CMS Expert Guide to Crypto Regulation in Hungary

Providers of exchange services between virtual currencies and fiat currencies, between different types of virtual currencies, and custodian wallet providers, fall under the scope of the Hungarian AML Act (Act LIII of 2017 on the prevention and combatting of money laundering and terrorist financing).

Among other things, they need to conduct a full customer due diligence :

a) when establishing a business relationship;

b) when carrying out an occasional transaction that amounts to HUF 4.5m or more;

c) with persons trading in goods, when carrying out occasional transactions in cash amounting to HUF 3m or more;

d) when carrying out an occasional transaction that constitutes a transfer of funds exceeding HUF 300,000;

e) regarding any transaction for the exchange of money involving a sum amounting to HUF 300,000 or more.

According to the Hungarian AML Act, ‘Custodian wallet provider’ means an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.

The Hungarian AML Act also applies to financial services institutions, including but not limited to payment institutions, regarding their activities that fall within the framework of payment services and electronic money institutions, and their activities falling within the framework of issuance of electronic money and payment services. Consequently, the AML Act applies to e-money token issuers.

Cryptocurrencies and NFTs (non-fungible tokens) are not regulated by the financial services regulation in Hungary.

Asset-referenced tokens and utility tokens are not regulated by Hungarian law.

However, security tokens can fall under the scope of the financial services regulation (securities) depending on what kind of right is securitised in the tokens. This means that STOs can be deemed as securities in Hungary. STOs are currently unregulated in Hungary and it is decided on a case-by-case basis whether an STO-like scheme would fall under securities or investment regulations. In this case, the following Hungarian acts will apply:

• Act CXXXVIII of 2007 on the investment funds (Hungarian Investment Fund Act); and
• Act CXX on capital markets (Hungarian Capital Market Act).

E-money tokens are regulated by:

• Act CCXXXV of 2013 on Payment Service Providers (Hungarian PSP Act);
• Act LXXXV of 2009 on the provision of payment services (Hungarian Payment Services Act); and
• Act CCXXXVII on credit institutions and financial enterprises (Hungarian Banking Act).

Partially, yes, the following fall under the scope of the Hungarian AML Regulation:

• Providers of exchange services between virtual currencies and fiat currencies, and between different types of virtual currencies; and
• custodian wallet providers.

In principle, crypto borrowing/lending, yield and staking do not fall under the scope of the Hungarian AML Act, except when:

• these activities fall under the scope of the financial institution provisions (security tokens, e-money tokens), in which cases the Hungarian AML Act may apply; and
• they qualify as a virtual currency exchange or custodian wallet service.

In the borrowing and lending of cryptoassets, regulatory restrictions may apply to the trading platforms, depending on the circumstances of trading and the ways of reaching investors, e.g. a business-like lending activity may require a licence from the Central Bank of Hungary. In this case, borrowing/lending cryptoassets falls under the scope of the Hungarian AML Act.

In principle, none of the above activities are regulated per se. However, it may be that due to the design of the cryptocurrency itself, the scope of application of one or more of the above laws is fulfilled.

For example:

If a stable coin is considered e-money (e-money token), the Hungarian PSP Act, the Payment Services Act and the Hungarian Banking Act may apply.

Offering security tokens to the public might trigger the issuer’s obligation to publish a prospectus under the EU Prospectus Regulation of the Hungarian Capital Market Act.

Operating a marketplace for trading in security tokens likely triggers licensing obligations within the meaning of Hungarian Investment Fund Act and the Hungarian Capital Market Act.

N/A

Generally, no licence is needed for a cryptoasset business.

Cryptoasset businesses must follow the standard company establishment procedure in Hungary if they would like to establish a Hungarian legal entity, which is not mandatory.

E-money token issuers need an e-money institution licence in Hungary. As a main rule, the Central Bank of Hungary’s (CBH) deadline for issuing its decision on a licence is three months from the date where all the necessary information and documents have been submitted to the CBH, which can be extended one time by a further three months. This deadline does not include the deadlines given by the CBH for providing more information, modifying documents, or submitting additional documents. For the fulfilment of these requests, the CBH usually allows 30 days, which can be extended one time. The CBH can order the above in several rounds during a single procedure.

In practice, it takes approximately 6–18 months to obtain an e-money (token) issuer licence in Hungary, because of the several rounds of document submission, information provision, IT security and other negotiations with the regulator. The length of the procedure depends on the quality of the documentation submitted to the CBH and the number of rounds in which the regulator asks for more information, modification of the documentation, and explanations of different issues.

The above procedure and deadlines also apply to CBH licences under the Hungarian Investment Fund Act and Capital Market Act in the case of security tokens.

N/A

Generally, no licence is needed for a cryptoasset business.

In the case of e-money (token) issuers, the overall costs of obtaining the licence, including the fees to be paid to the regulator, legal costs, and IT security consultation costs, can reach EUR 400,000. The procedural fee is HUF 1.1m (approx. EUR 3,000). These fees do not include the costs of establishing a legal entity (company) in Hungary.

Should a cryptocurrency service fall under the scope of any of the above-mentioned financial services regulations and thus require a licence, the specific regulation’s rules and stipulations need to be complied with when applying.

As cryptoasset services are often sold via internet, the service provider must comply with e-commerce regulations, and if the customers are consumers, then with consumer protection regulations.

Compliance with tax laws is also a must. The Hungarian Act on Personal Income Tax contains special taxation rules for incomes arising from cryptoasset transactions, including crypto mining and crypto trade.

Once tokens are traded, regulatory restrictions may apply to the trading platforms, depending on the circumstances of trading and the ways of reaching investors, e.g. a business-like lending activity may be subject to a licence from the CBH.

If tokens are classified as securities and are traded on a regulated market, the issuer must observe market follow-up obligations, e.g. according to the Market Abuse Regulation (Regulation EU No. 596/2014).

Corporate law restrictions may also apply. For example, in Hungary a limited liability partnership (korlátolt felelősségű társaság), limited partnership (betéti társaság) and private limited company (zártkörűen működő részvénytársaság) may not recruit investors publicly, therefore such entities may not launch security token offerings under Hungarian corporate rules.

A physical presence in Hungary is not required. However, in the case of regulated cryptocurrency services, which can be provided on a cross-border basis based on passporting the licence obtained in another EU member state, the regulator can require the company to establish a Hungarian entity, such as a Hungarian branch office or a subsidiary.