Several changes to the law which would affect loan and credit providers came into force in early spring this year, putting enterprises in the finance industry under the supervision of the Financial Supervision Authority (hereafter referred to as the FSA). 

The FSA has additionally issued an explanatory memorandum that suggests that non-bank enterprises currently active in the lending market should apply for a credit institution license. This holds for cases where the enterprise incorporates bonds to finance its activity, either in a regulated market (stock exchange) or an alternative market (eg First North).

Based on EU directive, FSA has interpreted that non-bank loan providers may not raise capital through issuing bonds to investors via public markets (nor via alternative trading platforms). In the future, such enterprises will be allowed to issue bonds only to banks, insurance providers and other selected professional investors. This could prove problematic for the local market, specifically in a context where the majority of the Nordic banks dominating the Estonian financial market have decided not to fund enterprises engaged in activities of re-lending.

The stance taken by the Estonian financial inspection body is one of the strictest in Europe. It is known that in practice the legal interpretation of whether and when to consider issuing bonds as a banking activity differs between member states. In a report at the end of 2014, the European Banking Authority (EBA) noted that it is very important that the terminology around credit institutions and receiving funds from the public were interpreted in the same way across EU member states. According to the EBA, it is manifest that all changes within the framework of credibility requirements must stem from a common aim behind regulation, that is, to customize similar stipulations for individuals whose actions pose a similar danger to clients, and financial stability as a whole. The same report emphasizes the need to be cautious when bringing in changes and legal interpretations, and to assess the benefits and expenses of any decisions thoroughly.

FinanceEstonia is considering making concrete proposals to the legislators in this regards.

Aare Tammemäe
FinanceEstonia Chairman of the Board