In the recent past, the State Supervision of Financial Organizations (the "SSFO") has published its guidelines on its official website regarding the possibility of providing financial services in the territory of Hungary by credit institutions/financial enterprises with a registered seat in a Member State of the European Union in the form of cross-border services through agencies by means of the Hungarian Bank Act. We give a short overview of the applicable banking law regulation, and the main aspects of the published guidelines below.

As Hungary has become a Member State of the European Union on May 1, 2004, - among others - credit institutions, investment firms and insurance companies with a head office in a Member State of the European Union – after notification to the supervisory authority of the home country and in compliance with the regulation of the relevant directives - may establish a branch or may exercise the freedom to provide financial services in the territory of Hungary (cross-border service).

In accordance with the relevant European Union directives, the Hungarian Bank Act sets forth that (i) credit institutions with a registered seat in another Member State of the European Union may provide financial services in the territory of Hungary through their Hungarian branch offices or in the form of cross-border services, and (ii) financial enterprises with a registered seat in the European Union may provide financial services in the territory of Hungary through their Hungarian branch offices and financial enterprises, which comply with specific criteria defined in the Hungarian Bank Act may also be engaged in cross-border services.

Credit institutions with a registered seat in a Member State of the European Union and financial enterprises that comply with the conditions specified in the Hungarian Bank Act need not obtain an authorization for activities pertaining to cross-border services or services performed by their Hungarian branch offices. It is sufficient if such activities have been authorized by the competent supervisory authority in whose jurisdiction they are registered.

The Hungarian Bank Act also makes it possible to provide financial services through intermediation (agent). From among financial services, the intermediation of financial services (agency) is a peculiar activity the pursuit of which on a commercial basis is allowed not only to financial institutions. The Hungarian Bank Act identifies two types for agency activities; accordingly, the intermediation of financial services (agency), under the Hungarian Bank Act, means activities pursued for, in the name and behalf of, and at the risk of a financial institution whose purpose is the performance of financial services and/or activities auxiliary to financial services of the financial institution within the scope of an agency contract ("A" type agent); and activities pursued in order to facilitate a financial institution's financial services and activities auxiliary to financial services without any involvement in handling the customer's money or assets and in the course of which no commitments are made on behalf of the financial institution ("B" type agent).

The Bank Act determines the conditions of performing agency activities and the persons entitled to perform such activities depending on whether type "A" or "B" of agency activities is performed, and whether they are performed for credit institutions or financial enterprises.

If an "A" type agent performs the agency activities for a credit institution, both the agent and the credit institution must obtain authorization from the SSFO. However, if a "B" type agent performs the agency activities for a credit institution, neither the credit institution nor the agent is obliged to request a license for such activities. In this event, the credit institution must notify the SSFO of the identity of the agent.

If an agent (whether "A" or "B" type agent) performs the agency activities for a financial enterprise, neither the financial enterprise nor the agent is obliged to request license for such activities. In this event, the financial enterprise must notify the SSFO of the identity of the agent.

Business associations and cooperatives vested with legal personality other than financial institutions may also engage in the "A" type intermediation of financial services. Business associations, cooperatives and private entrepreneurs other than financial institutions may also engage in the "B" type intermediation of financial services as well.

In the recent practice of the SSFO, the issue has often occurred, whether a financial institution with a registered seat in a Member State of the European Union may provide cross-border services in the territory of another Member State by way of agents (whether "A" type or "B" type agent) under the Hungarian banking regulation. The SSFO has established that neither the Hungarian regulation nor the applicable European Union rules set forth provisions regarding the method or the form of provision of cross-border services. Consequently, it is not explicitly prohibited that a financial institution duly notified and registered by the SSFO as a financial institution providing cross-border services pursues its financial activities through an agent subject to the Hungarian Bank Act. The above guidelines have been published on the official website of SSFO. It is important to note that the SSFO is not bound by its former guidelines or decisions, e.g. in a potential authorization dispute it may derive from the above opinion.