The financial sector in Estonia has been growing rapidly in recent years, with its strong digital infrastructure and innovative banking services. However, banks operating in the jurisdiction face various risks, such as cyber threats, regulatory changes, and external economic shocks. It is essential for retail depositors and small businesses to be aware of these risks and understand the importance of bank deposit insurance.

Bank deposit insurance plays a critical role in protecting the financial assets of retail depositors and small businesses in case a bank fails. It helps maintain public confidence in the banking system and contributes to the stability of the financial sector.

In Estonia, the Deposit Guarantee Scheme (DGS) is administered by the Guarantee Fund (GF), which operates under the legal framework set by the Estonian Guarantee Fund Act. The GF is located in Tallinn and functions as an independent legal entity.

The Deposit Guarantee Scheme of Estonia is activated when a credit institution is declared unable to meet its obligations or is put under liquidation, resolution, or bankruptcy. Upon activation, the GF compensates eligible depositors up to the coverage limit of €100,000 per depositor per bank. Temporarily high balances, such as those resulting from real estate transactions, inheritances, or insurance payouts, may be covered up to €200,000 for a period of six months from the date of the deposit.

Eligible depositors include individuals, small businesses, and non-profit organizations. However, the scheme does not cover all account holders and activities, with exclusions such as deposits made by credit institutions, financial institutions, investment firms, or deposits related to money laundering or terrorism financing.

Under the Estonian DGS, claims must be submitted within a specific time frame, typically within three months from the GF’s announcement. If a DGS claim is denied or deemed ineligible, depositors have the option to seek legal recourse through the courts. However, it is advisable for customers to first resubmit their DGS claim for reinspection.

After the DGS claim filing period has ended and there are still unclaimed or unsecured surplus deposits, the resolution authority may take further steps, including selling the bank to another party or liquidating and winding up the bank’s operations. In such cases, the remaining funds may be distributed to depositors and other creditors based on the priority of claims established by the resolution authority.

Over the last decade, Estonia has largely avoided major bank failures, primarily because of its stringent regulatory framework and efficient oversight. Nevertheless, some banks have been penalized or subjected to sanctions for failing to comply with anti-money laundering (AML) regulations. For instance, Versobank had its banking license revoked in 2018 due to AML inadequacies. Additionally, Danske Bank Estonia (formerly known as Sampo Bank) have also faced problems concerning compliance with AML regulations, highlighting the importance of adhering to such guidelines in the financial sector.

Both cases serve as a reminder of the importance of adhering to AML regulations and maintaining robust risk management practices. Although the GF did not need to compensate any depositors in this case, the incident highlighted the necessity of constant vigilance and the implementation of effective supervisory measures to ensure the stability of the financial sector.

It is essential for retail depositors and small businesses to comprehend the Estonian Deposit Guarantee Scheme, as it provides monetary security and bolsters the financial system’s stability. By familiarizing themselves with the DGS’s activation process, coverage limits, claim procedures, and historical bank failures, depositors can make more informed choices and secure their financial well-being.