The Ministry for National Economy has published a draft version of the bill that tightens the existing regulation of securities firms.

Scandals at brokerages in the past weeks have highlighted the necessity of reinforcing supervision at financial and investment companies and of bolstering financial consumer protection. The preliminary drafting of new regulation has been under way at the Ministry for National Economy since the beginning of the year.

The draft bill contains several amendments of a number of provisions on the financial system and it tightens regulation on financial services supervision.  Similarly to the procedure for credit institutions, the draft version proposes an in-depth routine inspection at securities firms every three years instead of the current five years. As another harsher measure, the supervisory authority would be entitled to impose higher fines which may be more effective deterrents.

The planned amendment regarding regulation on Hungary’s Investor Protection Fund (BEVA) would remove the provision stipulating that investors shall borne 10 percent of losses above HUF 1 million and it would provide legal guarantee for a BEVA loan.

The bill aims to more precisely formulate the term “good business reputation”: the current law links the nomination of managers to this term, but it leaves it open for the supervisory authority to determine what qualifies as “good business reputation”. In line with existing EU rules, the amendment would set clear requirements that the executives and owners of a financial institution shall meet.

The draft version supplements regulations on procedures of the Financial Arbitration Board and thus the institution is expected to become faster and more effective in financial disputes.

Since 2010, the Government has made consistent efforts to create a fair financial services sector. The phasing out of forex loans and the adoption of the fair bank law has straightened out the bank sector, and integration measures consolidated savings co-operatives.  Adequate action by the National Bank of Hungary, the country’s top financial regulator and supervisor, and the new regulations are expected to normalize the investment services system.

(Ministry for National Economy)