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ECB withdraws Estonian bank's license over compliance failings


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ECB withdraws Estonian bank's license over compliance failings

Another bank from the Baltic region has lost its operating license after its compliance systems were found lacking.

The ECB's Governing Council withdrew Ukrainian-owned Estonian lender Versobank AS' authorization to operate as a credit institution, following a recommendation by Estonia's Financial Supervisory Authority, or Finantsinspektsioon.

As of March 26, Versobank's transactions and operations, as well as payments to depositors and other creditors have been suspended immediately. Finantsinspektsioon also canceled the bank's identification code, informed the Guarantee Fund about its authorization withdrawal and filed an application with a court for the Estonian bank's compulsory dissolution and appointment of liquidators.

The regulator submitted an application to the ECB on Feb. 8 for the withdrawal, having found that Versobank had not fully tackled long-lasting systemic breaches of legal requirements, especially regarding procedures to prevent money laundering and terrorism financing. The Estonian FSA found those breaches during its inspections of the bank between 2015 and 2017.

The ECB said Versobank's operating model was focused on high-net-worth and nonresident corporate customers, presenting "significant money laundering and terrorist financing risks." It also said Versobank had been improperly operating a branch in Latvia, about which it misled the Estonian FSA, including by continuing to operate there after telling the regulator it had closed the establishment. Latvia eventually prohibited Versobank from operating in the country.

Finantsinspektsioon Chairman Kilvar Kessler said the withdrawal of Versobank's license is an isolated incident and does not concern any other credit institutions operating in Estonia. Kessler added that the closure of Versobank, one of the smallest entities in the country, will not have any negative impact on the Estonian financial system.

Versobank had total assets of €293.7 million and total customer deposits of €253.6 million as of the end of 2017, according to S&P Global Market Intelligence data. The Estonian central bank, or Eesti Pank, said the closure would have "very little impact" on the economy and banking system, given its marginal market share and the fact that 87% of its deposits were held by nonresidents.

Meanwhile, Versobank reassured its customers that there was "no reason to panic" and that the bank is liquid, while all of its liabilities are covered.

The shuttering of Versobank follows the planned liquidation of Latvia's ABLV Bank AS, which the ECB on Feb. 24 deemed "failing or likely to fail." That came less than two weeks after the U.S. Treasury's Financial Crimes Enforcement Network said it would label ABLV an institution of primary money laundering concern, which would have led to its being cut off from access to U.S. dollars.

Danske Bank A/S also faces an investigation from Estonian authorities over accusations that it hid suspicions of money laundering through its branch in the country.

Ukrainian ownership

Versobank is more than 85% owned by Ukraine-based Ukrselhosprom PCF LLC, which acquired the lender in 2012 from Cyprus Popular Bank Public Co. Ltd. Cyprus Popular Bank failed during the 2013 Cypriot banking crisis.

The ECB identified the lender's main shareholders as Ukrainian businessmen Vadim Iermolaiev and Stanislav Vilenskyy. It also noted that both sat on the bank's supervisory board until February, when Iermolaiev's son, Artur Yermolayev, was appointed in his place. Vadim Iermolaiev chairs the bank's board.

Vadim Iermolaiev is one of Ukraine's 100 wealthiest individuals and founded conglomerate Alef Trading and Industrial Corp. in 1995. He also founded Ukrainian lender AktaBank, which the Ukrainian central bank declared insolvent in September 2014 after it failed to curb risky behavior identified by the central bank under laws relating to terrorist financing and money laundering risk.

Aivo Adamson took over as CEO of Versobank in July 2017, and the rest of its management board was replaced in November 2017, with the new executives forming what the ECB said was the bank's fourth management board since 2015. Adamson had been CEO of Estonian telecoms company AS Starman, and also formerly worked at Swedbank AB (publ)'s Estonian unit from 2005 to 2012.