Obtaining a banking license in Hungary

Securing a fiduciary charter in Hungary enables pecuniary entities to undertake pertinent maneuvers. Such establishments possess the prerogative to amass deposits, extend credit, conduct forex dealings, and render sundry services. This authorization facilitates ingress into the domestic market while adhering to EU statutes.

Subsequently, we shall examine the primary stratagems for procuring licensure, as well as the advantages and encumbrances concomitant with this undertaking. An imprimatur for banking contributes profoundly to the equilibrium of the fiscal sector. It functions as an assurance that the institution conducts itself within the bounds of legality. The sanction to function augments credence among patrons and all affiliated with the establishment.

Legal regulation of banking activities in Hungary

Banking legislation in Hungary strictly aimed at maintaining financial stability and protecting the interests of clients. Basic laws and regulations in this area provide clear rules for organizations.

Law on Credit Institutions and Financial Enterprises delineates the undertakings of banks within Hungary. Herein, the fundamental stipulations for all project stakeholders are articulated. Conversely, Law on the Securities Market – mandates accountability for dealings in securities and undertakings in investment activities.

Stipulations for the endogenous surveillance apparatus oriented toward forestalling the exploitation of financial institutions for illicit objectives are supervised under the Money Laundering and Terrorist Financing Prevention Act. In Hungary, there exists the Data Protection Law, which serves to meticulously govern the acquisition, handling, and safeguarding of personal particulars.

The paramount custodian is the Magyar Nemzeti Bank (MNB). It bears the onus for the issuance of banking charters. Submissions undergo meticulous scrutiny to gauge the propriety of the entity’s operations. Bolstering the steadfastness of the fiscal domain is among the foremost duties of the Central Bank.

International obligations and standards

These foundations are aimed at maintaining security in the global banking system. Hungary, as a member of the European Union and a participant in international organizations, is obliged to follow a number of international agreements. One of them is Basel Accords. They define the requirements for banking.

Basel I (1988) – instituted baseline capital stipulations for banking institutions. The objective of the accord was to guarantee an adequate quotient of proprietary capital to mitigate the credit contingencies linked with this enterprise.

Basel II (2004) – deepened capital requirements by introducing a three-tier supervisory structure:

1. Minimum risk-related capital requirements.
2. A supervisory review process that includes operational risk management.
3. Market discipline and transparency, requiring disclosure of information about the financial position of the bank.

Basel III (2010) – formulated in the aftermath of the global fiscal tumult, with the intent of fortifying the tenacity of banking edifices against economic convulsions.

The CRD IV and CRR statutes prescribe minimal financial reserves, liquidity thresholds, and hazard governance stipulations for all EU banking institutions. The Bank Remediation and Dissolution Directive delineates the protocol for the restoration and dissolution of distressed banks. Meanwhile, the ordinance on unified marketplace principles institutes homogeneous criteria and regulations for all banks within the internal market.

Requirements for license applicants

The procedural enactment for the institution of banks within Hungary is governed by stringent stipulations. Each of these prerequisites is predominantly oriented toward fortifying the steadfastness and dependability of the fiscal framework. License aspirants are obliged to satisfy an array of provisos.

The initial requisite is to enlist as a juridical entity. Banking undertakings are permissible solely for institutions inscribed within the nation. One must elect from among the ensuing organizational and juridical configurations: a joint-stock corporation or subsidiaries of extraterritorial banks.

For entities aspiring to furnish a comprehensive spectrum of services, the minimal sanctioned capital is 2 billion forints (approximately 5.4 million euros). For monetary institutions, investment establishments, and digital banks, the stipulations are considerably more lenient. For instance, the requisite capital for a concession for an investment or credit establishment is 500 million forints (roughly 1.35 million euros).

The financial institution must possess a distinctly delineated hierarchy, with functions and obligations specified at each stratum. It is imperative to ascertain that an internal oversight framework is instituted to guarantee adherence to regulatory facets. Executives, administrative personnel, and high-ranking authorities must possess the requisite acumen and expertise in this domain.

Efficient peril recognition, evaluation, and governance must be instituted perpetually. The financial institution must possess an autonomous internal scrutiny division that consistently examines the operation of the framework. Outcomes are communicated punctually and systematically.

Manuscripts for soliciting a permit in Hungary

The procedure of authorizing financial institutions in Hungary necessitates assiduously preparing and gathering all decrees and attestations. These are requisite for an impartial evaluation of the institution’s solvency, legality, and preparedness to function. The assemblage of formal documents must be exhaustive and conform to the exacting criteria of the Magyar Nemzeti Bank. In such circumstances, the likelihood of favorable adjudication will be augmented.

List of constituent components

Meticulous regard is bestowed upon the foundational instruments. Through these, it will be feasible to substantiate the juridical standing of the institution. This serves as the cornerstone for overseers to appraise the lawfulness and aims of the establishment.

The bank's statute encompasses particulars regarding impending duties, its juridical and structural form, composition, endeavors, and authorities. The articles of association delineate the prerequisites for establishing the entity and several pivotal facets. Protocols of the assemblies authenticate the legitimacy of the procedure. The certificate of incorporation of a legal person attests to the formal establishment of the institution pursuant to Hungarian jurisprudence.

Business plan and financial forecasts

These constituents assume a distinctive function in the procedure of acquiring a banking charter in Hungary, aiding in the evaluation of the feasibility of a nascent institution. Principal facets of the corporation's commercial blueprint:

• overarching stratagem of the bank's aspirations and intentions;
• amenities rendered and the schemata for their induction into the marketplace;
• dissection of the market, rivals’ endeavors, and intended clientele;
• particulars concerning the intrinsic structure of the enterprise.

Monetary prognostications offer an intricate delineation of the bank's lucrativeness. Information regarding the composition of assets and obligations is scrutinized. These documents illustrate how the financial establishment intends to administer its liquid capital and discharge operational disbursements.

Personnel documents and resumes

These papers are necessary to assess the professional suitability of managers, which is a critical factor for ensuring the effective functioning of the organization. Basic personnel documents include: detailed resumes, certificates of qualifications, declarations of good conduct, training and development plans.

Personnel documents and management resumes are the main elements when considering aspects of bank management. The presence of experienced and competent managers helps to increase confidence on the part of clients and investors.

Compliance with anti-money laundering laws

When obtaining a banking license in Hungary, it is very important to provide evidence of compliance with all regulations. This is necessary to ensure that the new bank will operate in accordance with international standards.

Among the main elements that should be included are internal documents describing procedures for detecting and preventing money laundering. These papers must be based on the direct laws of Hungary. Professional development programs and regular training for staff are also needed.

The methods the bank will use to screen and identify customers before establishing a business relationship should be described. This includes collecting and verifying identification documents and monitoring transactions for suspicious activity. In addition, the presence of internal audits and controls, coordination with regulatory authorities and similar acts are important.

Procedure for applying for a license

To eliminate potential risks of failure and ensure compliance, the correct procedure for obtaining a banking license in Hungary. It consists of several stages that require careful preparation. The complexity of the process depends on a number of individual factors. But it must be passed to create and legitimize a new bank. The steps presented will help applicants better understand how to organize their preparation.

Usual application steps

To submit a package of papers to obtaining a banking license in Hungary, you need to go through several stages. Let's look at each of them in order:

1. Collection of all important documents of the organization.
2. Conducting an internal audit to ensure compliance with established criteria.
3. Official submission of the application to the Central Bank of Hungary.
4. Payment of applicable processing fees.
5. Evaluation of the application by the main body and making a decision.
6. If the decision is positive, official permission to provide services is issued.

After completing all procedures and registration, the bank can begin its operating activities.

Verification of the applicant by the regulator

The regulator evaluates the financial statements of the potential recipient. This may include: a statement of profits, losses, and other cash flows. Liquidity, profitability and capital indicators are reviewed to ensure that the bank has sufficient resources to begin operations and carry out the planned project.

Hungarian authorities are analyzing where the bank plans to obtain capital from and checking the sustainability of the sources. It is important to have clear and transparent mechanisms for raising funds, as well as compliance with minimum capital standards. It is mandatory to evaluate the presented financial forecasts for the coming years.

The overseer also scrutinizes the internal governance configuration of the financial institution, encompassing the schematic hierarchy, allotment of duties and authority. Prevailing protocols and methodologies pertaining to corporate stewardship are evaluated. The presence of educational initiatives for personnel is verified. Every conceivable hazard is appraised.

Application processing time

Application review process and deadlines for obtaining a banking license in Hungary may take a significant period:

General review timeframes

1. Preliminary assessment. The Central Bank conducts a preliminary assessment of the institution’s readiness within 1.5-2 months.
2. Basic consideration. Within 3-6 months, a comprehensive analysis of the state of the applicant’s financial affairs and its corporate governance is carried out.
3. Making a decision. Then, within 1 month, a decision is made to issue a license or refuse.
4. General terms. In total, the entire process can last from 5 to 9 months, depending on the circumstances and specifics of the case.

The quality and completeness of the submitted acts and agreements significantly affect the processing time. Many project owners turn to legal and financial consultants for help, which dramatically increases the chances of successfully passing the audit. The review time may increase in case of unforeseen inspections.

Delays and reasons for refusals in obtaining a banking license in Hungary

Delays often occur due to insufficient or incomplete documents. If during the review process the relevant authority discovers the absence of important documents, it may request them additionally, which increases the time frame.

If the applicant's business model is unusual or involves complex financial instruments, additional analysis time will be required. If legal or financial advisors are used, the process may be slower due to document approvals and revisions.

The total number of applications processed by the Central Bank of Hungary affects the time. If there is a high volume of applications during this period, this may result in delays.

The main reason for refusal is the applicant’s failure to meet the established requirements. If the bank cannot prove its readiness, the regulator may refuse a license. Applicants are expected to have a high level of candor about money matters. When financial forecasts appear unconvincing or unreasonable, this may raise doubts. The regulator requires a clear understanding and adherence to these standards.

Requirements for bank management bodies and personnel

One of the paramount facets of the regulation of banking undertakings in Hungary and acquiring a licensure is adherence to obligatory stipulations for administration and personnel. The Central Bank accords significance to the credentials, expertise, and standing of the establishment.

Members of the board of directors and management team must have sufficient education and experience in the banking industry. It is important to demonstrate a high degree of professional competence in relevant areas. Members of management must have leadership qualities and the ability to manage a team.

The Central Bank conducts due diligence checks on candidates for leadership positions. This includes criminal checks and financial stability analysis. The regulator evaluates the candidates' reputation and work history.

The bank should have clear procedures for identifying and managing conflicts of interest. It is necessary to develop and implement a corporate governance code that will include rules and principles regarding responsibility.

Intrinsic oversight and hazard governance frameworks

Let's consider the main aspects related to the assessment and management of financial risks. First of all, the bank must have clear procedures for identifying and assessing all types of financial risks, including credit, market and liquidity. This includes the use of quantitative and qualitative methods of analysis.

It is necessary to develop strategies such as hedging, diversification of assets and liabilities. Regular monitoring of risks and preparation of reports allows timely action to be taken in case of deviations.

The Bank creates an effective internal control system, which includes procedures aimed at preventing errors and fraud. It is mandatory to have an internal audit department that independently evaluates the internal control system.

It is important to develop strategies to reduce risks by introducing process automation and improving the skills of workers. It is worth creating a corporate culture based on compliance with norms and ethical standards.

Participation in the Hungarian deposit insurance system

One of the important aspects of obtaining a banking license in Hungary is the bank's membership in the deposit insurance system. Let's look at the main elements related to mandatory insurance of customer deposits, rules and requirements for system participants.

The insurance system protects clients' money in the event of enterprise insolvency. It covers funds in current, savings and deposit accounts of individuals and legal entities. Deposits are insured for up to 100 thousand euros per depositor in one bank.

All licensed banks must register with the deposit insurance system and comply with the conditions. System participants must provide reports on the status and volume of deposits. This is closely monitored by the Hungarian Central Bank.

In the event of insolvency, the deposit insurance fund is obliged to pay compensation to depositors. The payment process starts within 20 business days from the date of bankruptcy declaration. Depositors can receive compensation either in cash or by transferring funds to other bank accounts.

Impact of EU directives on obtaining a banking license

These directives have a significant impact on the legal basis, conditions and process of obtaining banking permits in Hungary. List of relevant European Union directives:

• on capital: establishes minimum financing requirements;
• on banking activities: regulates organizational and structural conditions;
• on combating money laundering: requires banks to implement effective mechanisms to prevent money laundering;
• on financial instruments: establishes rules regarding the sale of special instruments and investor protection.

EU Directives contribute to the harmonization of rules and standards in the banking sector throughout the Union. This simplifies the process of obtaining licenses for banks operating in several countries. The installations help simplify the process of obtaining licenses for banks.

Within the framework of a single supervisory mechanism, significant banks in the eurozone are monitored. This creates additional requirements for companies that want to obtain permission and operate on the Hungarian market.

A number of conditions after successful registration of a license

In this section we will analyze the main operational requirements after obtaining a banking license in Hungary. These include: corporate standards, control procedures, reporting and compliance with laws. A new financial institution faces a variety of operating conditions. Failure to comply will affect the functioning of the bank. Understanding the rules and following them is critically important for the high level of the establishment’s reputation.

Opening and operation of the head office

The head office serves as the control center and plays a key role in establishing the corporate culture. Let's look at the main points related to opening and operation. The head office should be located in a strategic location that ensures accessibility to customers, employees and partners.

It needs to be equipped with modern IT systems, data processing devices, customer service areas and other necessary resources. The office must have a clearly defined organizational structure.

Any principal establishment should encompass a multitude of divisions accountable for crediting, bookkeeping, hazard oversight, regulatory adherence, promotion, and information technology. The entity guarantees conformity with all directives prescribed by the pertinent bodies.

The principal office must be staffed with adept and suitably cultivated personnel. This sort of establishment strives to deliver superior user assistance. The principal office is equally accountable for instituting and sustaining rapport with other fiscal entities and vendors.

Financial reporting

Reports offer elucidation into operations, aiding in the administration of peril and fostering worldwide confidence. Upon acquiring a license, it is crucial to comprehend that financial institutions in Hungary are obliged to sustain fiscal declarations in alignment with global doctrines. There exist trimestral and annual reports that possess ideal substance and configuration.

Explanations of financial position show the bank's assets, liabilities and capital as of a specific date. Ideally, an effective accounting system is implemented to ensure data accuracy and reliability. This includes automated systems. Banks are required to disclose financial information in accordance with regulatory conditions and standards.

Conditions for annual audits

Yearly evaluations are carried out by sanctioned establishments to ascertain the veracity of monetary particulars. All certified pecuniary establishments in Hungary are mandated to undergo external appraisals by disinterested organizations, which are subsequently conveyed to pertinent regulatory authorities. Examinations probe fiscal declarations, solvency currents, and equity ledgers.

A report on the inspection carried out is prepared within the prescribed period. This usually happens within a couple of months after the end of the financial year. The report reflects the auditor's opinion on the reliability of the financial documentation. It also contains information about any identified deficiencies, risks and recommendations for elimination.

Monitoring and supervision if you have a banking license in Hungary

Ordinary financial supervision in Hungary controls the stability of the characteristic institution. Effective monitoring allows risks to be identified in a timely manner. Let's consider the main aspects. The country's central bank, in this case, can guarantee the enterprise's compliance with legal requirements. Systemic, inspection and scheduled checks are carried out. The mechanisms for license revision and renewal are taken into account. Sometimes the regulator may conduct an unscheduled inspection of cases when there are compelling reasons for this.

Taxation if you have a banking permit

Taxes applicable to the banking sector include both general corporate and specific liabilities. Taxation of a banking license in Hungary has its own characteristics:

• Corporate. The standard rate is 9%. This is one of the lowest rates in the EU, making Hungary an attractive place to do business.
• VAT. In Hungary, services provided by banks are often exempt from these penalties. But some of them are taxed according to the rate of 27%.

Banks are required to submit tax returns in accordance with established deadlines. This requires an effective internal control and accounting system. Annual audits help ensure proper compliance with tax obligations.

Grounds for revocation of a banking license

This is a serious measure that can be applied in case of violation of prescribed conditions and laws. In Hungary, the annulment process rests with the Central Bank. The officers supervise the banking sector. The removal of a license holder can have significant consequences for the bank, its users and partners. Understanding the reasons presented below will help potential applicants proactively consider the risks and comply with the necessary nuances.

Violations of license terms

Violation of conditions licensing of financial institutions in Hungary is one of the main grounds for cancellation of a document. The precepts are instituted and governed by functionaries of the sovereign's Principal Bank. These include:

• failure to meet minimum investment requirements;
• disregarding corporate oversight norms;
• contravention of internal surveillance and hazard mitigation protocols;
• insufficient transparency of financial reporting;
• violation of anti-money laundering legislation;
• participation in fraudulent schemes or financial crimes.

It is important that institutions understand and comply with the requirements. This will help ensure business stability and avoid potential permit revocation.

Termination of bank activities and liquidation procedure

The bank liquidation procedure is regulated by relevant laws. Termination of activities may occur for the following reasons:

• financial difficulties;
• violations of the law;
• voluntary liquidation;
• revocation of license.

The bank liquidation procedure includes several key stages. First, government agencies appoint an experienced liquidator responsible for carrying out all related activities. He, in turn, is obliged to notify all creditors and clients about the termination of the bank's activities.

The liquidator draws up a balance sheet showing all the assets and liabilities of the company. This document is necessary to determine the priority of settlements with creditors. Settlements with creditors are carried out in accordance with the established priority. After fulfilling obligations to creditors, the remaining assets of the bank are distributed among shareholders.

The report must contain information about the actions taken. The liquidator submits all necessary documents to the Central Bank of Hungary and other competent authorities. Further, after completion of the procedure, the bank’s license is revoked.

Legal liability for violations

Let's consider the main aspects of liability arising in case of non-compliance with the permit:

• omissions may result in penalties and administrative action;
• an order on the need to correct identified deficiencies within a specified period;
• prohibition on carrying out certain types of activities or transactions;
• deprivation of license, termination of all banking operations and commencement of the liquidation process.

In cases of serious violations of laws, including fraud or corruption, criminal prosecution is initiated. Imprisonment and other measures provided for by criminal law cannot be ruled out.

Support in the process of obtaining a banking license in Hungary

Obtaining a banking license on Hungarian territory is a complex and multifaceted process. It is not easy to implement without in-depth knowledge of the country's laws and corporate governance. The support of a qualified team of specialists will be extremely useful at all stages of creation of Banking business in Hungary for non-residents. Our company can offer clients assistance in the following aspects:

• an explanation of all the legal nuances required to submit an application;
• recommendations on relevant regulations;
• preparation and execution of all necessary papers;
• assessing financial and operational risks;
• representing the interests of the bank in negotiations with regulators;
• comprehensive support in the process of obtaining a license;
• knowledge of the specifics of all stages of the process, being able to reduce the time for registration;
• compliance with all regulations and minimizing the risk of refusal to issue a permit;
• guarantee of compliance with conditions and increased chances of successfully obtaining a license in the country.

An experienced consultant from our company will provide support and help you effectively enter the Hungarian financial market.

Conclusion

Obtaining a license to fully engage in banking activities in Hungary is a complex process. Proper training is essential. It is important to understand the legal, financial and operational aspects related to the project.

When applying for a license, you will have to take into account an overview of the main specifics of obtaining the long-awaited document. Compliance with regulatory requirements is mandatory for the sustainable development of an institution. This allows you to avoid fines and deprivation of a license, and also helps to build trust in the establishment.