Hungary’s Fintech Ecosystem: A Balancing Act Between Innovation and Regulation
Budapest - Hungary’s fintech ecosystem has been growing rapidly in recent years, with many startups and innovative companies emerging to offer a range of financial services. However, as the industry continues to evolve, it is essential that these companies balance innovation with regulation.
Data Protection: A Top Priority
One of the key areas where fintech companies must focus is data protection. The Hungarian Data Protection Authority (DPA) has been actively monitoring and supervising the activities of fintech companies in connection with compliance with Act CXII of 2011 on the Right of Informational Self-Determination and on Freedom of Information, as well as the General Data Protection Regulation (GDPR). In case of data protection infringements, the DPA is entitled to conduct investigations and impose fines.
Consumer Protection: A Shared Responsibility
Fintech companies must also ensure that they are in compliance with consumer protection regulations. The Ministry of Innovation and Technology functions as the general consumer protection authority, while the Central Bank of Hungary (CBH) acts as the consumer authority for entities engaged in activities supervised by the CBH.
Licensing and Capital Requirements: A Complex Web
In order to provide financial services, fintech companies must comply with licensing and capital requirements set out by law. These requirements are specified in several acts, including:
- Act CCXXXVII of 2013 on Credit Institutions and Financial Enterprises
- Act CXX of 2001 on the Capital Market
- Act CXXXVIII of 2007 on Investment Firms and Commodity Dealers
- Act LXXXVIII of 2014 on the Business of Insurance
FinTech companies must also determine the type of services they provide and acquire authorisation from the CBH if it qualifies as a regulated activity.
Anti-Money Laundering Provisions: A Shared Responsibility
Fintech companies must also comply with anti-money laundering (AML) provisions, which are supervised by the CBH. The Hungarian requirements in connection with AML are basically the same as those determined in the 5th AML Directive.
Outsourcing and Restrictions: Flexibility and Adaptability
There are no regulatory barriers to the cooperation between incumbents and fintech companies in Hungary, allowing for flexibility and adaptability. However, regulations and restrictions applicable to a fintech company should be assessed on a case-by-case basis depending on the exact type of activity carried out by the company.
Cross-Border Business: A Growing Trend
Although many Hungarian fintech companies still only address the domestic market, there has been a growing number of foreign investments in Hungarian fintech companies over the last few years. Hungary’s membership in the Global Financial Innovation Network (GFIN) initiative also provides a cross-border environment for fintech companies to test their products and may encourage more international cooperation.
Conclusion
Hungary’s fintech ecosystem is thriving, with many innovative companies emerging to offer a range of financial services. However, as the industry continues to evolve, it is essential that these companies balance innovation with regulation. By ensuring compliance with data protection, consumer protection, licensing and capital requirements, anti-money laundering provisions, outsourcing and restrictions, and cross-border business regulations, fintech companies can ensure a sustainable and successful future in Hungary’s financial landscape.