Reports on Observance of Standards and
Codes
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1. An assessment of Estonia's observance of and consistency with relevant international standards and core principles in the financial sector, was undertaken under the auspices of the Bank-Fund Financial Sector Assessment Program (FSAP). This has helped to place the standards assessments in a broader institutional and macroprudential context, and identify the extent to which the supervisory and regulatory framework has been adequate to address the potential risks in the financial system. The assessment has also provided a source of good practices in financial regulation and supervision in various areas. | ||||||||||||||||||||
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2. The assessment covered (i) the Basel Core Principles for Effective Banking Supervision; (ii) the International Association of Insurance Supervisors' (IAIS) Supervisory Principles; (iii) the International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation; (iv) the Committee on Payment and Settlement Systems' (CPSS) Draft Core Principles for Systemically Important Payment Systems; and (v) the IMF's Code of Good Practices on Transparency in Monetary and Financial Policies. This comprehensive coverage of standards was carried out at the request of the Estonian authorities, in light of the rapid development of the financial sector, including nonbank financial institutions. It should be noted that some of the standards are still in draft form, and some do not yet have a complete methodology to systematically assess compliance or consistency.1 3. The assessment of standards and codes draws on the self-assessments by the Estonian authorities and on field work undertaken by a joint IMF-World Bank mission which visited Estonia during February 1–11, and February 29–March 14, 2000. The assessments were based on a peer review process by Stefan Niessner (Deutsche Bundesbank), M. Srinivasan (Reserve Bank of India) and Richard Abrams (IMF) on the Basel Core Principles, Martin Halvorsen (Kredittilsynet, Norway) on the IAIS Insurance Supervisory Principles, Melinda Roth Alexandrowicz (World Bank) on the IOSCO Objectives and Principles of Securities Regulation, and Charlie Garrigues (World Bank) on the Draft CPSS Core Principles for Systemically Important Payment Systems. Jingqing Chai (IMF) prepared the Code of Good Practices on Transparency in Monetary and Financial Policies, with inputs from the sectoral experts. The expert team was coordinated by the IMF-World Bank FSAP mission led by Alexander Fleming (World Bank, mission chief) and Richard Abrams (IMF, deputy mission chief). 4. The assessment, which was based on information available through March 2000, showed that Estonia has made great strides in strengthening its supervisory framework. Progress has been particularly strong in the area of banking supervision. Supervision of insurance firms is also improving, although some concerns remain. On the other hand, oversight in the securities sector is weak. While the payment system itself is viewed as relatively strong, payment system oversight could be improved. 5. The findings regarding transparency practices were quite favorable. No significant weaknesses were identified with respect to either monetary policy or the deposit guarantee scheme, while the shortcomings in banking and insurance supervision and on the payment system were relatively minor. Transparency practices in securities supervision were assessed as somewhat weaker than the others, although the flaws were not serious. A. Background and Overview 6. The following sections summarize the assessment of Estonia's transparency practices in monetary and financial policies as they relate to the IMF Code of Good Practices on Transparency in Monetary and Financial Policies (the Code).2 3 For transparency practices in monetary policy, the BoE was assessed. For financial policies, the assessment focused on the transparency practices of the BoE Banking Supervision Department (BSD) and the Payments System Department (PSD) for banking supervision and payment system oversight.4 For insurance, the Ministry of Finance (MOF) and the Insurance Supervisory Authority (ISA) were assessed. For securities, the MOF and the Securities Inspectorate (SI) were assessed. For deposit insurance, the Supervisory Board of the Deposit Guarantee Fund (DGF) was assessed. A summary of the assessments is presented in Table 5. 7. As background, most financial sector laws in Estonia appear to be formulated with a general presumption in favor of transparency. Nevertheless, the specific legislation governing each organization as well as its position within the structure of government do have an impact on the degree of transparency. In this regard, the law governing the DGF is a relatively new one, which was designed to provide a high degree of operational transparency. The laws and regulations governing the BoE also tend to require transparency, at least in part to ensure a high degree of accountability to help counterbalance its independent position within government. Hence, operations of the BoE (monetary policy, banking supervision, and payment system) also tend to be quite transparent. On the other hand, the location of the ISA and the SI within the MOF gives rise to some factors, which tend to inhibit the potential transparency of their operations. B. Transparency of Monetary Policy5 Clarity of roles, responsibilities, and objectives8. The BoE's objective of upholding the stability of the national currency and safeguarding confidence in the stability and integrity of Estonia's currency and monetary system is established in the Constitution of the Republic of Estonia (1992). This objective and related responsibilities of the BoE are also disclosed and explained in BoE's annual report and legislation published in the State Gazette, as well as on the BoE's web site in both Estonian and English (http://www.epbe.ee/). 9. The institutional responsibility of the BoE for foreign exchange policy is specified in the Law on the Security of the Estonian Kroon (LSEK), under which the official rate of the kroon is fixed by the BoE against the deutsche mark, and the BoE has no power to devalue the Estonian kroon. Any change in the exchange rate of the kroon that results in a devaluation must first be approved by the Parliament. The LSEK is silent on whether prior parliamentary approval would be required in the event of a revaluation, although there is a presumption that Parliament would also need to agree on this step.
Source: Mission's assessment. 1/ FO: Fully observed. 10. The modalities of accountability by the BoE for the conduct of monetary policy are specified in the laws. They require written reports submitted to the Parliament, public appearance by officials before the Parliament, and published annual reports of the central bank. 11. The independence of the BoE and the rules governing interaction between the BoE and the government are specified in the Law on the BoE. The BoE is independent from all governmental agencies, and reports only to the Parliament.6 The BoE must, in conformity with its mandate, support the economic policies of the government to the extent that these policies do not conflict with the mandate of the BoE to secure the stability of the national currency and other mandates as set forth in the Law on the BoE. The autonomy of the BoE in conducting monetary policy is further protected by provisions in the Law for the Chairman of the Board of the BoE and the President of the BoE to be appointed by the Parliament for a term of five years, at the nomination of the President of the Republic of Estonia. 12. The law states that the BoE will not to be held liable for the financial obligations of the State and is prohibited from, directly or indirectly, granting credits to the state budget or budgets of local authorities, and from buying securities issued by government executive bodies. The law also specifies the minimum percentages of the annual profit of the BoE to be added to the statutory capital and reserve capital before the remaining profit is transferred to the state budget. Assessment: Fully observed. Open process for formulating and reporting decisions 13. The framework, instruments, and targets for the formulation and reporting of monetary policy decisions are defined in the Law of the BoE, the superseding LSEK, and the Statute of the BoE. Aside from disclosure of the laws and regulation in the State Gazette, the framework, instruments, and targets are also disclosed and explained in the BoE's mission statement, its quarterly review, and its annual report, all of which are available on its web site. The instruments used are also disclosed and explained to the media. 14. To ensure the credibility of the exchange rate parity, the LSEK stipulates the currency board principle that the central bank is not allowed to permit base money to exceed its net foreign reserve holdings. 15. The broad guidelines for the use of monetary policy instruments are laid down in the Law on the BoE. The Decisions of the Board and the Decrees of the President concerning the forms of the instruments and the procedures for their use are published in the annex to the State Gazette and are available also on the BoE's web site. Any major changes in such procedures are made public also via a press release to the media and on the web site as well as through discussion in the BoE's quarterly review and its annual report. 16. There is a presumption in favor of public consultations with relevant organizations and associations, mainly the credit institutions. Requirements on data reporting are regulated by the Decrees of the President of the BoE, which are published in the State Gazette, as well as on the BoE's web site. Assessment: Fully observed. Public availability of information on monetary policy 17. The annual and monthly balance sheets, including the balances of BoE's accounts and the BoE's foreign exchange reserves, are disclosed through written reports submitted to the Parliament and in its annual report, which is published in the State Gazette and available from BoE's web site. The financial statements are prepared in accordance with the Law on the BoE, the Statute of the BoE, and International Accounting Standards. Estonia joined the IMF's Special Data Dissemination Standards (SDDS) in October 1998. The data can be found on the web site of the BoE on a special page for statistics according to the SDDS. 18. The amount of emergency financial support (together with a brief explanation), as well as the BoE's shareholdings and its guarantees outstanding, is published in annual reports as explanatory notes. A press release of the rationale and amount of emergency support is also given immediately after the support is provided. Emergency credit is given only in the case of a threat to systemic instability and evidenced by a special agreement between the affected bank and the BoE. In most cases, the support has been in the form of either capital investment or guarantees. The cases where such support was given have been rare and most date back to the first half of the 1990s. 19. The BoE has a publications program, which includes, inter alia, an annual report, quarterly reviews, special reports on monetary policy and macroeconomic developments, and monthly statistics. Most of these are provided to the public for free or at a nominal charge at central bank headquarters and released to the media and on the web site. The texts of regulations are made available to the public in the State Gazette free, or for a nominal charge, and released to the media and on the BoE's web site. Assessment: Fully observed. Accountability and assurances of integrity 20. The Parliament Procedure Act covers the procedures for submitting information to and answering official requests for information by the members of the Parliament, mainly for the purpose of reporting and explaining the conduct of monetary policy and disclosing BoE's financial statements. 21. The President of the BoE submits to the Board for review the BoE's annual report, including financial statements (with explanatory notes and appendices) and the auditors' statement, which, upon confirmation by the Board, is presented to the Parliament for confirmation. The law specifies the requirements and procedures for appointing internationally accepted independent auditors for the supervision and inspection of the activities of the BoE and for the certification of its annual report. The audited financial statements in the annual report of the BoE also include the main description of the accounting principles and the report of the auditors. 22. The BoE discloses internal governance procedures through the Law on the BoE and the Statute of the BoE. These describe the responsibility and tasks of the internal audit department of the BoE, the procedure for appointment and dismissal of internal audits, required qualifications, their independence, and access to information, as well as reports to the President and the Board of the BoE. 23. Standards for the conduct of the personal financial affairs of officials and staff of the BoE and rules to prevent exploitation of conflicts of interest are provided in the Law on the BoE. Legal protections for officials and staff of the BoE are not promulgated by any laws. Assessment: Fully observed. Overall assessment 24. Transparency practices in the conduct of monetary policy are very good. C. Transparency of Financial Policies Banking supervision and payment systems Clarity of roles, responsibilities, and objectives 25. The broad objectives, responsibilities, and institutional frameworks of the BSD and the PSD are defined in the Law on the BoE, the Credit Institutions Act (CI Act), and the Statutes of the BSD and the PSD of the BoE. The laws and regulations are disclosed in written reports submitted to the Parliament, through public appearances by officials before the Parliament, in the BoE's annual report, and on its web site. 26. The broad objective of the BSD and the PSD of the BoE is to contribute to the stability and reliability of the banking sector and thus to protect the interests of the depositors while supporting the stability of the Estonian monetary system. The main responsibilities of the BSD, as stated in the CI Act (1999), include supervising individual banks and their conformity with laws and regulations, and conducting on- and off-site inspections. The head of the BSD reports to the BoE's Board biannually on the conduct of banking supervision. 27. Payment and settlement activities are regulated by Article 2 of the Law on the BoE, which assigns the BoE the responsibility of managing currency circulation, and by Article 87 of the CI Act, which requires credit institutions to settle payments through a payment system pursuant to the procedure established by the BoE. 28. Within the BoE, the BSD is solely responsible for the supervision of banking activities and relevant payment system activities, while the PSD is responsible for policy development and review in the area of payment systems. Regarding relationships for information sharing and consultation, the BSD has an MOU with the ISA. The MOU is available on the web site of the ISA. In the area of payment systems, the BoE and the representatives of the participants in the payment system (credit institutions) form the Payment Council's Payment Systems Subcommittee. However, the Council has only met once. Assessment: Broadly observed. However, the BoE has not entered into a formal information sharing agreement with the SI, because of concerns about the SI's controls on confidential information. While payment system oversight is referred to in the CI Act, the BoE has no general policy principles regarding risk management for the participants in the payment system. Open process for formulating and reporting decisions 29. The regulatory framework and operating procedures governing the conduct of banking supervisory policies are disclosed and explained in the decrees, decisions, and guidelines of the President of the BoE, and the BoE's mission statement and annual report. The regulations for financial reporting by credit institutions to the BSD are specified in the CI Act and the Statute of the BSD. Regarding payment and settlement systems, credit institutions report statistical indicators of intrabank payment intermediation to the BoE, and the statistics are publicly released on the BoE's Web site and in its monthly bulletin. 30. Significant changes in financial policies are publicly announced before they are enforced and released to the media through press releases and posted to the BoE's web site. Substantive technical changes in the structure of financial regulations are often worked out in cooperation with the credit institutions. The consultation period is at least three months, and new regulations take effect one to three months thereafter. Assessment: Fully observed. Public availability of information on supervision policies 31. The activities of the BSD, the PSD are discussed in the BoE's annual report, including information on the development of the banking sector and data on intrabank payment intermediation. (See Transparency in Monetary Policy, above.) Assessment: Fully observed. Accountability and assurances of integrity 32. Information on the operating expenses and revenues of the BSD and the PSD is included in the BoE's financial statements, which are published in the BoE's annual report. In relation to the issue of integrity, see the comments on Transparency in Monetary Policy above. Assessment: Broadly observed. Amendments to the Law on the BoE are recommended to provide some form of legal protections to banking supervisors for actions undertaken in pursuit of activities of banking supervision. Overall assessment 33. While the practices in banking supervision and payment system oversight are broadly transparent, improvements in three areas are needed. First, arrangements on formal consultation and information sharing with the SI would enhance the effectiveness of both banking supervision and securities regulation. Second, general policy principles on risk management payment system participants need to be specified and disclosed. Third, the Law on the BoE should be amended or an equivalent measure taken to provide some form of legal protection for banking supervisors. Insurance regulation Clarity of roles, responsibilities, and objectives 34. Article 59 of the Insurance Law (1998) defines the broad objectives of insurance supervision to be the enforcement of the protection of the interests and rights of policyholders, supervision of business activities of insurance companies, and monitoring of adherence to laws and regulations. The role and responsibilities of the MOF are defined in the Government of the Republic Act and Statute of MOF, which give it the power to conduct financial policy and stipulate concrete regulations, including the power to issue and withdraw licenses. The MOF framework is defined in the Government of the Republic Act and Statute of MOF and related decrees approved by the MOF. 35. The relationship between the MOF and the ISA is defined and disclosed in the Government of the Republic Act. The MOF develops and reviews policies for insurance regulation, and currently also issues and withdraws licenses, whereas the ISA carries out supervision. The MOF prescribes the procedures for the issuance of orders to insurers in cases of noncompliance and licensing. Two licensing committees have been formed with the participation of representatives of the MOF, the BoE, and the ISA. The ISA has an MOU with the BoE's BSD, which states principles for exchanging information if necessary. 36. The broad modalities of accountability by the MOF are defined in the Parliament Procedure Act and the Government of the Republic Act, which require MOF officials to appear publicly before the Parliament. The Insurance Law, the Charter of Estonian Insurance Supervisory Authority, and the Government of the Republic Act require the ISA to submit written reports to the MOF and publish reports in information bulletins. Assessment: Fully observed. Open process for formulating and reporting decisions 37. The regulatory framework and operating procedures followed by the insurance division of the legal department of the MOF are defined in the Government of the Republic Act and the Statute of the MOF. The ISA's operating procedures for supervision are specified in its Charter. The ISA is responsible for regulating financial reporting by insurance companies. The regulations for financial reporting are stipulated in the Insurance Law. The ISA shares information and conducts consultations, the formal procedures for which are disclosed in MOUs with the BSD of the BoE and the Consumer Protection Office. Certain informal procedures set by the MOF apply to ISA's consultations with the BoE. 38. The MOF posts on its web site (http://www.fin.ee/pages.php/01) information on how the MOF pursues its policy objectives in the area of insurance supervision, including changes to regulation and licensing decisions. The ISA submits a written report on its activities twice a year to the MOF. These reports, including the annual report, are disclosed in the State Gazette and on the ISA's web site (http://www.eisa.ee), which also contains data and descriptions of its operating framework, targets, and instruments. 39. For proposed substantive technical changes to the structure of insurance regulations, public consultations are normally held. The consultation period is less than one month. The new regulations take effect in not less than three months for laws and within one to three months after the end of public consultation for other regulations. All significant policy and technical changes are announced and explained immediately or within one month of the decision through public appearances by officials before the Parliament; in the State Gazette; the information bulletin of the ISA; through public release to the media; or on the web sites of the MOF and the ISA. Assessment: Fully observed. Public availability of information on regulation policies 40. The ISA issues monthly an information bulletin and an insurance yearbook to report on the major developments, and provide aggregate data of the insurance sector. In addition, the ISA submits written reports on its balance sheets annually to the MOF. When necessary, the ISA provides information on its aggregate market transactions in written reports to Parliament or in published reports in its information bulletin. 41. The ISA is financed by a levy on insurance companies. The levy is determined by the Minister of Finance. 42. Senior MOF officials are required by law to explain the MOF's objectives and performance through public appearances before the Parliament, meetings with parliamentary committees, speeches at public meetings, and media interviews. The texts of their statements are often released to the media and on the web site. Senior ISA officials explain the ISA's objectives and performance by making speeches at public meetings and giving media interviews. The texts of their statements are also often released to the media. 43. Information on the nature, form, operating procedures, and financing of the Traffic Insurance Foundation are disclosed in the Motor Third-Party Liability Insurance Act. The performance of client asset protection arrangements is discussed in the ISA's insurance yearbook. Assessment: Fully observed. Accountability and assurances of integrity 44. The SAO audits the ISA's economic activities on an irregular basis. The audit report along with the ISA's financial statements is disclosed in the web site of SAO (http://www.sao.ee), but a preannounced schedule and a full, independent audit are needed. Internal governance procedures for the MOF are specified in laws, while the internal audit arrangements are specified in the statute of the department of internal audit of the MOF. Some of the internal governance procedures for the ISA are specified in its Charter and are disclosed in the ISA's annual report, which is submitted to the MOF. There is no internal audit arrangement. 45. The Public Service Act promulgates declarations of financial interests that must be prepared by government officials on an annual basis. Officials submit their declarations with the Director General, who submits his/her declaration to the Minister of Finance. Assessment: Broadly observed. The MOF has not been able to construct its consolidated, accrual-based balance sheets, which has prevented full audit by the SAO. Internal audit arrangements are needed at the ISA, and should be disclosed. In addition, amendments to legislation are recommended to provide explicit legal protections to staff for actions undertaken in pursuit of activities of the ISA. Overall assessment 46. The practices of the MOF and the ISA in insurance regulation are broadly transparent. The areas lacking transparency point to the need for the ISA to specify and disclose internal audit arrangements at the ISA, and the need for the MOF to compile a consolidated balance sheet, which will allow for a full audit. Securities regulation Clarity of roles, responsibilities, and objectives 47. The broad objective of securities regulation as defined in Article 25 of the Securities Market Act (SMA) is to protect investors' rights and interests. As a subordinate government agency under the administration of the MOF, the SI is responsible for securities market supervision as promulgated by the SMA (1997), whereas the MOF is mainly responsible for elaboration of policy, preparing draft laws, approving regulations and the licensing of fund managers and securities intermediaries, including the TSE. This relationship is defined in the SMA, the Government of the Republic Act, and related regulations, all of which are available at no cost from the State Gazette, the web site of the MOF, and the public release to the media. The framework of the SI is defined in its Statute. 48. The SI statute stipulates that the SI must submit to the MOF an overview of the SI's principal activities and of securities market developments. The part of the annual overview presenting aggregate data on broker and fund activities is disclosed on the MOF's web site. 49. The TSE is an SRO, which is authorized by the MOF, although the MOF and SI have the same powers of oversight. This relationship is specified in the SMA and related regulations on licensing and public issuance of securities. The supervisory authority of the MOF and the SI includes licensing, the approval of the takeover codes of the TSE, on-site inspection, and the right to obtain information from the TSE. While the TSE has developed a set of internal regulations on transparency practices, which are disclosed on its web site, the MOF has not issued any rules on the financial reporting of the TSE to the SI, which has hampered the ability of the SI to obtain information on securities market activities. Assessment: Broadly observed. While the roles and responsibilities regarding supervision of the securities activities of banks are clear, the absence of a regulation on financial reporting has hampered the SI's supervisory power. In addition, there is no formal coordination and information sharing agreement between the BSD and the SI, nor is there specification or public disclosure of the terms of office for the Director General of the SI. Open process for formulating and reporting decisions 50. The regulatory framework and operating procedures followed by the securities division of the legal department of the MOF are guided by the administrative and regulatory procedures prescribed for all types of government units. The regulations for the operations of the TSE and the bond market are specified in the SMA and the regulation on issuance of municipal bonds. The SMA and the regulation are available from the State Gazette and the TSE's web site. 51. Although the SMA authorizes the SI to obtain information from other financial agencies (including the BoE and the ISA), there are no formal procedures (e.g., MOUs) for information sharing and consultation between the SI and other financial agencies. 52. Significant policy changes are announced and explained through public appearances by officials of the MOF before the Parliament and in press releases to the media, and on the MOF's web site. 53. On its web site (http://www.fin.ee/pages.php/01), the MOF posts information on the principle activities of the MOF as regards securities supervision, including changes to regulation and licensing decisions. The periodic internal report submitted by the SI to the MOF includes some review of the SI's principle activities, but no periodic public reports are issued by either the MOF or the SI on how the overall policy objectives in the area of securities regulation are being pursued by the SI. 54. For proposed substantive technical changes to the structure of securities regulations, there is a presumption in favor of public consultations. The consultation period is less than one month. New laws take effect after three months and other regulations take effect between one and three months after the end of the public consultation period. Assessment: Broadly observed. However, a regulation on financial reporting by intermediaries is needed. Public availability of information on regulation policies 55. Some general data on fund and brokerage activities are published in a periodic report by the SI to the MOF, but such information does not constitute an adequate report on the major developments in the securities market, which in fact are regularly published by the self-regulatory TSE. 56. The SI does not formally maintain a public information service, although nonconfidential information is provided on the MOF's web site. Senior SI officials also explain the SI's objectives and performance in media interviews, but the texts of these statements are not generally released to the public. 57. Information on the nature, form, operating procedures, and the financing of the Guarantee Fund for Brokers are disclosed in the TSE's regulations, and available from the State Gazette and the web site of the TSE, but the performance of the Fund is not publicly disclosed. Assessment: Broadly observed. The SI's activities could be made more transparent, and data dissemination could be improved. Accountability and assurances of integrity 58. The SI is a government agency and financed by the state budget. Although the SAO and the MOF audit the SI's financial activities on a rotating basis and the main findings of the SAO's audit are posted on the SAO's web site, the financial statement of the SI is not publicly disclosed. Internal governance procedures for the MOF, including the internal audit arrangements are specified in the Government of Republic Act, the Statute of Ministry of Finance, the Government Property Act regarding procurement procedures, and internal accounting guidelines. The same procedures apply to the SI. The Public Service Act promulgates declarations of financial interests that must be prepared by each civil servant on an annual basis. Officials submit their declarations to the Director General, who submits his/her declaration to the MOF. Assessment: Broadly observed. The financial statement of the SI is not publicly disclosed. Amendments to legislation are needed to provide some form of legal protection to staff in pursuit of activities of securities regulation. Overall assessment 59. The practices of the MOF and the SI in securities regulation are somewhat transparent. The same weaknesses in transparency in some aspects of the insurance regulation are also present in the practices in securities regulation. In addition, there are needs for a formal mechanism for information sharing and consultation between the SI and the BSD of the BoE, for the MOF to provide regulation on financial reporting by securities firms and intermediaries to the SI, and for improved transparency in the activities of the SI. Deposit guarantee Clarity of roles, responsibilities, and objectives 60. The broad objectives, responsibilities, institutional framework and general modalities of accountability of the Supervisory Board of the Deposit Guarantee Fund (DGF) are defined in the DGF Act, which is published in the State Gazette. Article 2 of the DGF Act states that the objective of the DGF is to "guarantee deposits placed with a credit institution by depositors in the event of the insolvency of the credit institution by providing compensation for the deposits under the conditions and to the extent provided for in the DGF Act." 61. The same Act defines the principles of and procedures for accounting, auditing, and publishing of the annual report, and monthly reporting by the Director General to the Supervisory Board. Article 5 of the Act states that the Supervisory Board is the highest directing body of the DGF and consists of five members--two are appointed by the Parliament, one by the Government of the Republic, one by the BoE, and one by the organizations representing Estonian credit institutions. 62. There are no formal relationships between the Supervisory Board of the DGF and any other Estonian financial agencies. Assessment: Fully observed. Open process for formulating and reporting decisions 63. The conduct of policies by the Supervisory Board of the DGF is transparent in that the operating procedures are clearly specified in the DGF Act and related decrees, which are published in the State Gazette. The Act also sets forth the regulations for financial reporting by credit institutions to the DGF; the procedures for requesting information and for submission, as established by the BoE; and the fee structure. Although there are no formal procedures for information sharing and consultation, Article 31 of the DGF Act authorizes the DGF to obtain information from the BoE on Estonian credit institutions and Estonian branches of foreign credit institutions, if deposits taken by them are guaranteed by the Fund, and to promptly notify the BoE's BSD of the failure of a credit institution to perform duties required by the Act. 64. Immediately upon approval by Parliament of proposals by the Supervisory Board of the DGF, significant policy changes are announced and explained through press releases. Explanations are also provided in the DGF's annual report. Following the DGF's establishment in September 1998, its first annual report, covering 1998, was published in December 1999. Assessment: Fully observed. Public availability of information on regulation policies 65. The nature and form of the DGF, its operating procedures, and how its guarantee is financed are stipulated in the DGF Act. Information on the performance of the DGF and any changes in policy are disclosed in the DGF's annual report, which is available to the public at no charge. 66. The 1998 annual report of the DGF included a detailed description of and data on the payouts on deposits placed with banks, as well as its balance sheet and information on its aggregate market transactions. In addition, although not required by law, the Director General and the members of the DGF's Supervisory Board are available to appear before the Parliament upon request to explain the DGF's objective and performance. Press releases are issued as necessary. Assessment: Fully observed. Accountability and assurances of integrity 67. The Director General and the members of the DGF's Supervisory Board are available to appear before the Minister of Finance. The DGF Act requires audits of the financial statements of DGF's operations by both the State Auditing Office and an international independent auditor. The financial statements of the DGF, results of the audits, and notes to the annual accounts, including accounting policies and detailed information on items, are disclosed in the annual report of the DGF, part of which is available on the SAO's web site. Internal governance procedures, including internal audit arrangements, are specified in the Statute of the DGF, which is available from the State Gazette. Standards for the conduct of personal financial affairs are specified in the Public Service Act. Assessment: Fully observed. Overall assessment 68. The practices of the DGF are highly transparent, although the disclosure of detailed procedures for information sharing with other financial agencies (such as MOUs) would be useful. Balance sheet data and data on the payouts on deposits placed with banks could be reported more frequently than once a year (e.g., quarterly). 1 The Basel Core Principles were issued in September 1997; a Core Principles Methodology was released in October 1999 by the Basel Committee on Banking Supervision. The Code of Good Practices on Transparency was adopted by the Interim Committee in September 1999; work on a supporting document is in progress. The IOSCO Objectives and Principles were issued in September 1998, and a detailed self-assessment methodology is being developed. A draft of the Core Principles for Systemically Important Payment Systems was issued for public comment in December 1999. The IAIS Insurance Supervisory Principles were issued in September 1997; a self-assessment program has been developed to assist member countries in evaluating compliance. 2 In preparing this module, discussions were held with representatives of commercial banks and officials of the regulatory and supervisory agencies under assessment. The relevant laws and regulations were reviewed. The assessment also draws heavily on the Estonian authorities' responses to questionnaires on the Code. 3 The Code identifies the broad principles for desirable transparency practices. In making public the objectives of policies, the considerations guiding policy decisions, and information on the conduct of policies, the central bank and financial agencies enhance the public's understanding of what they are seeking to achieve, provide a context for articulating their policy choices and an opportunity to obtain feedback from the market, and strengthen general credibility, thus contributing to the effectiveness of policies. 4 There are actually two departments in the BoE whose primary responsibilities relate to work on the payment system—the Payment System Policy Department and the Payment System Operations Department—but for purposes of this report they can be treated as a single department. 5 The monetary policy framework is based on a currency board arrangement (CBA) that aims at maintaining the fixed exchange rate parity through the operation of the "foreign exchange window" at the BoE, through which kroons are supplied to or withdrawn from the banking system by the buying and selling of foreign exchange. Under the CBA, there have been no day-to-day monetary operations by the BoE, which does not participate actively in the interbank money market. 6 The Minister of Finance has the right to attend the board meetings with observer status and the right to speak. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||