Hungarian financial regulations apply mainly on a territorial basis (i.e., whether the activity is carried out within Hungary). Consequently, if third-country firms (firms established outside the European Economic Area (EEA)), intend to access the market and provide any financial activity in Hungary, a license from the MNB is required. In addition to the fundamental requirements as detailed in question 5, third-country firms must also comply with the following conditions to obtain authorization in Hungary.

Besides the required documents (listed under the next question), the application of the third-country company must be accompanied by the following documents if the branch does not join the National Deposit Insurance Fund:

• The commitment of the branch to provide clients with information, in Hungarian, relating to the forms of insured deposits
• The third-country credit institution’s commitment pertaining to the indemnification of deposit holders in Hungary
• The conditions and method of indemnification, the manner in which procedures are carried out, and agreements ensuring payments of indemnification

As Hungary is an EEA member state, the EEA passporting rules also apply to cross-border business, as detailed in question 7.

In the Hungarian financial regulatory framework, there are certain exemptions from the licensing requirements, as follows:

Group financing

Authorization is not required for enterprises other than financial institutions on the basis of group financing. Group financing is a financial arrangement between a parent company and its subsidiary or between subsidiaries, which is carried out collectively for the purpose of liquidity or allocation.

According to the Banking Act of 2013, "liquidity" means solvency at all times. Pursuant to an MNB opinion regarding group financing, transactions between a parent company and its subsidiaries are considered to be financial operations for the purpose of securing liquidity if they ensure the maintenance of the day-to-day running of the business, the solvency and liquidity of one group member for the other. Consequently, group financing also includes the centralized management of available financial resources and funds (cash pool), which is also intended to ensure liquidity within the group.

However, the concept of allocation is not defined by law. Therefore the MNB's opinions shall be considered to determine the purpose of allocation. According to a relevant MNB opinion, allocation is usually understood as the distribution of a resource between specific parties, i.e., the transfer of a resource available to one party to another. Therefore, the purpose of allocation, as opposed to the purpose of liquidity, is not in fact an objective in the strict sense, but merely a means of allowing the allocation of resources within the group according to certain criteria. The performance of financial operations for the purpose of allocation can include practically any general corporate financing purpose, irrespective of the specific purpose, and thus may include, for example, asset purchase, investment lending or project lending.

A group financing exemption can be, for example, if a non-Hungarian mother entity that qualifies as group company and such mother entity provides group financing to the Hungarian subsidiary. It is important to note that for an intercompany transaction to qualify as group financing, all the conceptual elements of the definition (i.e., parent-subsidiary relationship, liquidity or allocation objective, and jointly undertaken financial operation) must be met, and  the achievement of each conceptual element must be assessed individually.

OECD exemption

Under the Organisation for Economic Co-operation and Development (OECD) exemption, foreign financial institutions established in an OECD member state can provide certain financial services (lending and borrowing) as defined by the Banking Act of 2013, in the form of cross-border services in accordance with the applicable foreign exchange rules.

The following conditions must be met for the OECD exemption to apply:

• The company providing the financial service must be established in a member state of the OECD.
• The company must operate in a form of financial institution (i.e., credit institution or financial enterprise) as defined by the Banking Act of 2013.
• The service provider must obtain a license from the competent supervisory authority in the state where it is registered to provide the services of lending, borrowing or financial leasing.

All of the above conditions must be met for the OECD exemption to apply in Hungary, and the MNB assesses in every case whether the conditions are met.