Commission Report 2002 (Hungary)

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

Chapter 4: Free movement of capital

Progress since the last Regular Report

Good overall progress has been made in this field, with important developments as regards the removal of Hungary from the Financial Action Task Force (FATF) list of non-co-operative countries.

In the area of capital movements and payments, the entry into force in January 2002 of the Act on the Abolishment of the Foreign Exchange Restrictions and on the Amendments of the Related Acts has lifted all restrictions on foreign exchange operations (thus completing last year`s foreign exchange liberalisation). In addition, there is now full convertibility of the national currency. The Capital Markets Act also entered into force in January 2002 and provides for, among other things, new investment fund opportunities. With regard to the acquis on payment systems, further alignment has taken place in the area of cross-border credit transfers and electronic payments.

Land legislation was adopted at the end of 2001 and entered into force in January 2002 with the aim of encouraging family farms. This legislation was revised in July 2002. It will need to be further adapted to comply with the acquis and with negotiated transitional arrangements on the purchase of land.

As for the acquis on money laundering, Hungary adopted in November 2001 the Act on Combating Terrorism, on Tightening up the Provisions on the Impediment of Money Laundering and on the Ordering of Restrictive Measures. This legislation, which entered into force in December 2001, has been instrumental in bringing Hungary in line with the acquis and in the removal of Hungary from the FATF list of non-co-operative countries in June 2002.

Overall assessment

With respect to the liberalisation of capital movements, only a few further measures remain to be taken. As highlighted in the 2001 report, there are still certain restrictions on direct investment. Institutional investors still face restrictions on investment in foreign assets and the state maintains golden shares in a limited number of privatised companies. In this regard Hungary still needs to modify its Act on Privatisation and to conduct a case-by-case examination of existing special rights. This was expected to be done in January 2002, but has been delayed.

Harmonisation has continued in the area of payment systems. Full alignment with the acquis needs to be achieved, notably with the directive on settlement finality. There are no major problems with respect to the payment and securities settlement infrastructure.

With respect to real estate, Hungary still needs to enshrine in its legislation the transitional arrangement granted and liberalise all other transactions where restrictions remain.

As well as being instrumental in Hungary`s removal from the FATF list, Hungary's new legislation on money laundering aligns further with the acquis in this area. A satisfactory timetable for the phasing out of anonymous savings books has been established and Hungary has demonstrated its serious intent to combat such crimes. Improvements in administrative capacity and structures have been promised. The number of staff assigned to the financial intelligence unit operating within the Organised Crime Directorate of the National Police has doubled since last year. Further staff resources have been decided by the government, but this decision has yet to be implemented.

Conclusion

In its 1997 Opinion, the Commission concluded that Hungary`s efforts to liberalise its capital markets had met with considerable success in several areas. It pointed out that further efforts were still required, though, especially in liberalising outward capital movements and removing investment restrictions on institutional investors (e.g. insurance companies.)

Since the Opinion, Hungary has made steady progress in aligning with the acquis in this area. While Hungary`s legislation is now largely aligned with the acquis, further efforts are required in particular as regards land legislation.

Negotiations on this chapter have been provisionally closed. Hungary has been granted a transitional arrangement for five years after accession during which it may maintain its national provisions on the acquisition of secondary residences. Hungary has also been granted a transitional period for seven years after accession with regard to the acquisition of agricultural land. However, EU nationals who want to establish themselves as self-employed farmers and who have been legally resident and active in farming in Hungary for at least three years continuously are excluded from the scope of this transitional period. Hungary is generally meeting its 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 the adoption of the few remaining legislative measures still needed, and on introducing a complaints and redress procedure for the settlement of disputes on cross-border credit transfers.

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