INTRODUCTORY PROVISIONS

Transcription

1 Act CXII of 1996 on Credit Institutions and Financial Enterprises INTRODUCTORY PROVISIONS Scope Section 1 (1) Unless otherwise provided for by international agreement, the provisions of this Act shall apply to: a) financial services, activities auxiliary to financial services, bank representation activities and voluntary institutional protection performed, and to deposit insurance arrangements provided in the territory of Hungary in accordance with this Act; b) the supervision [Paragraph c)] of bank representation activities, financial services and activities auxiliary to financial services provided - in accordance with the provisions of this Act - by credit institutions and financial enterprises established abroad by credit institutions registered in Hungary; c) the supervisory activities performed by the competent Hungarian authorities as described in this Act; d) mixed-activity holding companies and companies other than financial institutions that have close links with financial holding companies or credit institutions, which are subject to supervision on a consolidated basis; e) mixed-activity holding companies and companies other than financial institutions that have close links with credit institutions and mixed financial holding companies, which are subject to supplementary supervision; f) the supervision of outsourcing service providers under the provisions of this Act; g) the recognition of credit assessments made by external credit assessment institutions and export credit agencies, and to eligible external credit assessment institutions. (2) Unless otherwise prescribed by international agreement, the provisions of this Act shall apply to: a) the foundation and operation of financial institutions in the territory of Hungary, and to the authorization of payment institutions for providing financial services or for engaging in activities auxiliary to financial services in the territory of Hungary; b) the foundation of subsidiaries and branches by financial institutions established in Hungary and to their acquisition of any holding in a nonresident financial institution; c) the supervision - according to Paragraph c) of Subsection (1) - of financial services, activities auxiliary to financial services and bank representation activities performed according to the provisions of this Act by the foreign subsidiaries or foreign branches of financial institutions and payment institutions established in Hungary; d) the supervision - according to Paragraph c) of Subsection (1) - of financial services and activities auxiliary to financial services performed abroad by financial institutions and payment institutions established in Hungary; e) the foundation and operation of bank representation offices in the territory of Hungary; f) deposit insurance activities defined in this Act; g) cross-border financial services and activities auxiliary to financial services performed in the territory of Hungary by nonresident financial institutions.

2 Section 2 (1) The provisions of this Act shall not apply to: a) the activities of financial institutions listed in Schedule No. 1, performed in the territory of Hungary; b) the receipt of other repayable funds - other than deposits - from the public by the Hungarian State and by municipal authorities, as governed in specific other legislation; c) the business of management of cash deposits, if falling under the scope of specific other legislation; d) with the exceptions set out in Subsection (5) of this Section, Subsections (2)-(4) of Section 6/A, Subsections (1)-(2) of Section 13, Section 13/B, Section 13/C, Subsection (1) of Section 13/D, Section 18/A, Section 45, Subsections (5)-(9) of Section 67, Sections 87/K-87/L, Section 87/P, Section 132, Section 137, Section 145, Section 153, Sections , Section 168/B, Section 218 and Paragraph f) of Point 25 of Chapter III of Schedule No. 2, the payment services activities and electronic money issuance carried out by the institution operating the Posta Elszámoló Központ; where any reference made in these provisions to payment institutions and electronic money institutions shall also mean the institution operating the Posta Elszámoló Központ; e) f) the provision of customs guarantee facilities by bodies other than financial institutions, as well as the financial services provided by indirect representatives for the settlement of customs charges in customs procedures; g) h) the activities of the Magyar Vállalkozásfejlesztési Alapítvány (Hungarian Foundation for Enterprise Promotion) for providing loans from the Országos Mikrohitel Alap (National Micro- Loan Fund) and the lending operations of county and Budapest small business foundations providing micro-loans; i) (2) The provisions of this Act shall not apply to: a) extra-budgetary funds; b) c) the Treasury, subject to the exception set out in Subsection (4); d) the Magyar Nemzeti Vagyonkezelő Zrt. (Hungarian National Asset Management Zrt.), e) f) g) the Diákhitel Központ (Student Loan Center) established under specific other legislation. h) lenders providing commercial loans, with the exception of Sections 130/A-130/D, Sections 130/H-130/O, Chapter V of Schedule No. 2 and Points of Chapter II of Schedule No. 2; (3) This Act shall apply to the Magyar Nemzeti Bank (National Bank of Hungary) (hereinafter referred to as MNB ) only to the extent pertaining to the authorization of activities auxiliary to financial services falling within its scope of licensing authority, and in connection with the regulations where this Act makes an express reference to the MNB. (4) Subsection (1) of Section 13, Section 13/C, Section 13/D, Section 153, Sections , Section 168/B and Section 218 shall apply, in respect of payment services activities and electronic money issuance services provided to persons and bodies other than those falling under the sphere of the Treasury pursuant to the Act on Public Finances, to the Treasury as well, where any reference made in these provisions to payment institutions and electronic money institutions shall also mean the Treasury. 2

3 (5) Section 87/L shall apply to the institution operating the Postal Clearing Center subject to the exception that in connection with payment service activities, cash deposits made to payment accounts and cash withdrawals from payment accounts through the postal service the time limit referred to in Subsection (3) of Section 87/L may be extended by one business day. Financial Services and Activities Auxiliary to Financial Services Section 3 (1) Financial services shall mean the pursuit of the following services of a financial nature on a commercial scale, in Hungarian Forints and other currencies: a) receiving deposits and other repayable funds from the public in excess of the equity capital; b) credit and loan operations; c) financial leasing; d) payment services; e) issuance of electronic money; f) issuance of paper-based cash-substitute payment instruments (for example travelers checks and bills printed on paper) and the provision of the services related thereto, which are not recognized as payment services; g) providing surety facilities and bank guarantees, as well as other banker s obligations; h) commercial activities in foreign currency, foreign exchange - other than currency exchange services -, bills and checks on own account or as commission agents; i) intermediation of financial services; j) safe custody services, safety deposit box services; k) credit reference services; l) m) n) (2) Activities auxiliary to financial services shall mean the pursuit of the following services of a financial nature on a commercial scale, in Hungarian Forints and other currencies: a) currency exchange activities; b) the operation of payment systems; c) cash processing activities; d) financial brokering on the interbank market. (3) Subject to the exceptions set out in this Act, the activities described in Subsections (1)-(2) may be conducted as a business only if duly authorized. (4) Unless otherwise provided by law, the financial services defined under Subsection (1) as well as the activities auxiliary to financial services specified in Paragraphs a) and d) of Subsection (2) may be performed subject to authorization by the Pénzügyi Szervezetek Állami Felügyelete (Hungarian Financial Supervisory Authority) (hereinafter referred to as Authority ) pursuant to this Act. (5) Authorization procedures for the pursuit of the financial service activities specified in Paragraphs d)-f) of Subsection (1) - in respect of the program of operations and in connection with the supply of payment services - are conducted in consultation with the MNB, functioning as the competent authority. (6) The authorization and control of the activities specified in Paragraphs b) and c) of Subsection (2) shall fall within the jurisdiction of the MNB, as well as the withdrawal of such authorization. 3

4 (7) The MNB shall deliver its resolution to the Commission adopted regarding any new authorization granted for the activities described in Subsection (6). Based on such resolution, the Commission shall register the legal person to whom the authorization was granted. (8) An act of Parliament may be adopted to permit other legal entities to use bills of exchange to engage in commercial activities on their own account or as commission agents [Paragraph g) of Subsection (1) of Section 3]. (9) Tied agents may engage in agency activities without the authorization of the Authority. (10) Financial institutions shall disclose the particulars of tied agents, multiple agents and intermediary subcontractors in their employ, as well as brokers the particulars of intermediary subcontractors in their employ to the Authority with the frequency and in the manner stipulated by the Authority. (11) Venture capital funds may provide loans in the extent and to the persons specified in Act CXX of 2001 on the Capital Market (hereinafter referred to as CMA ). (12) The Authority s authorization is not required for companies other than financial institutions to engage in group financing. (13) The financial service activities defined in Paragraph e) of Subsection (1) of Section 3 may be carried out by: a) credit institutions, electronic money institutions and the institution operating the Postal Clearing Center in possession of authorization for the issuance of electronic money, b) the MNB in connection with the application of assets other than monetary policy instruments, and the Treasury on the strength of law, (hereinafter referred to collectively as issuer of electronic money ). Section 3/A (1) A nonresident company [Paragraph a) of Section 2 of Act CXXXII of 1997 on the Hungarian Branches and Commercial Representation Offices of Foreign-Registered Companies (hereinafter referred to as FCA )] may provide financial services or engage in activities auxiliary to financial services solely by way of its Hungarian branch - subject to the exceptions set out in Subsections (3) and (4). (2) In respect of the branches of third-country financial institutions, the provisions of Section 11, Subsection (2) of Section 17, Paragraph c) of Subsection (2) of Section 18, Sections 20 and 21, Sections 23-25, Sections 37-43, Sections 64-67, Section 73, Subsection (2) of Section 74, Subsections (1) and (4) of Section 75, Sections 90-96, Point 6 of Paragraph b) of Subsection (2) of Section 153, Points 1, 3 and 4 of Paragraph c) of Subsection (2) of Section 153, Sections and Section 193 of the Act shall not be applied. (3) A nonresident financial institution established in a Member State of the Organization for Economic Cooperation and Development may also engage in the activities specified in Paragraphs b) and c) of Subsection (1) of Section 3 and in Paragraph d) of Subsection (2) of Section 3 in the form of cross-border services, if it has been authorized to engage in such activities by the competent supervisory authority of the State where established. (4) Credit institutions established in any Member State of the European Union and financial enterprises that comply with the conditions specified in Subsection (4) of Section 15, as well as payment institutions established in any Member State of the European Union in respect of their payment services activities and credit and loan operations related to payment services [Section 6/B] may engage in cross-border services as well. Section 3/B 4

5 Credit institutions registered in any Member State of the European Union and financial enterprises that comply with the conditions specified in Subsection (4) of Section 15, as well as payment institutions established in any Member State of the European Union in respect of their payment services activities and credit and loan operations related to payment services [Section 6/B], need not obtain the authorization referred to in Subsections (4)-(6) of Section 3 for activities pertaining to cross-border services or those carried out by their Hungarian branches and authorized by the competent supervisory authority of their home State. Financial Institutions Section 4 (1) Credit institutions (Section 5) and financial enterprises (Section 6) shall be recognized as financial institutions. (2) Unless otherwise prescribed in this Act, the financial services defined in Subsection (1) of Section 3 may be provided only by financial institutions. (3) Unless otherwise provided for by law, financial institutions may only engage in the following activities in addition to financial services within their regular business operations: a) activities auxiliary to financial services; b) insurance mediation services under the provisions prescribed in Act LX of 2003 on Insurance Institutions and the Insurance Business (hereinafter referred to as Insurance Act ); c) securities lending and securities borrowing under the conditions laid down in the CMA, nominee services for shareholders, investment service activities under the conditions laid down in Act CXXXVIII of 2007 on Investment Firms and Commodity Dealers, and on the Regulations Governing their Activities (hereinafter referred to as IRA ), as well as ancillary services and investment activities, intermediary services according to Sections of the IRA, and commodity exchange services; d) transactions in gold; e) keeping registers of shareholders; f) services defined in Subsection (1) of Section 6 of Act XXXV of 2001 on Electronic Signatures; g) activities in support of the lending operations of the Diákhitel Központ (Student Loan Center) established under the provisions of specific other legislation; and h) recruitment services under the conditions set out in Section 11/A of Act XCVI of 1993 on Voluntary Mutual Insurance Funds; i) activities relating to the management, or to participation in the sale of collateral or any other form of security with a view to reducing or avoiding losses from financial services; j) activities for the management and recovery of receivables under contract. k) supply of data and information relating to financial instruments for consideration; l) intermediation of Community assistance as defined by specific other legislation. (4) In addition to what is contained in Subsection (3), financial enterprises operating payment systems may also engage in the pursuit of business activities other than financial services, if such activities do not have an adverse effect on their principal activity of the operation of payment systems. The Credit Institution and Its Organizational Forms Section 5 5

6 (1) Credit institution means any financial institution whose business inter alia includes - from among the financial services defined under Section 3 - to receive deposits or other repayable funds from the public (not including the issue of bond to the public as specified in specific other legislation), and to grant credits and loans. (2) The following activities may be pursued by credit institutions only: a) receiving deposits and other repayable funds from the public in excess of their own funds, without a bank guarantee or without any surety facilities provided by a bank or the State for guaranteeing repayment; b)-c) d) provide currency exchange services. (3) Credit institutions may be banks, specialized credit institutions or credit institutions set up as cooperative societies (savings or credit unions). (4) Banks are credit institutions whose business is to carry out the activities defined in Paragraphs a), b) and d) of Subsection (1) of Section 3. Only banks shall be authorized to perform all of the activities listed under Subsection (1) of Section 3. (5) The activities of specialized credit institutions are governed in specific other legislation, with the exception that it shall not be authorized to perform all of the activities listed under Subsection (1) of Section 3. (6) Credit institutions set up as cooperative societies may engage in the activities defined in Paragraphs a)-j) of Subsection (1) of Section 3 and in Paragraphs a) and d) of Subsection (2) of Section 3. (7) With the exception of currency exchange, credit unions may perform the activities defined in Subsection (6) solely for their own members. (8) (9) Third-country credit institutions may engage in the activities described in Paragraphs a)-j) and k) of Subsection (1) of Section 3 and Subsection (2) of Section 3 through its Hungarian branch, if it has been authorized to engage in such activities by the competent supervisory authority of the State where established. The Financial Enterprise Section 6 (1) Financial enterprises are: a) financial institutions authorized to perform one or more financial services, with the exception of the activities specified in Paragraphs d) and e) of Subsection (1) of Section 3 and in Subsection (2) of Section 5, to engage in the operation of payment systems [Paragraph b) of Subsection (2) of Section 3]; and b) financial holding companies. (2) Financial enterprises may only engage in the activities specified in Paragraph d) of Subsection (2) of Section 3 as exclusive activities. (3) A nonresident financial enterprise may engage in the activities described in Paragraphs b)-c), g)- i), j) and k) of Subsection (1) of Section 3 and in Subsection (2) of Section 3 by way of its Hungarian branch, if it has been authorized to engage in such activities by the competent supervisory authority of the State where established. (4) Within the framework of its business operations, a financial enterprise set up as a foundation may only engage in the following activities: a) the financial services defined in Paragraph g) of Subsection (1) of Section 3, and 6

7 b) agency activities from among the intermediation of financial services under Paragraph i) of Subsection (1) of Section 3. Payment Institutions Section 6/A. (1) Payment institution means a legal person that has been granted authorization in accordance with this Act to provide and execute payment services [Paragraph d) of Subsection (1) of Section 3]. (2) Payment institutions shall be authorized to engage in credit and loan operations under Paragraph b) of Subsection (1) of Section 3 subject to the restrictions set out in Section 6/B. (3) Payment institutions may be authorized, in connection with their payment services activities, for providing safe custody services under Paragraph j) of Subsection (1) of Section 3 and for the operation of payment systems according to Paragraph b) of Subsection (2) of Section 3. (4) In addition to what is contained in Subsection (2) above, payment institutions shall be entitled to provide ancillary services where they are connected to their payment services activities, and other operational and closely related ancillary services such as ensuring the execution of payment transactions, foreign exchange services in connection with payment transactions and the storage and processing of data. (5) Unless otherwise prescribed by law, payment institutions shall be entitled to engage in other business activities as well, with the exception that these activities may not be other than the provision of payment services and ancillary services described in Subsections (1)-(3). Section 6/B. (1) Payment institutions may grant credit and loan related to the payment services referred to in Paragraphs d), e) and g) of Point 9 of Chapter I of Schedule No. 2 to their clients subject to the following conditions: a) the credit shall be provided from the payment institution s own funds and granted exclusively in connection with the execution of a payment transaction; b) such credit shall not be granted from the funds received or held by the payment institution for the purpose of executing a payment transaction; c) the credit shall be repaid within a maximum period of twelve months; and d) the own funds of the payment institution shall at all times be appropriate in view of the requirements set out in this Act. (2) The provisions contained in Section 199 and Sections of Act CLXII of 2009 on Consumer Credit shall also apply to the granting of credit by payment institutions. Electronic Money Institutions Section 6/C. (1) Electronic money institution means a legal person that has been granted authorization in accordance with this Act to issue electronic money [Paragraph e) of Subsection (1) of Section 3]. (2) Electronic money institutions may be authorized to engage in credit and loan operations subject to the restrictions set out in Section 6/D. (3) Electronic money institutions may be granted authorization for all payment services activities. Where an electronic money institution offers payment services as well, the provisions on payment 7

8 institutions and on providing payment services shall apply with respect to such activities, unless this Act contains provisions to the contrary. (4) Electronic money institutions shall be entitled to provide ancillary services where they are connected to their electronic money issuance activities or the activities referred to in Subsection (3), and other operational and closely related ancillary services in connection with the activity of payment services and issuing electronic money, and may be authorized for the operation of payment systems. (5) Unless otherwise prescribed by law, electronic money institutions shall be entitled to engage in other business activities as well, with the exception that these activities may not be other than the provision of payment services and ancillary services described in Subsections (1)-(4). Section 6/D. (1) Electronic money institutions may grant credit and loan in connection with the payment services referred to in Paragraphs d), e) and g) of Point 9 of Chapter I of Schedule No. 2 to their clients subject to the following conditions: a) the credit shall be provided from the electronic money institution s own funds and granted exclusively in connection with the execution of a payment transaction; b) such credit shall not be granted from the funds received or held by the electronic money institution for the purpose of executing a payment transaction; c) the credit shall be repaid within a maximum period of twelve months; and d) the own funds of the electronic money institution shall at all times be appropriate in view of the requirements set out in this Act. (2) The provisions contained in Section 199 and Sections of Act CLXII of 2009 on Consumer Credit shall also apply to the granting of credit by electronic money institutions. Intermediaries Section 6/E. (1) Intermediary means any person who carries on - in accordance with this Act - the activity of: a) intermediation of financial services aa) within the framework of supply of special intermediary services for and on behalf of one or more financial institutions - including groups of financial institutions - in respect of financial services which are not in competition (hereinafter referred to as special services intermediary ), or ab) within the framework of agency activities for and on behalf of one or more financial institutions - including groups of financial institutions - in respect of financial services which are not in competition (hereinafter referred to as tied agent ), or ac) within the framework of supply of payment services by intermediaries (hereinafter referred to as payment services intermediary ), (hereinafter referred to collectively as tied intermediary ); or b) intermediation of financial services ba) within the framework of supply of special intermediary services for and on behalf of several financial institutions in respect of financial services which are in competition (hereinafter referred to as multiple special services intermediary ), or bb) within the framework of agency activities for and on behalf of several financial institutions in respect of financial services which are in competition (hereinafter referred to as multiple agent ), or bc) within the framework of brokering activities (hereinafter referred to as broker ), (hereinafter referred to collectively as independent intermediary ). 8

9 (2) Any legal person, unincorporated business association or private entrepreneur engaged under contract with an intermediary - other than financial institutions and insurance companies - for the intermediation of financial services (hereinafter referred to as intermediary subcontractor ) shall not be authorized to enter into further contracts for the execution of these transactions. Intermediary subcontractors engaged under contract with an intermediary may not enter into other contracts for the pursuit of financial service activities with any other financial institution or intermediary. (3) Independent intermediaries may engage in the intermediation of financial services solely in possession of the authorization granted by the Authority under this Act. (4) Intermediaries are not authorized to collect money from financial institutions, payment institutions and electronic money institutions on their clients behalf. (5) Intermediaries shall maintain separate accounts for handling funds paid by the client to the order of financial institutions, payment institutions or electronic money institutions. These funds may under no circumstances be used to satisfy the intermediary s other creditors, nor in the event of enforcement or liquidation proceedings. (6) The discretionary accounts referred to in Subsection (5) above shall include deposit accounts, which the intermediary may use solely for funds paid by the client to the order of financial institutions, payment institutions or electronic money institutions. Interpretative Provisions Section 7 The interpretative provisions are contained in Schedule No. 2. PART I AUTHORIZATION OF FINANCIAL INSTITUTIONS, PAYMENT INSTITUTIONS AND INDEPENDENT INTERMEDIARIES Chapter I General Provisions Organizational Regulations Section 8 (1) Banks and specialized credit institutions may operate in the form of limited companies or incorporated as branches, credit institutions set up as cooperative societies, and financial enterprises in the form of limited companies, cooperatives, foundations or branches, payment institution may operate in the form of limited companies or private limited-liability companies, set up as cooperative societies, or as payment institutions established in another Member State of the European Union, and electronic money institutions may operate in the form of limited companies or private limitedliability companies, set up as cooperative societies, or as electronic money institutions established in another Member State of the European Union. (2) In respect of financial institutions, payment institutions and electronic money institutions operating as limited companies and payment institutions and electronic money institutions operating in the form of private limited-liability companies, financial institutions, payment institutions and electronic money institutions set up as cooperative societies, financial enterprises operating in the 9

10 form of a foundation, and financial institutions, payment institutions and electronic money institutions incorporated as branches, the provisions of the Companies Act, the statutory provisions on cooperative societies, the provisions of the Act on the Civil Code (hereinafter referred to as Civil Code ) and the provisions of the FCA shall be applied respectively, subject to the exceptions set out in this Act. (3) Any financial institution, payment institution or electronic money institution that is established in Hungary shall be required to have its head office in the territory of Hungary as well. (4) Subject to the exception set out in Subsection (5), intermediation of financial services may be carried out by any legal person, unincorporated business association and private entrepreneur. (5) Multiple special services intermediaries may operate in the form of limited companies, private limited-liability companies or cooperative societies. (6) Business associations and cooperative societies vested with legal personality, other than financial institutions, may also engage in cash processing activities [Paragraph c) of Subsection (2) of Section 3]. Initial Capital Requirements Section 9 (1) A bank may be founded with a minimum initial capital of two billion forints. (2) The amount of initial capital for the foundation of specialized credit institutions is prescribed in other legislation. (3) Credit institutions set up as cooperative societies may be founded with a minimum initial capital of two hundred and fifty million forints. (4) Financial enterprises - with the exception of financial holding companies and payment clearing houses - may be founded with a minimum initial capital of fifty million forints. (5) Unless otherwise prescribed by law, the Hungarian branch of a third-country credit institution may be established with a minimum of two billion forints in endowment capital. (6) In respect of financial institutions incorporated as branches, the initial capital shall be understood as the endowment capital. (7) Financial holding companies may be founded with at least two billion forints in initial capital. (8) Subject to the exceptions set out in Subsections (9)-(10), payment institutions shall have at least thirty-seven million and five hundred thousand forints of initial capital for taking up payment services activities. (9) Any payment institution whose sole business is the provision of money remittance services [Point 16 of Chapter I of Schedule No. 2] from among payment services activities, shall have at least six million forints in initial capital. (10) Any payment institution whose sole business is the provision of services related to payment transactions executed by means of any telecommunication, digital or IT device [Paragraph g) of Point 9 of Chapter I of Schedule No. 2] from among payment services activities, shall have at least fifteen million forints in initial capital. (11) Multiple special services intermediaries shall have at least fifty million forints in initial capital. (12) Electronic money institutions shall have at least one hundred million forints of initial capital for taking up the business of electronic money issuance. Section 10 10

11 (1) When establishing a financial institution, a payment institution or an electronic money institutions the initial capital must be paid up in cash. The initial capital may only be paid up or deposited into an account carried by a credit institution that is not involved in the foundation, in which the founder has no ownership share or which have no ownership share in the founder. Insofar as the authorization is issued, the initial capital of the credit institution may only be used to finance the requirements specified in this Act for foundation and operation. (2) Any increase in the registered share capital of financial institutions operating in the form of limited companies through the issue of new shares and any increase in the endowment capital in respect of financial institutions incorporated as branches may only be carried out with cash contributions. If the Hungarian State brings about a share capital increase by subscribing new shares, it may ultimately bring about a share capital increase by issuing government securities where the failure of a credit institution would seriously endanger the economic interests of the country or some of the larger regions, or threaten the prudent functioning of the banking system and insolvency and/or liquidation can only be averted by Government intervention. (3) Financial institutions may not validly stipulate any deferred payment or a repurchase commitment in connection with the sale of their own shares. Owners with Qualifying Interests Section 11 Any person holding a qualifying interest in a financial institution or in a payment institution must satisfy the following requirements: a) be independent of any influences which may endanger the financial institution s or the payment institution s sound, diligent and reliable (hereinafter referred to collectively as prudent ) operation, and have good business reputation and the capacity to provide reliable and diligent guidance and control of the financial institution or payment institution, furthermore b) transparency in business connections and ownership structure so as to allow the competent authority to exercise effective supervision over the financial institution or payment institution. Section 12 Personnel and Infrastructure Requirements Section 13 (1) Financial service activities may only be taken up and pursued in compliance with: a) the statutory accounting and records systems; b) the internal rules and regulations in accordance with prudent operation; c) the relevant personnel requirements defined by specific other legislation for providing financial services; d) the requirements relating to infrastructure, information technology, technical and security background, and to premises suitable for carrying out the activities; e) the requirements relating to controlling procedures and systems, and - with the exception of financial enterprises engaged exclusively in group financing - to property insurance; f) the requirements relating to information and control systems for reducing operating risks, and a plan for handling emergency situations; g) the requirements relating to clear organizational structure; 11

12 (hereinafter referred to collectively as personnel and infrastructure requirements ). (2) Financial institutions and payment institutions - with the exception of financial holding companies and financial enterprises engaged exclusively in group financing - may only operate in places that meet the security requirements prescribed in specific other legislation. (3) The requirements specified in Subsections (1)-(2) shall also be satisfied in the case of any changes in the registered address or business location and when modifying the scope of financial service activities. (4) Any person who has been convicted for certain provisions of Act IV of 1978 on the Criminal Code (hereinafter referred to as Criminal Code ), specifically, for violation of state secret and service secret, false accusation, misleading of authorities, perjury, subornation of perjury, obstruction of justice, harboring a criminal under Title III of Chapter XV, crimes against public justice, affiliation with organized crime and taking the law into one s own hands under Title VII of Chapter XV, economic crimes under Chapter XVII, or for crimes against property under Chapter XVIII, furthermore, any person who has been indicted for any of these offenses cannot be appointed or elected to an executive office with a currency exchange service provider, cannot directly engage in the management of currency exchange services and cannot directly engage in controlling currency exchange services or in the provision of currency exchange services. (5) The Authority shall have powers to consult the register of convicted criminals and the register of individuals indicted under criminal charges in order to enforce the employment criteria defined in Subsection (4) before the employment contract is concluded, or before the activity permit is issued or extended, and also during the life of the employment contract. Outsourcing Section 13/A (1) In due observation of the provisions on data protection, credit institutions shall be authorized to outsource the activities connected to financial services and activities auxiliary to financial services as well as those statutory activities prescribed by law that involve the management, processing and storage of data. (2) The outsourcing service provider must satisfy - to a degree corresponding to the risk - the personnel, infrastructure and security requirements concerning the outsourced activities that are prescribed by law for credit institutions. (3) Upon entering into an outsourcing contract, the credit institution shall notify the Authority within two days: a) of the contract executed, b) the name and address (corporate or residence) of the outsourcing service provider, c) the duration of outsourcing. (4) The outsourcing contract shall contain the following: a) demonstration that the rules on data protection have been obeyed; b) the outsourcing service provider s consent for the supervision of the outsourced activities by the credit institution s department of internal control or its external auditor, and for on-site and off-site inspection performed by the MNB and the Authority; c) the outsourcing service provider s responsibility for performing the activity at an appropriate level and a clause for immediate cancellation of the contract by the credit institution in the event of the outsourcing service provider s repeated or serious violation of the contract; d) the detailed requirements for the quality of performance of the activities that is expected of the outsourcing service provider; 12

13 e) the rules to be applied in order to avoid inside trading on the part of the outsourcing service provider. (5) Credit institutions must have an action plan drafted and adopted to manage emergency situations arising from non-contractual activities relating to a contract on outsourcing services. (6) At least once a year, the credit institution s department of internal control must inspect the performance of the outsourced activity and ascertain that it is in compliance with the provisions of the contract. (7) The credit institution is responsible to ascertain that the outsourcing service provider is performing the activity in compliance with the relevant legislation and with due care and attention. The credit institution must forthwith notify the Authority if the performance of the outsourced activity violates the law or the contract. (8) The Authority may prohibit the outsourcing of an activity on the basis of the credit institution s notice referred to in Subsection (7) or of any shortcomings that are uncovered during the on-site control. (9) Any outsourcing service provider who performs services for several credit institutions at one time must, in due observation of the provisions on data protection, separately handle the facts, data and information of which it thereby gains knowledge. (10) The outsourcing service provider may employ a subcontractor if their contract - which must be approved by the credit institution - contains clauses that permit the Authority, the MNB and the credit institution s department of internal control and auditor to oversee the outsourced activities. (11) Neither the executive officer of the credit institution nor his close relative shall be permitted to hold any interest in the outsourcing service provider, nor may the executive officer of the credit institution or his close relative be contracted to perform outsourced activities. (12) Credit institutions must indicate the outsourced activities and the service provider performing such activities in the standard service agreement. (13) Financial enterprises shall be authorized to outsource their administrative activities without having to notify the Authority; however, if the outsourced activity involves any bank secrets, the provisions laid down in Subsections (1)-(12) shall apply where appropriate. Section 13/B. (1) Payment institutions shall be entitled to outsource the activities connected to the provision of payment services and electronic money institutions shall be entitled to outsource the activities connected to the issuance of electronic money and the provision of payment services subject to prior notification of the Authority dispatched at least thirty days in advance. (2) The notification shall contain the outsourcing service provider s consent for the supervision of the outsourced activities by the payment institution s or electronic money institution s department of internal control or its auditor, and for on-site and off-site inspection performed by the MNB and the Authority. (3) The outsourcing of critical operational functions relating to payment services activities and the issuance of electronic money shall comply with the following conditions: a) the outsourcing must not result in the delegation by senior management of its responsibility; b) the contractual relationship and obligations of the payment institution or the electronic money institution towards its clients must not be altered, and the payment institution s or electronic money institution s statutory or contractual commitments toward its clients must not be undermined; c) the conditions with which the payment institution or the electronic money institution is to comply in order to be authorized shall not be undermined; and 13

14 d) none of the other conditions subject to which the payment institution s or the electronic money institution s authorization was granted shall be removed or modified. (4) The outsourcing of critical operational functions relating to payment services activities and the issuance of electronic money shall not be permitted to influence the exercise of supervision by the payment institution s or electronic money institution s department of internal control or its auditor, or by the MNB and the Authority. (5) In the application of Subsections (3)-(4) of this Section, an operational function relating to payment services activities and the issuance of electronic money shall be regarded as critical if a defect or failure in its performance would materially impair the continuing compliance of the payment institution, or the electronic money institution with the requirements prescribed by law in connection with payment services activities, or with the issuance of electronic money and payment services activities, respectively, or their financial performance, or the soundness or the continuity of their payment services and activities relating to the pursuit of the issuance of electronic money. (6) The payment institution and the electronic money institution is responsible to ascertain that the outsourcing service provider is performing the activity in compliance with the relevant legislation and the relevant personnel and infrastructure requirements, and with due care and attention. The payment institution and the electronic money institution must forthwith notify the Authority if the performance of the outsourced activity violates the law or the contract. (7) The Authority may prohibit the outsourcing of an activity on the basis of the payment institution s or electronic money institution s notice referred to in Subsection (6) above, or of any shortcomings that are uncovered during the on-site control. Protection of Information Systems Section 13/C (1) Financial institutions are required to set up a regulatory regime concerning the security of their information systems used for providing financial services and for the pursuit of the activities auxiliary to financial services, and to provide adequate protection for the information system consistent with existing security risks. The regulatory regime shall contain provisions concerning requirements related to information technology, the assessment and handling of security risks in the fields of planning, purchasing, operations and control. (2) Financial institutions shall review and update the security risk assessment profile of the information system whenever necessary, or at least every other year. (3) The organizational and operational regulations shall be drawn up in light of the security risks inherent in the use of information technology, as well as the rules governing responsibilities, records and the disclosure of information, and the control procedures and regulations integrated into the system. (4) Financial institutions shall install an information technology control system to monitor the information system for security considerations, and shall keep this system operational at all times. (5) Based on the findings of the security risk analysis, the following utilities shall be installed as consistent with the existing security risks: a) clear identification of major system constituents (tools, processes, persons) and keeping logs and records accordingly; b) self-protect function of the information technology security system, checks and procedures to ensure the closure and complexity of the protection of critical components; 14

15 c) frequently monitored user administration system operating in a regulated, managed environment (access levels, special entitlements and authorizations, powers and responsibilities, entry log, emergency events); d) a security platform designed to keep logs of processes which are deemed critical for the operation of the information system and that is capable to process and evaluate these log entries regularly (and automatically if possible), or that is capable of managing irregular events; e) modules to ensure the confidentiality, integrity and authenticity of data transfer; f) modules for handling data carriers in a controlled and safe environment; g) virus protection consistent with the security risks inherent in the system. (6) Based on their security risk assessment profile, financial institutions shall implement protection measures to best accommodate their activities and to keep their records safe and current, and shall have adopted the following: a) instructions and specifications for using their information system, and plans for future improvements; b) all such documents which enable the users to operate the information system designed to support business operations, whether directly or indirectly, independent of the status of the supplier or developer of the system (whether existing or defunct); c) an information system that is necessary to provide services and equipment kept in reserve to ensure that services can be provided without any interruption, or in the absence of such equipment, solutions used in their stead to ensure the continuity of activities and/or services; d) an information system that allows running applications to be safely separated from the environment used for development and testing, as well as proper management and monitoring of upgrades and changes; e) the software modules of the information system (applications, data, operating system and their environment) with backup and save features (type of backups, saving mode, reload and restore tests, procedure), to allow the system to be restored within the restoration time limit deemed critical in terms of the services provided. These backup files must be stored in a fireproof location separately according to risk factors, and protection of access in the same levels as the source files must be provided for; f) a data storage system capable of frequent retrieval of records specified by law to provide sufficient facilities to ensure that archived materials are stored for the period defined by legal regulation, or for at least five years, and that they can be retrieved and restored any time; g) an emergency response plan for emergencies which have the potential of causing any interruption in services. (7) Financial institutions shall have available at all times: a) operating instructions and models for the inspection of the structure and operation of the information system they have developed themselves or that was developed by others on a contract basis; b) the syntactical rules and storage structure of data in the information system they have developed themselves or that was developed by others on a contract basis; c) the scheme of classification of information system components into categories defined by the financial institution; d) a description of the order of access to data; e) the documents for the appointment of the data manager and the system host; f) proof of purchase of the software used; g) complex and updated records of administration and business software tools comprising the information system. (8) All software shall comprise an integrated system: 15

16 a) that is capable of keeping records of the data and information required for regular operations and as prescribed by law; b) that is capable of keeping reliable records of moneys and securities; c) that has facilities to connect, directly or indirectly, to national information systems appropriate for the activities of the financial institution, including the notification of payment accounts to the competent courts of registry; d) that is designed for the use of checking stored data and information; e) that has facilities for logic protection consistent with security risks and for preventing tampering. (9) The internal regulations of the financial institution shall contain provisions concerning the knowledge required in the field of information technology for filling certain positions. (10) The requirements set out in Subsections (1)-(9) shall be satisfied by payment institutions and electronic money institutions as well having regard to financial services and activities auxiliary to financial services. Internal Control Mechanisms and Risk Management Processes Section 13/D (1) Credit institutions, payment institutions and electronic money institutions are required to have sound governance arrangements with respect to the principle of proportionality, having regard in particular to the diversity in size and scale of operations and to the range of financial services and activities auxiliary to financial services, which shall include: a) the credit institution s structural organization clearly documented in the internal policies; b) well defined, transparent and consistent lines of responsibility; c) effective processes to identify, measure, manage, monitor and report the risks the credit institution is or might be exposed to, and d) adequate internal control mechanisms, including sound administrative and accounting procedures in compliance with the relevant legislation. e) remuneration policies and practices that are consistent with and promote sound and effective risk management in accordance with the principles laid down in Sections 69/B-69/E. (2) In accordance with Subsection (1): a) the credit institution s board of directors shall approve and periodically review the strategies and policies for the segregation of duties in the organization and the prevention of conflicts of interest, for taking up, managing, monitoring and mitigating the risks the credit institution is or might be exposed to, including those posed by the macroeconomic environment in which it operates in relation to the status of the business cycle; b) credit-granting shall be based on sound and well-defined criteria fixed in the internal policies; c) administration and monitoring of the credit institution s various credit risk-bearing portfolios and exposures, including for identifying and managing problem credits for which adequate value adjustments and provisions are necessary, and such value adjustments and provisions shall be operated through effective systems; d) diversification of credit portfolios shall be adequate given the credit institution s target markets and overall credit strategy. (3) Credit institutions shall have written policies and procedures for: a) the management of the risk that the recognized credit risk mitigation techniques the credit institution uses prove less effective than expected; 16

17 b) the management of concentration risk arising from exposures to counterparties, groups of connected counterparties, and counterparties in the same economic sector, geographic region or from the same activity, and from the application of credit risk mitigation techniques; c) the measurement and management of all material sources and effects of market risks; d) the evaluation, measurement and management of the risk arising from potential changes in interest rates as they affect a credit institution s non-trading activities; e) the evaluation and management of the exposure to operational risk, including contingency and business continuity plans to ensure a credit institution s ability to operate on an ongoing basis and limit losses in the event of severe business disruption; f) the identification, measurement, management and monitoring of liquidity risk over an appropriate set of time horizons, including intra-day, tailored to business lines, currencies and legal entities of the group, including adequate allocation mechanisms of liquidity costs, benefits and risks; g) the evaluation and management of risks arising from securitization transactions in relation to which the credit institutions are acting as the investor, originator or sponsor, including reputational risks (such as arise in relation to complex structures or products), so as to ensure in particular that the economic substance of the transaction is fully reflected in the risk assessment and management decisions. (4) With a view to compliance with Paragraph f) of Subsection (3): a) the credit institution s board of directors shall define levels of risk tolerance for all relevant business lines; b) the strategies and policies shall be proportionate to the complexity, risk profile, scope of operation of the credit institution and risk tolerance set by the management body and reflect the credit institution s importance in each Member State, in which it carries on the business of payment services; c) credit institutions shall develop methodologies for the identification, measurement, management and monitoring of funding positions, covering the current and projected material cash-flows in and arising from assets, liabilities, off-balance-sheet items, including contingent liabilities and the possible impact of reputational risk; d) credit institutions shall distinguish between pledged and unencumbered assets that are available at all times, in particular during emergency situations. They shall also take into account: da) the legal entity in which assets reside, db) the country where assets are legally recorded either in a register or in an account, dc) as well as their eligibility to be used as extra liquidity buffers and shall monitor how assets can be mobilized in a timely manner, dd) existing legal, regulatory and operational limitations to potential transfers of liquidity and unencumbered assets amongst entities, both within the Member States of the European Union and in third countries; e) credit institutions shall consider different liquidity risk mitigation tools, including a system of limits and liquidity buffers in order to be able to withstand a range of different stress events and an adequately diversified funding structure and access to funding sources; those arrangements shall be reviewed regularly, at least once a year; f) alternative scenarios on liquidity positions and on risk mitigants shall be considered and the assumptions underlying decisions concerning the funding position shall be reviewed regularly by the credit institution s board of directors, where, for these purposes, alternative scenarios shall address, in particular, off-balance sheet items and other contingent liabilities, including those of other special purpose entities, in relation to which the credit institution acts as sponsor or provides material liquidity support; 17

18 g) credit institutions shall consider the potential impact of institution-specific, market-wide and combined alternative scenarios; different time horizons and varying degrees of stressed conditions shall be considered; h) credit institutions shall adjust their strategies, internal policies and limits on liquidity risk and develop effective contingency plans, taking into account the outcome of the alternative scenarios referred to in Paragraph f); i) in order to deal with liquidity crises, credit institutions shall have in place contingency plans setting out adequate strategies and proper implementation measures in order to address possible liquidity shortfalls; those plans shall be regularly tested, updated on the basis of the outcome of the alternative scenarios set out in Paragraph f). (4a) As regards the securitizations of revolving exposures with early amortization provisions, the originator credit institution shall have an appropriate liquidity plan in place to address the implications of both scheduled and early amortization. (5) Credit institutions that are subject to supervision on a consolidated basis shall also satisfy the requirements relating to internal control mechanisms and risk management jointly with any credit institution or investment firm in which they have a dominant influence. Requirements for Independent Intermediaries Section 13/E. (1) Any legal person, unincorporated business association and private entrepreneur wishing to pursue the activities of independent intermediaries: a) must have an executive employee - including the private entrepreneur himself - aa) with no prior criminal record, ab) with at least three years of verifiable experience in the relevant field, and - with the exceptions set out in Subsection (3) - who is able to satisfy the professional requirements contained in Section 219/D; b) must - at all times - carry professional indemnity insurance covering liability in connection with their activities - with the exceptions set out in Subsection (3) -, representing at least five million forints applying to each claim and in aggregate fifty million forints per year for all claims. (2) In addition to what is contained in Subsection (1) above, multiple special services intermediaries and brokers shall have in place regulations and internal control mechanisms implemented to comply with obligations in relation to money laundering and terrorist financing. (3) Brokers a) must have an executive employee who has a college or university degree in the relevant field [Subsection (3) of Section 68]; b) must - at all times - carry professional indemnity insurance covering liability in connection with their activities, representing at least ten million forints applying to each claim and in aggregate one hundred million forints per year for all claims. (4) In the application of Paragraph a) of Subsection (1), the requirement of experience in the relevant field may be satisfied by verifying employment at a financial institution or intermediary as an officer or working in the area of financial services or intermediation under contract of employment or other any work-related contractual relationship, or in the capacity of a private entrepreneur. Experience obtained abroad may be recognized if obtained in an institution that is considered the equivalent of a financial institution or intermediary. Chapter II 18

19 Authorization Procedures Section 14 (1) The Authority s permission is required, except for the cases described in Subsections (2)-(4) of this Section and in Sections 14/A-14/B, for: a) the foundation of a credit institution; b) the merger (takeover, fusion), demerger of a credit institution; c) the amendment of the articles of association (Section 20) of a credit institution; d) the acquisition of a qualifying interest in a credit institution and for escalating the qualifying interest up to the threshold limit prescribed in this Act; e) the election or appointment of executive officers of a credit institution; f) the taking up of business of a credit institution; g) the amendment of the scope of activities of a credit institution; h) the performance of financial services by a credit institution through a special services intermediary or a multiple special services intermediary; i) founding representation offices, branches or - as described by Act C of 2000 on Accounting (hereinafter referred to as Accounting Act ) - subsidiaries (credit institutions, financial enterprises or other companies) by a credit institution in a third country; j) the acquisition of a qualifying interest by a credit institution in a nonresident enterprise; k) the transfer of the account portfolio and the contracts for repayment of monetary instruments (hereinafter referred to as assignment of customer accounts ) of a credit institution; l) m) n) the termination of operations of a credit institution; o) repaying, repurchasing the subordinated loan capital of credit institutions, before the deadline specified in the contract or before five years; p) repaying the junior subordinated loan capital of credit institutions, before the deadline specified in the contract or before two years; q) loan security value assessment regulations of credit institutions, drafted according to specific other legislation, and in observation of the provisions of specific other legislation on the methodological principles for establishing loan security value; r) the cancellation of core loan capital, subscribed and paid up capital of mixed properties and subsidiary loan capital outstanding of a credit institution, and for any repayment, repurchase of principal prior to the maturity fixed in the contract; s) the calculation of risk-weighted exposure amounts using the internal ratings based approach of credit institutions; t) the use of own estimates of loss given defaults and conversion factors of credit institutions; u) the calculation of capital requirement for operational risk of credit institutions using an alternative standardized approach or the advanced measurement approach; v) the calculation of capital requirement for counterparty credit risks of credit institutions using an internal model approach under specific other legislation. (2) The Authority s authorization is required for: a) the foundation, b) the taking up of business, c) the amendment of the scope of activities, d) the pursuit of activities for providing financial services through special services intermediaries or multiple special services intermediaries, 19

20 e) the appointment of an executive officer, f) the assignment of customer accounts, g) h) i) the termination of operations of credit institutions incorporated as branches. (3) The Authority s authorization referred to in Subsection (1) is not required for a credit institution for setting up a branch in another Member State of the European Union. (4) The authorization referred to in Subsection (2) is not required for the branches of credit institutions that are established in another Member State of the European Union. (5) Prior to granting the authorization referred to in Paragraphs b) and d) of Subsection (1) of this Section and Paragraph e) of Section 20, if the credit institution is subject to supervision on a consolidated basis or if supervision on a consolidated basis also applies, the Authority - if deemed necessary for exercising supervision on a consolidated basis - consult the competent authority of the Member State where a credit institution to which supervision on a consolidated basis applies jointly with the credit institution requesting the authorization is established. Section 14/A (1) Where an EU parent credit institution and its subsidiaries, or an EU parent financial holding company and its subsidiaries are applying together for authorization for: a) using the internal ratings based approach for the calculation of risk-weighted exposure amounts; b) the use of own estimates of loss given defaults and conversion factors as specified in Paragraph d) of Subsection (6) of Section 76/C; c) the calculation of capital requirement for operational risk using the advanced measurement approach; d) the calculation of capital requirement for counterparty credit risks using an internal models approach under specific other legislation; the EU parent credit institution or the EU parent financial holding company shall submit the application to the competent supervisory authority of the Member State where the said EU parent credit institution or the EU parent financial holding company is established. (2) In the process of adopting a decision for the aforesaid application the Authority shall cooperate with the competent supervisory authorities of other Member States in accordance with Section 14/B. Section 14/B (1) If the Authority exercises supervision over the EU parent credit institution or EU parent financial holding company, upon receipt of the complete application for authorization under Subsection (1) of Section 14/A, the Authority: a) shall forward the application without delay to the competent supervisory authority of the Member State, where any company is established that is subject to supervision on a consolidated basis together with the EU parent credit institution or EU parent financial holding company in question, and b) shall simultaneously notify the competent supervisory authorities referred to in Paragraph a) concerning the deadlines for supplying an opinion or objection relating to the application to the Authority (hereinafter referred to as multi-party proceedings ). (2) The Authority shall adopt a resolution in a multi-party proceedings within six months from the date of receipt of the complete application, and may do so with the agreement of all competent 20