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Browse Profiles > Hungary > Core Principles for Effective Banking Supervision |
| Score | Rank | |
| Standards Compliance Index | 66.67 out of 100 | 4 |
| Business Indicator Index | 10.98 out of 12 | 3 |
Hungary|
Core Principles for Effective Banking Supervision
The regulatory framework for banking supervision in Hungary was found to be largely compliant with the Basel Core Principles (BCPs) for Effective Banking Supervision by the International Monetary Fund's (IMF) 2002 Report on the Observance of Standards and Codes (ROSC). A 2005 assessment of Hungary's banking legislation by the European Bank for Reconstruction and Development arrived at a similar conclusion, stating that Hungary exhibits high levels of compliance with the BCPs in almost all areas of banking supervision. The ROSC noted that the supervisory authorities were, at the time, taking considerable steps to improve the quality of supervision and regulatory framework, with a commitment to achieve full compliance with the BCPs. Areas of less than full compliance identified by the ROSC included regulatory powers of the Hungarian Financial Supervisory Authority (PSZAF); risk-assessment requirements; rules on connected lending and on large exposures; rules on the nature and quality of board governance and oversight; and remedial actions. A 2005 Update by the IMF found a strengthened regulatory and supervisory framework with more powers, autonomy, and accountability accorded to the PSZAF; revised laws; and comprehensive risk management requirements. However, the Update found that the PSZAF still did not have the power to issue binding regulations; the oversight role of the Ministry of Finance in the new accountability framework was not clear; and there were no changes to the rules on connected lending and large exposures. A 2007 IMF report found more proactive, risk-based supervision by the PSZAF. Hungary expects to implement Basel II by 2008. General Overview The 2007 International Monetary Fund (IMF) Article IV Consultation report finds a sound financial sector in Hungary, with profitable and well-capitalized banks. Competition and financial deepening have led banks to engage in riskier lending, and this calls for closer monitoring. The Hungarian supervisory authorities, per the report, have taken measures to require banks to strengthen their risk management procedures and increase their capital reserves. The supervisory authorities have also undertaken more proactive supervision of banks, conducting elaborate stress tests. In this context, the IMF recommends the implementation of Basel II requirements and establishment of risk based consolidated supervision of all financial institutions. The Hungarian authorities expected Basel II implementation by January 2008.The Principles
The 2005 PSZAF self-assessment noted that the goals and responsibilities of each supervisory agency are clearly defined in law. The separation of responsibilities between the PSZAF and the National Bank of Hungary (Magyar Nemzeti Bank, or MNB) is clear. Further, the regulation of banking activities "practically conform to best international practice" (p. 2). A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of supervisory competence. Specifically, the assessment indicates that Hungarian law in relation to banking supervisory responsibilities and objectives "is substantially in line with international standards" (p. 2).
The IMF's 2005 FSSA Update stated that the budgetary independence of the PSZAF has been enhanced as of January 2005. Though a part of the government budgetary framework, the President of the PSZAF can allocate resources as necessary. Also, surpluses can be reserved for later use, strengthening budgetary independence in the longer run. Certain revenues can also be retained for specified expenditure. The 2002 IMF ROSC also found that the 2001 Capital Markets Act clarifies the independence and accountability of the PSZAF, with clear stipulations on the appointment, terms of office, and removal of the President of the PSZAF. The 2005 PSZAF self-assessment, however, noted that the operational autonomy of the PSZAF is "not adequately elaborated" (p. 4), although budgetary independence is guaranteed by legal regulations. The pay structure of the PSZAF is inadequate to retain skilled professionals. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of supervisory competence. Specifically, Hungary has a "compliant legislation, providing the regulator and its lead management with operational independence" (p. 2). Hungarian law is also "substantially in line with international standards" (p. 2) with regard to providing the PSZAF with adequate resources to meet its stated objectives.
The 2005 IMF FSSA Update found that the PSZAF does not have the power to issue binding regulations, which are the charge of the MoF. An attempt to shift this power to the PSZAF through a constitutional amendment in 2004 proved unsuccessful. The 2005 PSZAF self-assessment stated that the authorities responsible for granting and revoking licenses are clearly specified in the law. However, the PSZAF cannot draft and adopt decrees, although it issues recommendations. The supervisor can also elicit audited information and data from the banks when required. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of supervisory competence. In spite of the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2005 PSZAF self-assessment noted that "there are no problems with legal compliance" (p. 6), and that the PSZAF has the power to take action if violations of rules on safe and reliable operations occur. However, the supervisor does not conduct effective qualitative evaluations to reach such decisions. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of supervisory competence. Nonetheless, there is little information publicly available as to Hungary's compliance with this principle.
The 2002 IMF ROSC observed that the "staff of the [PSZAF] enjoys full protection under the civil service acts for all acts performed in exercising their professional duties" (p. 39). The appointment and dismissal of the president are done by the Parliament, with clear stipulations in the 2001 Capital Markets Act. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of supervisory competence. Specifically, Hungary has a "compliant legislation, providing the regulator and its lead management with... legal protection from liability suits" (p. 2).
The 2002 IMF ROSC noted that the PSZAF is legally required to share information with the MNB, the MoF, the National Deposit Insurance Fund, other domestic and foreign supervisors, and certain government agencies like the State Audit Office, Economic Competition Office, Government Controlling Bureau, and others, on the condition that the request comes within the purview of the legal responsibility of the requesting agency. The 2005 PSZAF self-assessment also stated that cooperation and information sharing between domestic supervisory agencies is facilitated by the legal framework as also by cooperation agreements between the relevant institutions. The PSZAF is also empowered to deny requests for confidential information in its possession. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of supervisory competence. However, there is little information publicly available as to Hungary's compliance with this principle.
The 2002 IMF ROSC noted that there is strict limitation in law of the use of the term "bank" and other similar terms. Only entities licensed by the PSZAF may conduct banking activities. This definition, per the ROSC, "adequately reflects the internationally accepted criteria of deposit taking and granting of credit" (p. 40). Further, the legal framework has explicit and comprehensive rules and procedures on licensing and operation of banks. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to be "fully in line with the requirements established by Core Principle 2: the term "bank" in general is clearly defined and the laws clearly set guidelines for identifying which institutions can carry out banking activity and in particular take deposits from the public" (p. 2).
The 2002 IMF ROSC noted that the PSZAF licenses institutions on the basis of standardized information as well as on-site examination of verifiable aspects such as organizational structure, equipment, staffing, logistics and security systems, accounting systems, etc. The law also lays down the criteria for selection of the directors and top management as to their professional skills, experience and integrity. The 2005 PSZAF self-assessment added that the supervisor has the power to reject applications for knowingly providing false information, or to withdraw licenses if misleading information or a breach of law is later discovered. The self-assessment suggested developing a common set of criteria and minimum requirements to improve the review process. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the areas of licensing and structure and corporate governance. Specifically, the report indicates that "the licensing authority, its monitoring procedures and the minimum initial capital requirements, suitability of shareholders and management and transparency of ownership are generally detailed in the law" (pp. 2-3). Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that "prior authorization is required for each proposed change in ownership or voting rights entailing the breach of limits of 15 percent, 33 percent, 50 percent, or 75 percent" (p. 40). The 2005 EBRD report finds that Hungary is deficient in the area of transfer of ownership primarily due to the fact that EU's "acquis communautaire is limited on these issues" (p. 3). The report hopes that the enforcement of the Financial Conglomerates Directive and the Transparency Directive will "introduce prudential supervision on a banking group-wide basis and set new minimum disclosure requirements" (p. 3). The 2005 PSZAF self-assessment noted that significant shareholding as well as controlling influence are defined in the law. Statutory requirements for approving acquisitions exist and are applied by the PSZAF during licensing. The PSZAF can also reject applications or set conditions for the right of ownership, although its methodology needs to be standardized. Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that the any major investment requires the consent of the PSZAF. The law also prohibits investment in real estate to 5 percent of equity, and prohibits acquisitions exceeding 15 percent of its equity, with the exception of investment in credit institutions or financial enterprises. A 2005 assessment of Hungary's banking legislation by the EBRD found that Hungary is deficient in the area of major investments and acquisitions primarily due to the fact that EU's "acquis communautaire is limited on these issues" (p. 3). The report hoped that the enforcement of the Financial Conglomerates Directive and the Transparency Directive will "introduce prudential supervision on a banking group-wide basis and set new minimum disclosure requirements" (p. 3). Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that the minimum capital requirements exist for a newly established bank, specialized credit institution, cooperative credit institution, and credit institution. If a bank's capital falls below the threshold, supervisory action may be initiated, including in rare cases, demand for a capital increase. The 2005 PSZAF self-assessment states that the country is moving towards implementation of Basel II. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the area of prudential standards. Specifically, Hungarian law clearly defines the minimum capital adequacy requirements that all banks must meet and these "are in line with those established in the Basel Capital Accord" (p. 4). The PSZAF, as indicated by the report, has the authority to impose prudential rules on banks on a solo as well as consolidated basis on banking groups. Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that a ministerial decree requires banks to set internal procedures for granting loans, investing, classifying claims, assessing collateral and providing for loan losses. These systems and measures are evaluated during on-site inspections. The PSZAF is also empowered to require banks to change their internal procedures or to modify their provisioning. The 2005 PSZAF self-assessment stated that the PSZAF evaluates the banks' management of lending and investment risks and their credit risk policy and procedures, and this is in line with the requirements of CP 7. The PSZAF also has access to information on the lending portfolios and loan officers of banks. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the area of prudential standards. Nonetheless, there is little information publicly available addressing Hungary's actual compliance with this principle.
The 2002 IMF ROSC noted that a ministerial decree requires banks to set internal procedures for granting loans, investing, classifying claims, assessing collateral, and providing for loan losses. These systems and measures are evaluated during on-site inspections. The PSZAF is also empowered to require banks to change their internal procedures or to modify their provisioning. The 2005 PSZAF self-assessment stated that the PSZAF evaluates the banks' management of lending and investment risks and their provisioning and policy for non-performing loans through comprehensive supervisory audits. The report, however, notes that the ministerial decree on internal procedures is outdated and does not conform to the Basel II requirements. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the area of prudential standards. Apart from the above information, there is little information publicly available addressing Hungary's actual compliance with this principle.
Per the 2002 IMF ROSC, exposures to a single borrower or a related group of borrowers have prudential limits of not more than 25 percent of the bank's capital. The ROSC, however, recommends closer monitoring of overall concentration of exposure, in particular through improvements in ownership and director information. The 2005 PSZAF self-assessment added that the PSZAF regularly checks compliance with statutory limitations on concentrations. However, the information provided by the banks is not adequate for a comprehensive assessment. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the area of prudential standards. Nonetheless, there is little information publicly available addressing Hungary's actual compliance with this principle.
The 2002 IMF ROSC noted that the ACIFE defines connected parties and sets limitations on lending to them, although it does not prohibit banks from applying favorable terms of loans to connected parties. The ROSC recommended removal of the provision that allows lending to connected parties on more favorable terms, as well as improvements in ownership and director information. The 2005 PSZAF self-assessment added that although connected lending on favorable terms is implicitly prohibited by law, the PSZAF does not apply it in practice. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the area of prudential standards. Nonetheless, there is little information publicly available addressing Hungary's actual compliance with this principle.
The 2002 IMF ROSC noted that the law prohibits more than 30 percent of a bank's capital to be exposed in foreign exchange positions. A MoF decree also regulates country risk management and provisioning. The 2005 PSZAF self-assessment stated that the risk management supervision by the PSZAF is aligned with the requirements of this principle. Hungary is also amending its regulations to achieve compliance with Basel II. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have full compliance with international standards in the area of risk management, especially country risk and transfer risk as dealt with in BCP 11.
The 2005 IMF FSSA Update found that, since 2000, the PSZAF has issued numerous guidelines to banks on areas such as market risk and internal controls. The 2005 PSZAF self-assessment states that market risk regulations are being developed in accordance with EU regulations and the Basel II recommendations. However, the PSZAF was found to be short of staff, which otherwise has the necessary expertise to evaluate market activities undertaken by banks, the risks inherent therein, and measures in place to mitigate them. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have full compliance with international standards in the area of risk management, especially market risk, as detailed in BCP 12.
The 2005 IMF FSSA Update stated that the 2000 FSSA had called for more comprehensive requirements for risk management and that, in the intervening years; the Hungarian supervisory authorities have taken steps in this direction, with new PSZAF guidelines on credit risk management. The 2007 IMF Article IV report also appreciated the efforts by the authorities to more proactively require banks to strengthen their risk management procedures and enhance their capital reserves. The report recommended the implementation of Basel II regulations in this area to more effectively contain risk. The 2005 PSZAF self-assessment states that the risk management procedures of banks are regularly audited by the PSZAF, which also evaluates the preparation by the bank for the adoption of Basel II. However, supervision of liquidity management is not consistently enforced. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have a high level of compliance with international standards in the area of risk management. Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC found that the responsibility of the board of directors and the supervisory board for internal control procedures in the bank is defined in the ACIFE. The ROSC recommended tightening these controls in light of the implementation of Basel II. The 2005 IMF FSSA Update found that, since 2000, the PSZAF has issued numerous guidelines to banks in the area of internal controls. The 2005 PSZAF self-assessment stated that corporate governance in banks in Hungary is not well developed or backed by effective regulation. Though the PSZAF has formal authorization to enforce internal control in banks, its powers do not meet the specifications of CP 14 and it does not have a clearly spelt out audit criterion or methodology for assessment. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of governance. Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2005 IMF FSSA Update found that "the AML regime has been significantly strengthened in recent years, but some important gaps still remain in the legislative framework" (p. 24). The most significant step, per the report, is the passage of the amended AML Act in 2003. The PSZAF adequately supervises financial institutions' compliance with their AML requirements. The report recommended strengthening the implementation of the law and converging with the EU third money laundering directive. The 2005 PSZAF self-assessment stated that banks are not required to comply with a code of conduct, and human risks and management, except money laundering, are not adequately supervised. Banks also do not fully meet reporting requirements. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have very high levels of compliance with international standards in the areas of governance and anti-money laundering framework. Nonetheless, there is little information publicly available addressing Hungary's actual compliance with this principle.
Per the 2002 IMF ROSC, the PSZAF conducts on-site supervision in accordance with the Act on the PSZAF, which stipulates comprehensive onsite inspection at least every two years. The key areas supervised are capital, quality of reserves, management, earnings, and liquidity. The PSZAF assigns ratings based on its findings. A MoF decree lays down the basis for offsite supervision and outlines the structure and content of the reports to be submitted by the banks. The reports are subject to review by an independent group of officials, which assigns them ratings. The PSZAF reviews the information and compares results. The 2005 PSZAF self-assessment stated that the PSZAF conducts offsite monitoring, audits, and on-site inspections to evaluate the activities of the banks. However, the methodology of offsite supervision needs to be modified. In on-site audits, the PSZAF examines the reliability of the bank's data and other reports produced by the bank and from external sources. The Manual of the audit of credit institutions frames the on-site inspection procedure followed by the PSZAF. This Manual is under review. The PSZAF also conducts quarterly risk assessments, and the risk assessment system is also under review. The PSZAF is in the process of preparing a consolidated risk assessment framework. Despite the above information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that the PSZAF has regular meetings with the bank management. Further, the supervisory staff designated to a bank maintains constant contact with a high bank official who is the contact point for the supervisor. The 2005 PSZAF self-assessment stated that the PSZAF meets with bank management on an ad hoc basis. Once every two years, the PSZAF discusses with the board of directors and the top and middle management the overall activities, risk management, and strategies of the concerned bank. The members of the management are also assessed by the PSZAF. The auditors keep constant contact with the management and compliance officers of the banks. Despite the above descriptive information, there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that annual reports required to be filed by financial institutions must contain a balance sheet, profit and loss statement, supplementary appendix, business report, and consolidated accounts for the parent institution, the subsidiaries, and any joint enterprises. The reports must be audited by independent external auditors. The ROSC recommended improvements to financial disclosure in the context of the Basel II requirements and effective penalties for material misinformation. The 2005 PSZAF self-assessment stated that the Banking Act and the implementing MoF decree regulate the supply of data by the banks to the PSZAF. Monthly, quarterly and annual data are mandatorily submitted to the PSZAF. The MoF regulates accounting in Hungary, and though the PSZAF can comment or make proposals on the rules, they are "usually disregarded by the legislator" (p. 38). The report further noted that the data supply is detailed enough to meet the requirements of CP 18, and misreporting and errors in the data supply can result in sanctions as prescribed by the Banking Act. The PSZAF also has the authority to demand additional information as and when required. Despite the above descriptive information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that the independent external auditors who audit annual reports of the banks report directly to the PSZAF on their findings, notable deficiencies in the audit, violations of internal regulations, and violation of the ACIFE or the Act on the MNB. The 2005 PSZAF self-assessment stated that annual audits by the PSZAF follow fixed procedures based on an established methodology and involve consultations with the external auditors. The PSZAF is also authorized by the Banking Act to replace auditors and have full access to all bank records for supervisory work. Per the self-assessment, the on-site supervision methodology is in the process of being revised to develop a risk based supervision methodology. Nonetheless, there is little information publicly available addressing Hungary's actual compliance with this principle.
The 2002 IMF ROSC noted that "the amended Act [on the PSZAF] has fully embraced the concept of consolidated supervision, an important step for Hungary's supervisory methods" (p. 43). Under the Act, comprehensive rules on consolidated supervision have been promulgated and the PSZAF has been authorized to examine and monitor all financial and mixed activity groups. To ensure effective consolidated supervision and to make up for the lack of experience in this area, the PSZAF takes assistance from external audit firms and educates and trains its staff on consolidated supervisory methods. The 2005 PSZAF self-assessment, however, stated that that the individual institution is the unit of supervision, and the group is supervised on a consolidated basis only as a supplementary activity. Nonetheless, the banking groups provide consolidated data on a semi-annual basis. The PSZAF cooperates with home and host country supervisors in reviewing the overall activities of cross-border entities. It also has the power to limit consolidated banking groups from operating in jurisdictions where safety and soundness of the operation may be compromised. A 2005 assessment of Hungary's banking legislation by the EBRD found Hungary to have high levels of compliance with international standards in the area of consolidated supervision. Despite the above descriptive information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC noted that the PSZAF has remedial tools in its arsenal, but they do not consist of holding the boards and management responsible to oversee safe and sound operations of the banking group, and removing them. Remedial action also kicks off only when an institution is already in a crisis or pre-crisis mode, and this can create moral hazard in the system. The ROSC expressed concern over the lack of supervisory discretion and flexibility in taking timely corrective action. The Hungarian authorities, however, responded by stating that remedial tools were adequate to deal with problem or troubled banks. The IMF's 2005 FSSA Update on the progress made by Hungary in implementing the recommendations of the 2002 ROSC found that the PSZAF's discretion and flexibility to take remedial actions had been increased with the amendment to the Act on the PSZAF. The 2005 PSZAF self-assessment stated that the PSZAF has explicit authority to take corrective action justified on technical or professional grounds; and the range of action is also adequately broad. However, corporate governance and fit and proper deficiencies do not constitute a sufficient basis for action. The self-assessment recommended widening the grounds for corrective action, developing an early warning system, and establishing effective business continuity and disaster recovery plans. Despite the above descriptive information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC notes that the PSZAF "has full authority to allow and supervise cross-border activities of Hungary's incorporated banks on the condition that a cooperation agreement with foreign supervisors is in place that covers both exchange of information and cooperation in onsite examinations" (pp. 42-43). However, the ROSC recommends the PSZAF to extend the recently adopted consolidated supervisory approach to banks with global presence. The 2005 PSZAF self-assessment notes that the PSZAF does not satisfy itself during the licensing process that the host country supervision is up to the mark. Also, supervisory deficiency is not a legal basis to require closure of the bank's operation or limit to its activities in that jurisdiction. The 2005 EBRD assessment indicates that in the area of the supervision of operations by domestic banks overseas and foreign banks locally, the country's legislation is less than 40 percent in compliance with international standards. This is because the PSZAF does not have the authority to restrict banks from establishing branches in countries where secrecy laws prohibit disclosure to home supervisors and where risks are deemed excessive. Despite the above descriptive information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2002 IMF ROSC notes that the PSZAF "has full authority to allow and supervise cross-border activities of Hungary's incorporated banks on the condition that a cooperation agreement with foreign supervisors is in place that covers both exchange of information and cooperation in onsite examinations" (pp. 42-43). However, the ROSC recommends the PSZAF to extend the recently adopted consolidated supervisory approach to banks with global presence. The 2005 PSZAF self-assessment notes that the PSZAF does not satisfy itself during the licensing process that the host country supervision is up to the mark. Also, supervisory deficiency is not a legal basis to require closure of the bank's operation or limit to its activities in that jurisdiction. The 2005 EBRD assessment indicates that in the area of the supervision of operations by domestic banks overseas and foreign banks locally, the country's legislation is less than 40 percent in compliance with international standards. This is because the PSZAF does not have the authority to restrict banks from establishing branches in countries where secrecy laws prohibit disclosure to home supervisors and where risks are deemed excessive. Despite the above descriptive information there is no explicit statement publicly available addressing Hungary's compliance with this principle.
The 2005 PSZAF self-assessment states that Hungary has taken a "major step forward during recent period, particularly in relation to Basel II" (p. 51) in complying with CP 24. It also notes that the PSZAF has different natures of relationship with the EU and non-EU supervisors. Further, the PSZAF is developing a home-host strategy in preparation for the Basel II implementation. Nonetheless, there is little information publicly available addressing Hungary's actual compliance with this principle.
The 2005 PSZAF self-assessment notes that local branches and subsidiaries of foreign banks in Hungary have the same requirements as domestic banks and their supervision also suffers the same deficiencies. During the licensing process, the PSZAF does not adequately assess if the home supervisor practices consolidated global supervision. The PSZAF also does not satisfy itself of the approval or no-objection of the home supervisor. It only checks if the parent bank is operating prudently and meets other requirements. The 2005 EBRD assessment indicates that in the area of the supervision of operations by domestic banks overseas and foreign banks locally, the country's legislation is less than 40 percent in compliance with international standards. This is because the PSZAF does not have the authority to restrict banks from establishing branches in countries where secrecy laws prohibit disclosure to home supervisors and where risks are deemed excessive. Despite the above descriptive information there is no explicit statement publicly available addressing Hungary's compliance with this principle. |
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Sources of Assessment European Bank for Reconstruction and Development, "The Quality of Banking Legislation in Transition Countries," Law in Transition Online, October 2005. Available from European Bank for Reconstruction and Development website. Accessed on February 25, 2008. (EBRD 2005) Hungarian Financial Supervisory Authority, "Self assessment based on the Basel Core Principles (1997, 1999)," December 2005. Available from Hungarian Financial Supervisory Authority website. Accessed on March 3, 2008. (PSZAF 2005) International Monetary Fund, "Hungary: Financial System Stability Assessment Follow-up, including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, Banking Supervision, Securities Regulation, Insurance Regulation, and Payment Systems," Country Report No. 02/112, Washington, D.C.: IMF, June 2002. Available from International Monetary Fund website. Accessed on March 3, 2008. (IMF 2002) International Monetary Fund, "Hungary: Financial System Stability Assessment Update, including a Report on the Observance of Standards and Codes on Insurance Regulation," Country Report No. 05/212, Washington, D.C.: IMF, June 2005. Available from International Monetary Fund website. Accessed on March 3, 2008. (IMF 2005a) International Monetary Fund, "Hungary: 2007 Article IV Consultation - Staff Report; and Public Information Notice on the Executive Board Discussion," Country Report No. 07/250, Washington, D.C.: IMF, July 2007. Available from International Monetary Fund website. Accessed on March 3, 2008. (IMF 2007) Relevant Organizations Hungarian Financial Supervisory Authority -- Pénzügyi Szervezetek Állami Felügyelete (PSZAF) Ministry of Finance -- Pénzügyminisztérium (MoF) National Bank of Hungary -- Magyar Nemzeti Bank (MNB) Relevant Legislation/Regulation Act on Credit Institutions and Financial Enterprises, 2000 Act on the Hungarian Financial Supervisory Authority, 1999 Capital Markets Act, 2001 Act on the Magyar Nemzeti Bank No. LVIII, 2001 Act on the Prevention and Combating of Money Laundering and Terrorist Financing CXXXVI, 2007 Act on the Prevention and Impeding of Money Laundering No. XV, 2003 Act on Combating Terrorism, on Tightening up the Provisions on the Impeding of Money Laundering and on the Ordering of Restrictive Measures No. LXXXIII, 2001 EU Directive on the Supplementary Supervision of Credit Institutions, Insurance Undertakings and Investment Firms in a Financial Conglomerate No. 2002/87/EC, 2002 EU Directive on the Harmonization of Transparency Requirements in Relation to Information about Issuers whose Securities are Admitted to Trading on a Regulated Market No. 2004/109/EC, 2004 Supplementary Sources Hungarian Financial Supervisory Authority, "Annual Report 2006," Budapest, Hungary: PSZAF, 2007. Available from Hungarian Financial Supervisory Authority website. Accessed on March 9, 2008. (PSZAF 2007) Hungarian Financial Supervisory Authority website. Accessed on March 3, 2008. (PSZAF website) International Monetary Fund, "Hungary: Report on the Observance of Standards and Codes - FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism," Country Report No. 05/347, Washington, D.C.: IMF, September 2005. Available from International Monetary Fund website. Accessed on March 3, 2008. (IMF 2005b) |