Answer ... Fintech-specific regulation is still limited in Hungary. Although the regulator has introduced specific regimes in respect of innovation-based services - such as rules pertaining to account information service providers (AISPs) and payment initiation service providers (PISPs) - in general terms, there are no specific fintech regulations in Hungary. It must therefore be analysed on a case-by-case basis whether the rules applicable to incumbents also apply to fintech companies.
The provision of financial services, investment services and insurance services – irrespective of the method or device used – is regulated and subject to licence from the National Bank of Hungary (NBH). As Hungary is a member state of the European Union, all EU laws and regulations relating to financial services and capital markets have been implemented into national law or are directly applicable.
Financial institutions (ie, credit institutions and financial enterprises) that take deposits, grant loans, credit or financial leasing, or provide payment services, among other things, fall under the scope of Act CCXXXVII of 2013 on Credit Institutions. Act LXXXV of 2009 on Payment Services and Act CCXXXV of 2013 on Payment Service Providers are also applicable. Investment service providers must comply with Act CXXXVIII of 2007 on Investment Service Providers and Commodity Dealers and Act CXX of 2001 on the Capital Markets. Insurance activities are regulated under Act LXXXVIII of 2014 on Insurance Activities. Where an activity falls under the scope of the corresponding regulation, the service provider must comply with each regulatory requirement specified by law.
As a result of the implementation of the Second Payment Services Directive (PSD2), rules on open banking (under which financial institutions are obliged to grant access to third-party service providers) and more relaxed conditions regarding AISPs and PISPs have been introduced.
Answer ... As mentioned in question 1.1, the level of fintech regulation in Hungary is rather limited. Special rules in line with PSD2 apply, for example, to AISPs and PISPs.
In order to incentivise innovation, the NBH has introduced a regulatory sandbox, which allows regulated financial service providers to test innovative technologies, business models, products and services that would make financial services cheaper or more easily available for customers. Where the NBH allows admission to the regulatory sandbox, it may exempt the financial service provider from the application of certain regulatory requirements (eg, regarding client identification through the use of audited electronic instruments; secondary account identification; professional competence in respect of the provision of investment advice; complaints handling; and debt service to income ratio or total expense ratio). A licence for testing is valid for a limited period of 12 months and the service provider cannot have more than 10,000 clients in this period.
Answer ... Service providers in the money market and capital markets, as well as insurance companies, fall under the supervision of the National Bank of Hungary (NBH). The provision of financial services, investment services and insurance is subject to a licence issued by the NBH. The NBH will ensure that the service provider complies with all regulatory requirements, both when applying for a licence and while operational. Major operational changes (eg, the appointment of new management, or changes relating to initial capital, activities or general terms and conditions of services) are also subject to the prior approval of the NBH.
Service providers must regularly submit data to the NBH to facilitate the ongoing supervision of market players.
The NBH is also responsible for supervising compliance with the rules on consumer protection. To this end, it may carry out investigations of service providers. In case of infringement, the NBH will impose administrative sanctions such as fines, the appointment of a supervisory commissioner or withdrawal of a licence.
The governor of the NBH may also issue decrees on specific rules concerning financial services. The NBH also issues guidelines and opinions on good practice or the interpretation of law.
The Hungarian National Authority for Data Protection and Freedom of Information (DPA) is responsible for monitoring compliance with data protection rules. Among other things, the DPA may conduct investigations in case of data protection infringements and has the right to impose fines.
Answer ... According to its fintech strategy published in October 2019, the NBH is dedicated to developing an advanced and active fintech ecosystem. As the level of digitalisation in Hungarian financial institutions is rather low, an indirect goal of the NBH is to promote greater digitalisation, so that the financial sector becomes more effective and competitive. The NBH believes that a high level of digitalisation should help to support the stability of the financial system; but it also points out in its strategy that risks relating to financial stability and consumer protection may result if financial services fall outside the scope of its supervision. Security and consumer protection are key aspects that the NBH is considering in connection with innovation.
In its fintech strategy, the NBH suggests that legislation should support the fintech sector through the following solutions:
- The regulatory sandbox should be available for service providers that do not yet hold a licence.
- Crowdfunding platforms, initial coin offerings and security token offerings should be regulated.
- Tax burdens (eg, the financial transaction duty) should be eased.
- The rules on online contracts and signatures should be simplified.
- Certain central database data (eg, land registry data, tax income data) should be made available for financial market players.
The government is also making efforts to promote digitalisation and other fintech-related developments. The objectives set out in its Fintech Strategy include:
- enhancing the possibility to use artificial intelligence (AI) in credit scoring;
- increasing electronic transactions to 50% of all payments;
- extending the use of the regulatory sandbox; and
- regulating crowdfunding.
It has also launched a Digital Wellbeing Programme, through which research labs have been established in cooperation with universities. These research labs provide a platform not only for the exchange of information, but also for research programmes concerning a wide range of digital improvements, from the Internet of Things to smart cities.
Answer ... There is no official trade association for the fintech sector. However, the NBH has suggested that a fintech association be established. Associations that represent market players relating to the fintech sector include the Hungarian Banking Association, the Association of Hungarian Insurance Companies, the Electronic Payment Service Providers Association and the Association of Hungarian ICT.
FintechGroup (https://fintechgroup.hu/) is a digital financial agency that helps to connect fintech and insurtech companies and local financial institutions, as well as third-party service providers. It analyses fintech trends, promotes best practices and organises fintech conferences.
On the initiative of the Ministry of Innovation and Technology, the Hungarian AI Coalition has been established. Its members include universities, research labs and international and local enterprises, including market players in the financial sector.