Commission Report 2002 (Hungary)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 3: Freedom to provide services

Progress since the last Regular Report

Since last year`s Regular Report, Hungary has made good progress regarding financial services and enhancing administrative capacity.

In the field of the right of establishment and the freedom to provide services (other than financial services), there were no significant legislative or administrative developments.

In the field of financial services, a new consolidated Capital Market Act entered into force in January 2002. This new legislation has amended legislation on the capital market and has brought further alignment with the acquis on investment services, public offering and trading of securities, investment funds, investor protection and supervision of the financial sectors. The Act also establishes new types of investment funds, but falls short of fully implementing the Community directive on undertakings for collective investment in transferable securities (UCITS). The legal concept of contractual netting was also introduced in December 2001 and entered into force in January 2002.

There were no particular legislative developments in the insurance sector during the period under review.

Amendments to the statutory law of the Hungarian Financial Supervisory Authority (HFSA) in January 2002 have further reinforced its independence. The HFSA has become more independent since January 2002, although it still does not have the power to issue its own regulations. The total staff of the Authority in 2001 was 534. As a result of inspections carried out in 2001, measures were taken in 1744 cases. In 221 cases fines were imposed, and in 42 cases licences were withdrawn or liquidation procedures initiated. Training programmes for staff at the Supervisory Authority have continued throughout 2001. Furthermore, the HFSA signed a Memorandum of Understanding with the Austrian and German Insurance Supervisory Authorities, which further develops the supervisory system.

Concerning the protection of personal data and the free movement of such data, while there were no particular legislative developments in the reference period, December 2001 saw the election of the Parliamentary Commissioner for Data Protection.

Further alignment has been achieved with information society regulations with the adoption of legislative measures in September and December 2001. Furthermore, alignment with the directive on electronic commerce continued with the adoption of legislation in December 2001.

Overall assessment

The freedom to provide cross-border services is not yet fully in place. However, the entry into force in December 2001 of legislation on the mutual recognition of qualifications (see Chapter 2) will facilitate effective access of non-nationals to industrial, trade, tourism and agricultural activities. Restrictions on the acquisition of real estate, in particular as regards agricultural and forestry activity, continue to hamper effective access.

On the other hand, Hungary has, at this stage, achieved a substantial degree of alignment in financial services. The consolidated Capital Market Act is a significant piece of legislation which further fine-tunes Hungarian approximation with the acquis. In particular, this law addresses investor compensation schemes.

While progress in the area of financial services has been steady and substantial, there are some outstanding issues in relation to capital requirements and bank accounting. In relation to banking, alignment with Community rules on consolidated supervision is needed. Further efforts will also be needed to transpose in good time before accession the acquis relating to core EC insurance provisions.

The Hungarian Financial Supervisory Authority is an effective body, but it should be given the power to issue its own regulations.

As far as Articles 43 and 49 of the EC Treaty are concerned, Hungary still has to complete a screening of its legislation in order to identify and eliminate legal provisions and administrative practices, which are in conflict with the Treaty.

Concerning the protection of personal data and the free movement of such data further alignment is needed by adopting a new Data Protection Act, which is to be submitted to Parliament by end 2002.

The election of the Parliamentary Commissioner for Data Protection satisfies the requirement for complete independence imposed by the acquis. The office is operational and has achieved a great deal in terms of ensuring compliance with the law and raising awareness. However, the authority needs to be significantly strengthened in terms of staffing and infrastructure if it is to be able to effectively discharge its duties. Its budgetary independence needs to be assured and its powers enhanced, in particular with regard to implementation of data protection rules in the private sector.

Good progress has been made in aligning with the rules relating to information society services. Some further work will be needed to complete alignment with the acquis on e-commerce and media society, in particular in relation to the transparency directive governing this area and satellite broadcasting.

Conclusion

In its 1997 Opinion, the Commission concluded that the acquis in this sector had already been largely transposed and that important progress had been achieved. Considerable progress had been made in adopting the acquis relating to financial services (banks). Regarding the financial market, the legislative framework was said to be largely in compliance with EC criteria on many points. The Commission indicated however that full free establishment in the areas of banking and insurance had still to be adequately introduced in the sectors` legislative frameworks and duly implemented.

Since the Opinion, Hungary has made steady progress in most areas of the chapter, both in terms of legislation and in bolstering the administrative and regulatory infrastructure required to supervise the financial services sector. Hungary`s alignment process is now well advanced, but further legislative alignment is still needed with regard to some aspects of the acquis.

Negotiations on this chapter have been provisionally closed. Hungary has been granted a transitional period (until 31 December 2007) to ensure its legislation on investor compensation schemes fully complies with the acquis. Hungary has been granted exclusion of two specialised institutions from the scope of application of the banking directives. Hungary is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership, Hungary`s efforts now need to focus on completing alignment with regard to securities and data protection, strengthening the existing supervisory institutions and facilitating rules on effective establishment and the provision of cross-border services.

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