Strategic objectives of the Estonian Banking Association 2018-2020
Operating since 1992, the Estonian Banking Association is the
representative organisation of the Estonian banking sector. The 10 member banks
of the Estonian Banking Association employ 4,000 people, serve 2.2 million
customers and own 25 billion euros in assets, of which 19 billion euros has
been lent out to the Estonian economy. The main objectives of the Estonian
Banking Association are to develop Estonian banking and coordinate the joint
activities of its member banks. The Estonian Banking Association is a member of
the European Banking Federation.
The strategic objectives of the Estonian Banking Association in 2018-2020 are an impeccable reputation for Estonian banking, competitiveness and innovativeness, and responsible banking. The keywords for the Estonian Banking Association during this period are proactiveness, cooperation and open banking.
1. An impeccable reputation for Estonian banking
- Ensuring the trustworthiness and transparency of banking sector
- Development of self-regulation and impeccable managerial culture in banking
- Ensuring on business continuity of banking services
Estonian banking sector must be reliable and transparent in the eyes of
both Estonian and foreign partners. High capitalisation and the necessary guarantee
schemes must ensure depositor protection and give assurance that taxpayer money
will not be used to rescue banks.
We take prevention of money laundering very seriously. We deem it important to keep the banking system from being used for money laundering or terrorism financing and for banks use risk control measures that meet Estonian legal acts, guidelines issued by international organisations and the requirements imposed by partner banks. We value impeccable reputation Estonian banking sector and that banks do not take risks that could have a negative influence on the security and trustworthiness of the sector.
We support cooperation between banks for the aim of making the services offered to customers secure and guaranteeing business continuity.
- Development of new diligence measures for prevention of money laundering. We will take joint steps to ensure the implementation of sufficiently strong and effective control mechanisms for prevention of money laundering and other illegal financial schemes in the Estonian banking sector. Common due diligence measures for prevention of money laundering is compulsory for all members.
- Raising the awareness of implementation of Know Your Customer (KYC) principles in banking. We are active in terms of more broadly spreading awareness of KYC principles as a central tool for reducing risks of money laundering and terrorism financing. The KYC process encompasses establishing the identity of the customer, determining the origin of the customer’s assets, and monitoring the customer’s everyday economic transactions and understanding their content. We proceed from a risk-based approach in mitigating money laundering and terrorism financing risks. We support reaching agreement as soon as possible on a definition of politically exposed person and establishing a functioning registry of PEPs.
- Making the process of serving non-resident clients more effective. We have proposed various steps that can be taken in cooperation with the state to shore up the system for serving non-residents, including e-residents and foreign investors. Some of these steps are populating the beneficial ownership register with reliable data and creating access to the necessary state registers. We are prepared to make efforts to ensure that the solutions developed in cooperation with the state are sufficient for fulfilling obligations arising from legislation, efficient and not unduly bureaucratic. We support the proposal to allow capital contributions to enterprises to be made through banks operating in jurisdictions outside of Estonia. We also back a proposal aimed at decoupling securities accounts from bank accounts.
- Monitoring the share of deposits held by high-risk non-residents. A low percentage of deposits held by non-residents is an indication of the trustworthiness and transparency of the Estonian banking sector. We keep an eye on changes in the percentage of deposits held by non-residents in Estonian banking and are prepared to respond if it should rise significantly. In the case of non-residents’ deposits, we keep separate track of customers with different risk levels (European Union, other countries, higher-risk countries, offshore areas).
- Expanding the disclosure of data regarding the banking sector. We will start publication of compact and supplementary consolidated data on the banking sector with the aim of giving a better overview of the latest developments in the Estonian banking sector.
- Seeking the opportunities for expanding correspondent relations for USD payments. USD payments are an important service for Estonian companies. In cooperation with banks and US government agencies, we are looking for ways of establishing additional correspondent relations for Estonian banks.
- Raising the awareness of data security risks in banking. Management of cyber security risks has become an increasingly important field in banking. The realisation of data security risks may lead to significant problems for banking services with regard to availability, confidentiality and integrity of data. We will share banks’ experience managing cyber security risks between Estonian Banking Association members and we will devote attention to management of data security risks in banking and use of banking services.
2. Competitiveness and innovativeness
- Promoting healthy competition in the banking sector
- Contributing to the creation of a up-to-date legal environment
- Ensuring innovation in payment services in the banking sector
We support self-regulation in banking with the aim of mitigating
potential conflicts of interest and promoting good banking practices. Following
good banking practices must, among other things, ensure proper relations
between banks and support fair and healthy competition.
We will contribute to cooperation with government departments and agencies responsible for legislative drafting with the aim of shaping a modern legal environment in Estonia. To ensure that European Union regulations are transposed to national legislation in a reasonable extent, we will offer our cooperation partners banking expertise and support, aimed at reducing costs to society from implementation of various administrative measures.
We support bringing innovative and consumer-friendly, convenient and secure products and services to market. We will recognise the best solutions with an innovation award.
- Supporting the proposal on adjusting the policy requiring banks to calculate advance payments of income tax. The advance income tax imposed on banks harms banks’ competition situation, curtailing the ability of rapidly growing and local-capital-based banks to grow and finance the economy. We have submitted a proposal for an amendment to the Income Tax Act that would allow banks to deduct an additional 5 million euros a year from their total quarterly profit – the basis for taxation – in order to reach fair and adequate tax base. We will make proposals to refine the wording of the Income Tax Act and its implementing acts for the assessment of advance income tax.
- Proposing the establishment on liquidity assistance by the Bank of Estonia. A large share of the loans issued by Estonian banks is financed by Estonian depositors’ funds. Estonian banking has become more independent from the financing of parent banks. We stress the importance of development a possibility for providing central bank liquidity assistance to banks also in Estonia.
- Proposing to expand the number of banks in which local governments can settle accounts and deposit money. We propose amending the Local Government Financial Management Act to broaden the range of options that local governments have for using bank services at banks that meet the agreed conditions but which have not been assigned a credit rating.
- Supporting the passage of a Covered Bonds Act. This would create a way for Estonian banks to issue covered bonds and for investors to invest money in them, thus stimulating the Estonian capital market. The covered bonds are secured by banks’ claims against real estate loan recipients or against state and local government units.
- Increasing the share of contactless payments. Contactless technology will make it more convenient to make small purchases and save time at the payment terminal. Contactless payments are beneficial for both card users and merchants. Our goal for the end of 2020 is for 100% of payment terminals to accept contactless payments, 50% of issued cards to have contactless capability and 25% of payments made at terminals to be contactless. We will supplement payment terminals with an online PIN capability that will allow contactless payment for larger purchases as well. To encourage the wider spread of e-commerce, we will adopt use of 3-D Secure 2.0.
- Introducing of real-time payments. Instant payments will make it possible to make euro payments around the clock in just seconds. Our goal is for instant payments to start functioning among the first banks in autumn 2018 and for instant payment to become the new standard for making payments.
- Introducing new payment solutions. The objective of the new payment solutions is simpler and more convenient execution of payments. As potential new payment solutions, we envision the possibility for payments to be initiated knowing only the recipient's telephone number or by scanning a QR code. Swipe-to-pay mobile payments are also a possible solution.
- Adopting open banking standards. Open banking will allow bank customers to permit other companies to access their bank account data. Starting in September 2019, banks must be prepared to offer this information, should customers so desire, to third parties over a secure channel. We will develop the necessary application programming interfaces (APIs) for this purpose. We do not support screen scraping. With the aim of security and simpler adoption of services, we will proceed as a basis for developing standards of the existing Berlin Group standards, which are the most widespread in Europe. This will promote more effective cooperation between banks and financial technology companies.
- Supporting the usage of strong authentication solutions for authentication of customers. Secure and convenient customer authentication methods such as the ID card, Mobile-ID and Smart ID will make it possible to reduce the use of password cards, which have insufficient security, with the aim of phasing out password cards completely in the future. In addition to ID cards and mobile ID, we support the spread and acceptance at the state level of other alternative digital and certified secure authentication methods such as Smart ID.
- Launching negotiations to establish a common network of ATMs. With use of cash decreasing, it will be expedient to engage in cooperation between banks in order to ensure the optimum ATM network for the customers of all banks. In cooperation, banks will be able to offer ATM services on better conditions than they would be able to do separately. After securing approval from the Competition Authority, we will start negotiations for establishing a common ATM network, which all banks will be able to join. If possible, the common ATM network will cover all of the Baltic states.
3. Responsible banking
- Upgrading the principles of responsible lending
- Encouragement financial literacy and responsible saving
- Engaging the cooperation and exchange experiences with key partners
We deem it necessary that, in line with the implementation of
responsible lending principles, the financial capabilities and obligations of people
in Estonia are sustainable. Financial behaviour must not create problems for money
matters of inhabitants of Estonia.
We will contribute to advancing financial literacy among Estonian inhabitants, above the young, by organising training for school-age children in cooperation with banks and increasing awareness in cooperation with the media. We deem it necessary for people in Estonia to save up enough of a financial buffer for them to meet their needs in different points in their lives.
We are open to cooperation and exchanging experience with key partners in Estonia and in Europe as in general. Common activities must create value for Estonian Banking Association members and partners.
- Proposing solutions for reducing market failures related to financing the economy. We consider it important to improve the availability of financing for regional investments, digital and intellectual property, and start-up companies and certain specific sectors (such as the defence industry, aircraft manufacturers) in cooperation with the state.
- Supporting responsible lending and, in conjunction with the state, creating a system for exchanging data on positive credit information. Pursuant to the Creditors and Credit Intermediaries Act and responsible lending principles, banks are obliged to verify the information submitted by customers on their incomes and liabilities. For the purpose of ensuring implementation of sufficient measures for responsible lending and to limit overlending, we will launch a positive credit information data exchange system, which is obligatory for all banks and creditors and credit intermediaries with an activity licence. We will propose necessary legislative amendments for launching the data exchange system.
- Automating the querying of data from the Tax and Customs Board on personal incomes. To verify the information declared by customers and to reduce the need for them to submit bank statements, we will automate querying of data from the Tax and Customs Board on the person’s employer and incomes, which we will take into account in the credit application process.
- Proposing the amendments to the Advertising Act. We deem it necessary to broaden the amount of information allowed in consumer credit advertisements for the Advertising Act to allow customers to be notified of new and more cost-effective services.
- Continuous promotion of financial literacy. We will take part in a programme for promoting financial literacy among the Estonian population. Special events will include a Money Smart Month, a financial education element on school curriculums and a pan-European money-themed quiz in cooperation with the European Banking Federation.
- Support of the development of the pension system to increase independent saving. As the number of working people decreases, it is important to motivate people to save for their retirement. We support implementation of an employer’s pension where payments made to the third pillar by the employer would not be subject to the pension insurance component (20%) of social tax paid on the contributions. We will make a proposal to exclude disbursements from the third pillar from counting toward the basic income tax exemption.
- Ensuring that the members of the Estonian Banking Association provide high quality of advisory service to their customers. We support harmonisation and the high quality of the Estonian Banking Association’s members’ advisory competences through self-regulation and the Baltic Financial Advisors Association in the fields of investing, saving and responsible lending.
- Engagement in cooperation with key partners in Estonia and Europe. We will engage in cooperation and meet regularly with the Financial Supervision Authority, the Bank of Estonia, the Parliamentary Financial Affairs Committee, ministries and officials, the Baltic Financial Advisors Association, Finance Estonia and other key partners. We will make cooperation with Latvian and Lithuanian banking associations and the European Banking Federation more effective.
- Organizing the exchange of knowledge and experience with Estonian Banking Association members. We will arrange for overviews to be drawn up by the Estonian Banking Association’s working groups. We will exchange experience on visits to other banking associations in Europe. If necessary, we will hold common seminars for Estonian Banking Association members and partners on specific topics.