Summary

The legislation drafted in the context of the institutional reform of financial supervision since 1998 in Estonia has been tabled before the Riigikogu by now. In carrying out the reform, regard should be given to the legal aspects of financial regulation and financial supervision.

Restrictions governed by public law are established on enterprise by the legislator with a view to ensuring market regulation, economic development and stability, the welfare, health and security of the population and the protection of the safety of the environment. The main objective of regulation of the financial sector by public law is to protect clients against monopoly, to protect smaller and less informed clients and to ensure the stability of financial systems. Traditional regulation is based on the written law. However, the methods applied in state supervision of financial markets have become insufficient and hence it is not possible to achieve the purposeful and effective performance of the tasks of the state only by resorting to the measures employed by the public administration. The management quality of companies operating in the financial markets, including compliance with internal rules, on-going self-control (internal control), objective audits of high quality, and the provision of information on their activities are the main factors shaping market discipline. Another important factor influencing market discipline is competition. The development of the financial markets and the increase of competition are accompanied by the legal regulation of the financial markets and the role of the state in organising financial supervision.