ESTONIA Law and Practice Contributed by: Yuliya Barabash, Ivan Nevzorov, Daria Lysenko and Nikita Prokopenko, SBSB FinTech Lawyers
3.2 Legacy Players’ Implementation of Solutions Introduced by Robo-Advisers Estonian fintech companies and traditional financial institutions are gradually introducing solutions that involve robo-advisers. For investment companies, these can be algorithmic tools for portfolio man - agement, automated recommendations or digital onboarding processes, which are often combined with traditional advisory models. As a result, this reduces operating costs and expands access to products. The use of robo-advisers in Estonia must comply with and not violate the principles of operational stability and be aimed at protecting consumers. 3.3 Issues Relating to Best Execution of Customer Trades Best execution requirements in Estonia apply primar - ily to companies that execute client orders and origi - nate from MiFID II, implemented in national legislation (under the supervision of Finantsinspektsioon ). Busi - nesses must take all reasonable steps to achieve the best possible result for the client, taking into account price, costs, speed, settlement and the likelihood of successful execution. Similar approaches apply to fin - tech businesses, with an emphasis on transparency in pricing and order execution. 4. Online Lenders 4.1 Differences in the Business or Regulation of Fiat Currency Loans Provided to Different Entities The most stringent requirements apply to loans to individuals (the borrower must obtain a licence and comply with responsible lending requirements, con - duct a creditworthiness assessment, impose restric - tions on advertising and disclose full information about the cost of the loan). Finantsinspektsioon pays considerable attention to consumer protection and affordability assessment. A more flexible regime applies to small and medium- sized businesses. Lenders are also subject to financial supervision, but the requirements for creditworthiness checks and information disclosure are lower, as a higher level of financial literacy is assumed.
For corporate borrowers, the lending regime is more contractual and is determined by an agreement between the parties, while the regulator exercises prudential supervision over the lender. 4.2 Underwriting Processes Underwriting processes in financial and fintech com - panies largely depend on the type of product and are determined by regulatory requirements for certain seg - ments. In consumer lending, lenders must assess the customer’s creditworthiness, which involves checking income, financial obligations, credit history and other factors, and is aimed at ensuring that the customer is able to fulfil their obligations. In practice, fintech projects use automated scoring models, algorithmic data analysis and alternative sources of information. Although the methodology is not defined by law, it is important for the regulator to obtain information that the models are sound, trans- parent and ensure responsible service provision. 4.3 Sources of Funds for Fiat Currency Loans Most often, sources of fiat currency funds for loans depend directly on the applicable business model. Many fintech lenders operate with their own or inves - tor capital, and here the main regulatory require - ments are related to licensing of lending activities and responsible lending rules. Another common model is crowdfunding or peer-to- peer financing to attract private investors through online platforms, which is subject to regulation and mandatory investor protection requirements. Some fintech companies attract bank financing and credit lines from institutional investors, which creates requirements for risk management and disclosure. More experienced businesses sometimes resort to securitising loan portfolios, which is also subject to regulation, including transparency requirements. Accepting deposits to finance loans is usually only possible for companies with a banking licence. 4.4 Syndication of Fiat Currency Loans In the Estonian fintech sector, loan syndication is quite rare and can be used in peer-to-peer lending and plat -
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