UPDATE 1-Estonian watchdog says unacceptable clients remain in banking system

Unacceptable clients remain in the Estonian banking system despite tougher regulation, the country's financial watchdog said on Wednesday, adding that some lenders will be placed under detailed monitoring. The move by Estonia's Financial Supervisory Authority (FSA) follows a special review of the country's 16 banks, instigated after 200 billion euros ($225 billion) of suspicious payments were last year found to have moved through Danske Bank's small Estonian branch.

"Despite the implementation of know-your-customer measures there are clients who are not acceptable for the Estonian financial system," FSA board member Andre Nomm told a news conference. The money laundering crisis deepened when Swedish lender Swedbank was linked to the scandal in February.

Swedbank is the subject of a joint investigation by the Swedish and Baltic financial watchdogs after media reports said the bank knew about transactions worth up to 20 billion euros a year from high-risk, non-resident clients through its Estonian branch between 2010 and 2016. Nomm said the risks to Estonian banking from serving non-residents have been substantially reduced and that the majority of the banking was now focused on serving local business and private clients.

However, he said some banks, including Swedbank, had been put on detailed monitoring plans. Nomm declined to name the other banks but said they covered the entire spectrum of the country's banking system. "We are giving a single and consistent message to the managers of the banks that Estonia is no place for dodgy banking," Nomm said in a separate statement.

Swedbank Chairman Lars Idermark quit last week, only days after the board ousted its chief executive over her handling of the money laundering scandal. ($1 = 0.8866 euros) (Editing by Simon Johnson and David Goodman)