Hungary: EU accession - financial services

What changes have already been made to Hungary's laws on financial services?

In 2001, Hungary liberalised its regulatory restrictions regarding foreign exchanges to facilitate the free movement of capital.

By adopting the Act on Capital Markets in 2001, Hungary has amended its applicable regulations regarding the issue and trading of securities, exchange markets, investment service providers, investment funds, take-overs and clearing houses, both to comply with EU legislation and to satisfy various practical needs. This Act also introduced the Arbitration Court of Capital Markets.

Due to an obligation of the Hungarian legislature to create legal regulations in compliance with EU law, most of the existing financial regulations are in harmonisation with EU law:

• the capital adequacy, prudential supervision and reporting obligations of credit institutions, non-life insurance, life assurances and investment firms are regulated according to the relevant EU directives
• provisions relating to UCITS have been introduced in compliance with EU requirements
• Hungarian regulations in respect of money exchange activities reflect both EU directives and recent international developments regarding anti-money laundering requirements
• the central credit information system has been improved in order to ensure the protection of the interests of credit institutions
• special provisions in respect of consumer credit have been introduced to Hungarian banking law
• the division of insurance businesses (life-insurance and other insurance) is being strictly enforced
• restrictions in relation to the investment of assets of insurance companies have been eased – they are now allowed to invest in all OECD countries; and
• special regulations in respect of legal assistance insurance have recently been introduced.

What changes to Hungarian financial services law come into effect on accession?

Further compliance with EU law is being achieved partly by legislation already adopted, which will come into force upon Hungary joining the EU, and partly by proposals for national legislation, not yet adopted:

• the principle of "home country control", "single licence" and "European passport" will come into force on accession
• cross-border initial public offerings and other investment services can be provided by investment service providers having their seats in another Member State of the EU
• the Hungarian Financial Supervisory Authority will co-operate with the financial supervisory authorities of other Member States of the EU, and as such co-operation will ease the establishment and operation of branches of financial/credit institutions
• the introduction of European investment funds to Hungary will provide additional further investment possibilities for Hungarian nationals
• EU-based companies having a licence to engage in securities trading will be granted entitlement to engage in trading on a Hungarian exchange market without additional requirements
• settlement finality in payment and securities settlement systems will be adopted into Hungarian national legislation
• investor compensation schemes will be harmonised by 2007
• reorganisation and winding up of credit institutions and insurance undertakings will have to reflect the latest EU developments; and
• the taking up, pursuit and prudential supervision of the business of electronic money institutions are going to have a harmonised national legal frame work.

What can you do to ensure you comply with the new law and prepare for accession?

The accession to the EU opens many doors both for foreign investors and financial institutions:

• Hungarian financial institutions should be aware of the possibilities of a single European passport and the opportunities this affords to establishing branches outside Hungary
• Hungarian companies should consider appointing foreign investment banks in relation to issuing and trading of securities on EU stock exchanges; and
• providers of investment services should be aware of the financial and legal aspects of new investment possibilities.

For further information please contact Gabriella Ormai.