FSA itself, together with its Danish counterpart, is now the subject of an EU-level investigation.
The Estonian branch of Danske is to close, following an FSA announcement on Tuesday. Around €200 billion in illicit funds is thought to have passed through the bank between 2007 and 2015, mostly of Russian origin.
The FSA noted that it had been the only authority to bring a halt to the activities back in 2015 (the true scale of how much had been laundered via Danske Estonia only came to light through the latter half of 2018) and that Danske's own internal investigation was partly a bowing to public pressure.
However, the European Banking Authority (EBA), the EU's own financial regulatory authority, has opened its own investigation into possible breaches of EU law by both the Estonian and Danish FSA. If such breaches are found, however, the EBA will essentially only issue recommendations to the Danish and Estonian authorities on how they should comply with EU law.
Effectively just telling national authorities to comply with EU law
The investigation, opened on Monday under Article 17 of the EBA's founding regulation, reportedly follows on the heels of a European Commission letter which called on the EBA to use the full extent of its powers in ascertaining any failure on the part of both Danish and Estonian authorities to comply with their obligations under EU law.
EBA Article 17 means that it can address a recommendation to the competent authority concerned, setting out the action necessary to comply with EU law, should any breach be found.
Before formally opening the investigation, the EBA conducted preliminary enquiries with both authorities.
Estonian FSA response
For its part the FSA has said the authority will be, and in fact has already been, complying fully with the EBA investigation.
"The FSA has given a thorough overview to the EBA concerning its years of supervisory activity connected with Danske, and we are prepared to cooperate in a transparent manner in the future as well," said Kilvar Kessler, Chair of the FSA.
"We assume that the EBA treats supervisory practices in a uniform manner, that is, other similarly well-known cases and their timely detection by the affiliated national supervisory authorities have met with similar treatment," he added.
One recent case which Mr Kessler may have been alluding to is the EBA recommendation issued in July 2018 to the financial supervisory authority of Malta, in relation to its supervision of Pilatus Bank. The latter bank was closed down late in 2018.
"The deadline of the formal investigation is up to two months, during which time it should be determined, depending on circumstances, whether and what kind of EU legislation the financial supervision authorities under investigation have breached or have not breached," Mr Kessler said.
"These investigations concern, and I cannot say much due to EU regulations, the past, in Estonia's case a period before 2014," the head of the financial watchdog said, adding that the EBA is to give its assessment on April 18.
The EBA is an independent EU authority which works to ensure effective and consistent prudential regulation and supervision across the European banking sector. Its overall objectives are to maintain financial stability in the EU and to safeguard the integrity, efficiency and orderly functioning of the banking sector.
Editor: Andrew Whyte