NBH Warns of Forex Trading Software Risk
The National Bank of Hungary (NBH) has issued a warning regarding software for forex trading, stating that it may fall under the scope of the Act on Investment Service Providers and Commodity Dealers if it facilitates the initiation and execution of orders relating to forex trading.
What Constitutes an Investment Service?
According to the NBH, if the software collects orders initiated through it and transfers them to a trading platform, or if references to its past performance influence clients’ investment decisions, the provision of the software may qualify as an investment service or as intermediation of investment services. This highlights the need for fintech companies and credit institutions to ensure that their activities comply with regulatory requirements.
Fintech Regulation in Hungary
In Hungary, the regulation of fintech is based on MiFID 2, which sets out a list of activities that constitute an investment service. These include:
- Receipt and transmission of client orders
- Execution of client orders
- Portfolio management
- Investment research and financial analysis
Only investment firms or credit institutions licensed by the NBH are permitted to provide investment services in respect of financial instruments, including forex trading.
Requirements for Fintech Companies
To operate in Hungary, fintech companies must meet strict regulatory requirements, including:
- Initial capital
- Organization
- Legal form
- Personnel and equipment
- IT systems
- Risk management
- Record keeping
Roboadvice and Insurtech
The NBH has also issued guidance on roboadvisors and insurtech. Roboadvisors that provide personal recommendations to clients in relation to transactions relating to financial instruments may qualify as providing investment advice, while those that manage clients’ assets may qualify as portfolio management.
Insurtech companies, which provide innovative insurance solutions through online contracting, comparison sites, blockchain-based products, and other digital channels, must register as agents of insurance companies and comply with the Act on Insurance Activities.
Conclusion
==========
The NBH’s warning highlights the importance of regulatory compliance for fintech companies operating in Hungary. Fintech firms that wish to provide investment services or facilitate forex trading activities must ensure that they meet the necessary requirements and hold the required licence from the NBH. Failure to comply with regulations may result in serious consequences, including fines and even license revocation.
Investors should exercise caution when dealing with fintech companies and ensure that they are working with licensed and regulated entities. The NBH’s guidance provides a clear reminder of the importance of regulatory compliance in the Hungarian fintech sector.