Estonia strengthens legal framework for financial markets with EBRD-supported reform

The Estonian Parliament has approved amendments to the Securities Market Act and related legislation, marking a significant step forward in the country’s efforts to modernise its financial market ecosystem. The reform, supported by the European Bank for Reconstruction and Development (EBRD), introduces the uniform application of close-out netting under Estonian law and expands the scope of the financial collateral regime.

These changes are designed to eliminate longstanding legal uncertainties around the enforceability of close-out netting – a mechanism that allows financial institutions to consolidate obligations into a single net payment in the event of default. The amendments also broaden the range of eligible counterparties entitled to benefit from protections under the financial-collateral regime.

These amendments mark progress in Estonia’s effort to establish a robust legal and regulatory framework for derivatives and repos (repurchase agreements), ensuring legal clarity and safeguards for such transactions. They will pave the way for Estonia to be recognised as a ‘netting-friendly’ jurisdiction by the International Swaps and Derivatives Association (ISDA), unlocking new opportunities for local and international market participants.

The EBRD has worked closely with the Estonian Ministry of Finance to support this legislative reform, with support from the TaiwanBusiness-EBRD Technical Cooperation Fund. The work was also coordinated with and supported by ISDA. The EBRD welcomes the approval as an important new chapter in the development of Estonia’s financial architecture.

Alex Pivovarsky, EBRD Director of the Capital and Financial Markets Development team, said: “The new framework will enhance the country’s investment climate and capital market activity, increasing the attractiveness of Estonia’s enterprises and financial institutions to global credit managers and investors.”

This reform builds on the EBRD’s extensive experience in supporting the legal frameworks for derivatives across nearly 20 of its countries of operation, with Estonia now joining the ranks of successful reformers such as Armenia, Bulgaria, Georgia and Kazakhstan.

The EBRD is a leading institutional investor in Estonia. Supporting the development of the country’s capital market is a key priority for the EBRD’s work in the country. To date, the Bank has invested €1.3 billion in Estonia across 132 projects.