Hungary: Securitisation Comparative Guide

1 Legal and regulatory framework

1.1 Which laws typically govern securitisations in your jurisdiction?

• Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 ('Securitisation Regulation');
• The EU Prospectus Regulation (2017/1129);
• The Capital Markets Act (CXX/2001);
• The Civil Code (Act V/2013); and
• The Act on Credit Institutions and Financial Enterprises (CCXXXVII/2013) ('Credit Institutions Act').

1.2 Which bodies are responsible for regulating securitisations in your jurisdiction? What powers do they have?

The regulation of securitisation is harmonised in the European Union through legal acts adopted by the EU legislative bodies (ie, the European Parliament and the European Council). EU regulations such as the Securitisation Regulation and the Prospectus Regulation are directly applicable in Hungary.

Domestic legislation adopted by the Hungarian Parliament includes:

• the Civil Code, which regulates the transfer of receivables, other claims and assets, and sets out the rules on assignment;
• the Credit Institution Act, which regulates the licensing and other regulatory aspects of transactions, given that the purchase of receivables qualifies as a financial service; and
• the Capital Markets Act, which regulates the issuance of securities.

The National Bank of Hungary is the competent authority that supervises the financial markets and the capital markets, including securitisation. As such, it has the power to impose administrative sanctions on market participants.

1.3 What is the regulators' general approach in regulating securitisations?

There is no available practice in this regard to comment on.

1.4 What role, if any, does the central bank play in the securitisation market in your jurisdiction?

The National Bank of Hungary is the competent authority that supervises the financial markets and the capital markets, including securitisation. The National Bank of Hungary has the authority to issue licences under which financial services (eg, the purchase of receivables) may be provided in Hungary. A securitisation special purpose entity may initiate its activities following notification of the National Bank of Hungary, which also keeps a register of such entities. If publication of a prospectus is required in the course of a securities issuance, the prospectus must be approved by the National Bank of Hungary prior to publication.

The National Bank of Hungary may impose administrative sanctions (eg, fines, withdrawal of licences) on the originator, sponsor or original lender of a securitisation in the case of non-compliance.

2 Market and motivations

2.1 How sophisticated is the securitisation market in your jurisdiction and how has it evolved thus far?

In Hungary, the number of securitisation transactions is very limited. Securitisations are usually arranged and financed by foreign banks, and the securities issued in the course of the transaction are purchased by foreign investors.

In practice, we differentiate between the following securitisation structures:

• so-called 'traditional' securitisation – that is, true sale securitisation; and
• synthetic securitisation.

2.2 In which industry sectors, if any, is securitisation most common in your jurisdiction? What major securitisations have been effected thus far?

See question 2.1.

2.3 What are the benefits of securitisation, for both originators and investors?

For banks, securitisation may be a suitable means to free up their balance sheets and allow for further lending to the economy; it also facilitates the easy transfer of loan portfolios to other institutions or investors.

More broadly, securitisation has the potential to improve efficiencies in the financial system and provide additional investment opportunities. It can also create a bridge between credit institutions and the capital markets, which may result in indirect benefits for businesses and citizens through:

• less expensive loans and business financings; and
• credits for immovable property and credit cards.

In case of receivables arising from, for example, the sale of goods, securitisation enables manufacturers, producers and service providers to acquire further funds from the capital markets through the issuance of bonds, instead of taking out loans from credit institutions.

Securitisation is also a tool for risk sharing, given that the original risks are divided among the investors purchasing the securities.

2.4 What are the risks of securitisation, for both originators and investors?

Increased interconnectedness and excessive leverage make securitisation risky for investors. The experience gained from the 2008 global financial crisis made it clear that if securitisation is non-transparent, or if the receivables underlying the securities are over-complicated and the risks arising from them cannot be properly evaluated, this can result in a highly risky product for investors.

Apart from the credit risks attached to the underlying loans and exposures, investors may face risks arising from the structuring process of securitisations, such as:

• agency risk;
• model risk;
• legal and operational risk;
• counterparty risk;
• servicing risk;
• liquidity risk; and
• concentration risk.

2.5 Is there a developed covered bond market in your jurisdiction and how does it compare and compete with securitisation as means of disintermediation and recycling bank capital?

The covered bond market is more developed in Hungary than the securitisation market. Bond issuance is a well-known and frequently used tool for corporate fund raising. Bond issuance for the purpose of providing further funds for small and medium-sized enterprises (SMEs) has been supported by the National Bank of Hungary in recent years. In 2019, the National Bank of Hungary launched a bond funding for growth scheme, under which the National Bank of Hungary and commercial banks purchased bonds issued by SMEs.

Bonds issued by companies may be listed on:

• the Budapest Stock Exchange Corporate Bond Market; and
• the Xbond Platform, which is operated by the Budapest Stock Exchange especially for bonds issued by SMEs.

2.6 To what extent does the government intervene as a state actor in securitisation (eg, by guaranteeing certain securitised assets, providing credit enhancement to impact transactions or sponsoring public bodies to act as originator of or investor in asset-backed securities issues)?

In 2019, along with the bond funding for growth scheme, the National Bank of Hungary also communicated that it planned to purchase securities covered by loan receivables. In its communication, the National Bank of Hungary noted that one of its goals was to increase the impact of its monetary policy measures on the economy by extending the liquidity of the Hungarian securitisation market. However, as yet we have no details of any such securitisation transactions taking place.

Also, we do not know of any government intervention in the securitisation market in Hungary.

3 Structures

3.1 What securitisation structures are most commonly used in your jurisdiction?

In practice, we differentiate between the following securitisation structures:

• so-called 'traditional' securitisation – that is, true sale securitisation; and
• synthetic securitisation.

The most common structure is traditional securitisation, where the receivable is transferred to the buyer and the seller of the financial assets thus ceases to carry any risk relating to the performance of the sold asset – that is, to the solvency of the debtor of the underlying obligation. In a true sale, the buyer is not considered a creditor and the transferred assets are protected from any claims of the transferor's creditors. If the transferor becomes insolvent following the transfer, the assets which are the subject of the true sale do not become part of the insolvency estate; nor are the transferee's rights relating to those assets in any way affected by the commencement of insolvency proceedings. If the originator becomes insolvent, then fraudulent, undervalued and preferential transactions concluded within the suspect period of five years, two years or 90 days (respectively) can be challenged by the insolvency officer. The insolvency remoteness of the transferred assets can thus be achieved by:

• meeting the relevant perfection requirements; and
• ensuring that the transaction is concluded at market value and on arm's-length terms.

In case of synthetic securitisation:

• there is no transfer of receivables;
• the transfer of risk is achieved by the use of credit derivatives or guarantees; and
• the exposures being securitised remain exposures of the originator.

Although legally possible, synthetic securitisation is not used in the Hungarian market.

3.2 What is the split between 'term' and asset-backed commercial paper transactions?

An 'asset-backed transaction' is a securitisation within an asset-backed commercial paper (ABCP) programme. An 'ABCP programme' is a programme of securitisations in which the securities issued predominantly take the form of ABCP with an original maturity of one year or less.

Securitisations which do not fall under the above definition qualify as non-ABCP transactions or commercial paper transactions.

3.3 What are the advantages and disadvantages of these different types of structures?

Asset-backed securitisation may provide enhanced safety for investors, as the claims are backed by assets. However, the management of those assets and the enforcement of claims may be more complicated; and given the complexity of the model, it is more expensive than non-asset-backed securitisation.

3.4 What other factors should originators consider when deciding on a structure?

The costs of the selected structure and the transparency of the structure for investors are key factors to take into consideration.

4 Eligibility

4.1 What requirements and restrictions apply to prospective originators in your jurisdiction?

Originators:

• must retain a material net economic interest in the securitisation of not less than 5% on an ongoing basis;
• must not select assets to be transferred to the securitisation special purpose entity (SSPE) with the aim of rendering losses on the assets transferred to the SSPE (no cherry-picking) measured over the life of the transaction, or over a maximum of four years where the life of the transaction is longer than four years, higher than the losses over the same period on comparable assets held on the balance sheet of the originator;
• must meet data provision and reporting obligations towards the competent authorities and investors;
• must make certain information available to holders of a securitisation position, to the competent authorities and to investors. Originators must publish quarterly investor reports containing:
• • all materially relevant data on the credit quality and performance of underlying exposures;
  • information on events that trigger changes in the priority of payments or the replacement of any counterparties; and
  • information on the risk retained;
• must apply the same sound and well-defined criteria for credit granting which they apply to non-securitised exposures. Underlying exposures may not contain non-performing exposures or exposures where the obligors are under liquidation. Also, underlying exposures may not include securitised positions; and
• in the case of simple, transparent and standardised (STS) securitisations, must inform the authorities and investors on compliance with the STS criteria.

4.2 What requirements and restrictions apply to prospective investors in your jurisdiction and how are retail and wholesale/professional investors distinguished?

Prior to holding a securitisation position, institutional investors should conduct a due diligence assessment. The assessment should consider:

• the risk characteristics of the individual securitisation position and of the underlying exposures;
• the structural features of the securitisation that can materially impact on the performance of the securitisation position; and
• with regard to STS securitisation, compliance with the STS requirements.

Institutional investors should:

• establish procedures to monitor the performance of the securitisation position and of the underlying exposures, and to manage risk;
• ensure that their managing bodies are aware of the risks arising from the securitisation position; and
• be able to demonstrate to the competent authorities that they have:
• • a comprehensive and thorough understanding of the securitisation position and its underlying exposures; and
  • written policies and procedures for risk management and for the retention of records of verifications and due diligence.

Securitisation positions may be offered to retail investors only if:

• the seller has performed a suitability test in line with the Second Markets in Financial Instruments Directive (MiFID2);
• on the basis of that test, the securitisation position has been confirmed as suitable for the client; and
• the seller immediately communicates to the retail client the outcome of the test.

If the financial instrument portfolio of the retail client does not exceed €500,000:

• the retail client may not invest more than 10% of his or her portfolio in securitisation positions; and
• the initial minimum amount invested in one or more securitisation positions must be at least €10,000.

4.3 What requirements and restrictions apply to custodians and servicers in your jurisdiction?

A servicer:

• acts on behalf of the SSPE;
• deals with the receivables on a day-to-day basis;
• performs the administrative duties necessary to collect payments (principal and interest payments from the obligors) on the assets acquired by the SSPE in order to maximise cash flows for the benefit of the noteholders; and
• implements collection measures and liquidates the collateral in the event of default.

If the issuer is also the lender of the underlying assets, there is a greater likelihood that the issuer will retain these servicing rights. This role may be performed, unless retained by the issuer, either by the originator or by a separate entity, on the basis of and in accordance with a servicing agreement. Servicers must demonstrate that they have:

• expertise in servicing exposures of a similar nature to those securitised; and
• well-documented and adequate policies, procedures and risk management controls in place relating to the servicing of exposures.

The transaction documentation must include the servicer's rights and obligations, duties and responsibilities.

The Securitisation Regulation contains no specific requirements in relation to custodians. The general requirements under MiFID2, the Capital Market Act, the Credit Institutions Act and the Act on Investment Service Providers and their Activities will apply to custodians.

4.4 What classes of receivables and other assets may be securitised in your jurisdiction? What requirements and restrictions apply in this regard?

Unless specifically prohibited by law, existing claims are transferable, with the exception of so-called 'personal claims' which, by their nature, are tied to a specific person. Furthermore, only claims that do not serve as collateral for other transactions can be transferred within the framework of securitisation. Future claims may be assigned only if the legal basis from which the receivable will arise (eg, the loan agreement in the case of loan receivables) already exists at the time of the assignment. Non-assignment clauses are ineffective against third parties; therefore, an assignment will be effective even if it would constitute a breach of contract between the debtor and the assignor.

4.5 What measures, if any, have been taken in your jurisdiction to promote investor involvement in securitisations?

We have no information about any such measures.

5 Special purpose vehicles

5.1 What forms do special purpose vehicles (SPVs) typically take in your jurisdiction and how are they established?

Generally, an SPV can be set up in any corporate form that provides for limited liability. However, if the SPV is intended to be set up as a securitisation special purpose entity (SSPE) regulated under the Securitisation Regulation, it can only:

• choose the corporate form of a private or public limited company; or
• alternatively, operate as a branch of an EU-based company.

The SSPE cannot be part of a concern.

5.2 Are SPVs typically established locally or offshore? What are the benefits and risks of each?

Typically, securitisation entities try to avoid activities that may qualify as financial services in order to avoid the banking regulations, including licensing requirements, applying to the SPV. The challenge is that purchasing receivables or similar financial claims as a business qualifies as a financial service, and it is difficult to avoid such activity in securitisation transactions.

According to the interpretation of the National Bank of Hungary, the servicing of receivables is a fundamental part of the purchasing of receivables. Therefore, if the seller acts as a servicer in relation to the transferred receivables, the seller (assignor) will qualify as an intermediary (tied agent) of the transferee. Acting as tied agent in itself does not require a licence from the regulator, but the agent must fulfil certain criteria, including criteria relating to the personnel employed by the servicer. However, depending on the powers of the servicer, the activity may require a licence from the regulator. A relevant factor in deciding whether the servicer's activity requires a licence is whether the servicer has the right to reschedule the debtors' payment obligations.

SPVs are often set up in foreign jurisdictions in order to avoid being characterised as a financial institution.

5.3 How is the SPV typically owned?

See question 5.1.

5.4 What requirements and restrictions apply to SPVs in your jurisdiction?

Hungarian law contains no special rules on SPVs that would help to make the transferred financial assets bankruptcy remote. If the parties decide to set up an SPV, it is primarily the directors' responsibility to ensure that the SPV is operated on a solvent basis, meeting its obligations as they become due.

The primary way to maintain solvency is to:

• limit the scope of the SPV's activities to securitisation transactions; and
• ensure that the SPV uses any amount repaid by the debtors of the transferred receivables solely to perform obligations arising from the securities issue.

The constitutional document of an SPV must designate the primary activity of the company. However, ultra vires restrictions do not apply, so any restrictions provided for by the SPV's constitutional documents have no effect against third parties.

In order to strengthen the insolvency remoteness of the SPV:

• securitisation should be the exclusive activity of the company (SSPE); and
• it should be unable to pursue any activities or undertake any obligations that would entail obligations beyond those undertaken in relation to securitisation.

In case of the bankruptcy of the seller, the assets of the SSPE cannot be used by the seller's creditors. If the SSPE issues securities in several tranches, an investor in tranche 'A' cannot seek enforcement from receivables in tranche 'B'. The same applies to the bankruptcy of the SSPE. The bankruptcy administrator may transfer all contracts of the SSPE as a portfolio.

5.5 What requirements and restrictions apply to the directors of the SPV? What are their primary duties?

See question 5.4.

5.6 What measures can be implemented to ensure, as far as possible, the insolvency remoteness of the SPV?

See question 5.4.

5.7 If the originator becomes insolvent, is there a risk that the assets of the SPV may be consolidated with its own by the courts? If so, how can this be mitigated?

In order to insulate securitised financial assets from the financial risk of the originator, even in the case of the originator's insolvency, it is necessary for the transfer of those assets to qualify as a 'true sale' and not as a secured loan.

The most important characteristic of a true sale is that the receivable is transferred to the buyer, so the seller of the financial assets ceases to carry any risk related to the performance of the sold asset (ie, to the solvency of the debtor of the underlying obligation).

In a true sale, the buyer is not considered a creditor and the transferred assets are protected from any claims of the transferor's creditors. In a secured loan, however, the transferee ranks among the creditors and the transferred assets form part of the transferor's estate, which serves to cover its debts; although the transferor as a secured creditor (if all the perfection requirements have been met) enjoys priority vis-à-vis the ordinary creditors.

If the transferor becomes insolvent following the transfer, those assets that are the subject of a true sale do not become part of the insolvency estate; nor are the transferee's rights relating to those assets in any way affected by the commencement of the insolvency procedure.

6 Transfer of receivables

6.1 Can the transfer of receivables to the SPV be governed by laws other than your local law? If so, what laws are typically chosen?

In accordance with EU law, the parties may choose the applicable law of the agreement providing the legal cause for the assignment (law of obligations) (the EU Rome I Regulation (593/2008)). The choice of law will also apply to the assignment (ie, the property aspects of the transaction). However, the choice of law does not exempt the parties from the requirement to register the security interest over the receivables under Hungarian law if the legal cause is providing security. The law governing the assigned claim will determine:

• its assignability;
• the relationship between the assignee and the debtor;
• the conditions under which the assignment or subrogation can be invoked against the debtor; and
• whether the debtor's obligations have been discharged.

Due to the limited practice in Hungary, we cannot comment on the second part of this question.

6.2 What local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?

A contract is formally valid if it meets the formal requirements of:

• the governing law;
• the law of the country in which the contract is concluded, if the parties are in the same country at the time of its conclusion; or
• the law of:
• • either country where either party is present at the time of its conclusion; or
  • the country where either of the parties has its habitual residence at that time (EU Rome I Regulation).

Given the probative value of foreign documents in Hungarian proceedings, the Code of Civil Procedure provides that a foreign private document will retain its probative value as proof of a legal transaction according to the law of the country of issue or by meeting the requirements of full probative value provided by the code. Power of attorney and documents issued for the purpose of court procedures retain their probative value if they have been authenticated or recertified by the competent Hungarian diplomatic mission or consulate of the place of issue, unless otherwise required by an international treaty.

6.3 How does the transfer of receivables from the originator to the SPV typically take place? What are the formal, documentary and procedural requirements for perfecting the transfer?

The transfer of claims is effective once an assignment has been concluded on the basis of a valid legal cause. This means that notice, registration or any other measure is not required in order to perfect the transfer of receivables. However, to make the transfer effective against the debtor, the debtor must be notified of the assignment. Following notification of the debtor:

• the terms of the receivable cannot be amended; and
• the debtor can only raise a defence against the assignee and offset any counterclaim that already existed at the time of receiving the notice.

Following a notice of assignment, the debtor either:

• continues to perform its obligations to the assignor; or
• performs its obligations to the assignee, depending on whether it also received a payment instruction providing that the performance shall be made to the assignee.

The assignee can decide whether:

• the assignor will notify the obligor in writing of the assignment of claims, by indicating the fact of the assignment and the assigned claim; or
• the assignee itself will notify the debtor by verifying that the assignment of claims has occurred.

In order to limit the debtor's right to set-off and the scope of defences that the debtor may raise, it is customary to notify the debtor at an early point in the transaction. In certain transactions the debtor is only notified later, if default or other pre-defined events or conditions occur.

6.4 What other requirements and restrictions apply to the transfer of receivables?

No other requirements or restrictions apply.

6.5 Is there a doctrine under which a transaction describing itself as a sale can be recharacterised by the courts as a financing secured by assets which are the subject of the purported transfer? How can the application of this doctrine be overcome?

If the buyer of the asset has a right of recourse (ie, remains entitled to re-transfer the assets and/or to claim payment from the seller) in case of the debtor's non-payment, the transfer qualifies as a security within the framework of either a factoring or a simple secured loan transaction. Other elements of the transaction that may give rise to the recharacterisation of the transfer as providing security include:

• if the transfer takes place at a price that may not be considered a realistic market price; or
• if the transferor retains control of the transferred financial assets.

If the originator becomes insolvent, fraudulent, undervalued and preferential transactions concluded within the suspect period of five years, two years or 90 days (respectively) can be challenged by the insolvency officer. The insolvency remoteness of the transferred assets can thus be achieved, in addition to meeting the relevant perfection requirements, by ensuring that the transaction is concluded at market value and on arm's-length terms.

6.6 If the originator becomes insolvent, is there a risk that the transfer of receivables may be unwound? If so, how can this be mitigated?

See question 5.7.

7 Security

7.1 What types of security interests can be taken over the assets of the SPV in your jurisdiction? Which are most commonly used?

Depending on the assets of the SPV, different charges can be established, including a security deposit. A registered charge provides priority to the secured creditor to satisfy its claim from the charged assets in the ranking of the charge; while a security deposit usually entitles the secured creditor to seek direct satisfaction in priority to other creditors from the security deposit.

Rights and claims (receivables) of the SPV can also be assigned by way of security. In this case, the assignee cannot use the acquired receivables freely – only in harmony with the security purpose of the assignment.

7.2 What are the formal, documentary and procedural requirements for perfecting a security interest?

A registered charge is created by:

• the conclusion of a charge agreement between the secured creditor and the grantor of the security interest; and
• registration of the charge in the relevant registry.

The charge agreement must be in writing and must contain at least a description of:

• the contracting parties;
• the charged assets; and
• the secured claim.

The mode of creation of the security deposit depends on the kinds of assets that serve as a security deposit. If the collateral is a payment account balance, dematerialised securities, a bank deposit or other financial assets, the security deposit must be created in a way which ensures that:

• the secured creditor acquires control of the respective assets in a clearly identifiable manner; or
• the assets are otherwise removed from the unrestricted control of the debtor.

In order to be valid, the charge agreement (with the above content) and the additional agreement must be in writing. If the secured creditor is the account keeper, the charge agreement should also specify the limitations of the security interest provider's right of disposition of the asset. Registration is not required.

Special rules apply to independent registered charges that may be established on real property to secure the claim of a financial institution.

With regard to assignment by way of security, in addition to what is outlined in question 6.3., the security assignment must be registered. Failure to register does not affect the validity of the contract; but the transfer will not be effective against third parties, such as other creditors of the debtor.

7.3 What charges, fees or taxes arise from the perfection of a security interest?

Costs and fees arising from the perfection of a security interest relate to the registration of the security interest.

7.4 What other considerations should be borne in mind when perfecting a security interest in your jurisdiction?

There are none.

7.5 What are the respective obligations and liabilities of the parties under the security interest?

In general, the grantor may hold the subject of the registered charge and use and exploit it for its designated purpose, while preserving its integrity. The secured creditor may monitor the condition and the use of the charged asset. If the grantor or a third party jeopardises the integrity of the charged asset, the secured creditor may exercise the rights that a party in jeopardy is entitled to exercise if there is a risk of suffering damage.

If the charged asset is a claim, once the obligor of the charged claim has been properly notified in writing, the termination of the contract between the grantor and the obligor of the charged claim or the amendment of this contract to the detriment of the secured creditor's right to satisfaction of the claim or in a way that otherwise reduces the security will not be effective against the secured creditor, unless the secured creditor approves it.

The obligor of the charged claim must deliver performance to the grantor upon receiving a performance instruction. The secured creditor may send a performance instruction once the right to satisfaction can be exercised.

7.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or must enforcement action go through the courts? Are there insolvency regimes such as conservatorship or examinership that impose an automatic stay on the exercise of self-help remedies?

A general rule that applies to all types of charges is that the charge may only be enforced if the debtor of the secured claim does not perform its obligation on expiry.

The secured creditor may enforce the charge through either judicial enforcement or private enforcement. The secured creditor is free to choose the method of enforcement, unless the charged asset falls under the judicial enforcement procedure, in which case the secured creditor may only enforce the security within the framework of this procedure.

A charge created over claims may also be enforced by sending a written payment order to the obligor.

In case of a security deposit, the secured creditor is usually entitled to satisfy its claim directly, which means that:

• the secured creditor is entitled to acquire ownership of the asset; or
• if ownership of the asset was previously acquired, the secured creditor can terminate its obligation to return assets of the same type and amount.

In case of judicial enforcement of third-party claims, after seizing any property, the bailiff will inform all secured creditors of the commencement of the enforcement procedure. Upon request, the court will permit charge holders whose claims and charges are undisputed to join the enforcement. The asset serving as a security deposit can also be seized. However, upon the request of a secured creditor, the security deposit can be exempted from enforcement.

7.7 Will local courts recognise a foreign court judgment in favour of an investor?

A judgment delivered in an EU member state will be recognised in Hungary without any special procedure being required, as provided under the EU Brussels Ia Regulation (1215/2012).

In other cases, a decision of a foreign court will be recognised if:

• the jurisdiction of the court complies with the Act on International Private Law;
• the judgment is final and enforceable under the law of the state in which it was delivered; and
• none of the grounds for refusal applies.

7.8 If the servicer becomes insolvent, will an enduring power of attorney/mandate granted by the servicer in favour of the secured parties be recognised and enforceable post-insolvency of the servicer?

There are no special rules. If the mandate of the servicer is terminated, the power of attorney/mandate granted by the servicer will also terminate or become ultra vires.

7.9 Do limited recourse, non-petition and subordination provisions bind creditors of SPVs in your jurisdiction and what are the applicable qualifications?

Hungarian law has no special rules on creditors of SPVs.

8 Registration and disclosure

8.1 What public disclosure and reporting requirements apply to securitisations in your jurisdiction?

The EU Prospectus Regulation (2017/1129) and the Capital Market Act distinguish between offerings that require the publication of a prospectus and those that do not. Offerings are not subject to the publication of a prospectus in a limited number of cases – for example, if the security:

• is only offered to qualified investors; or
• is offered to fewer than 150 investors in an EU member state.

If an offering does not fall under the specific cases listed in the Prospectus Regulation, a prospectus must be prepared and published.

Under the EU Securitisation Regulation (2017/2402), the European Securities and Markets Authority has been mandated with regulating the disclosure requirements; therefore, the rules relating to public offerings are the same as those in all other EU member states. With some exceptions, a securities dealer (credit institution or investment company) is necessary for both public and private offerings. The fee of the dealer makes up a significant part of the transaction cost. A public offering, together with the necessary licensing phase, can take eight to 10 months.

The Securitisation Regulation, subject to certain exceptions, further provides that the originator, sponsor and securitisation special purpose entity of a securitisation must make certain information available to holders of a securitisation position, to the competent authorities and, upon request, to potential investors on the underlying exposures on a quarterly basis.

The Securitisation Regulation further requires the publication of quarterly investor reports.

8.2 What registration requirements, if any, apply to securitisations in your jurisdiction?

See question 6.3.

8.3 Is there any requirement to notify obligors of a securitisation? If so, how is this effected?

See question 6.3.

9 Credit rating agencies

9.1 What requirements and restrictions apply to credit ratings agencies in your jurisdiction? Are there specific provisions that regulate their relationship with issuers?

Rating agencies' securitisation activities are not regulated. The Securitisation Regulation provides that where a third party must be authorised by the competent authority in order to assess the compliance of securitisations with the criteria for simple, transparent and standardised securitisations, that third party cannot be a rating agency.

9.2 What are the main factors that rating agencies consider when rating the securities of the issuer?

The EU Credit Rating Regulation (1060/2009) contains a set of rules that apply to credit rating agencies that prepare ratings with respect to underlying assets or securitisation instruments. Credit rating agencies must use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing. Where a credit rating agency rates a securitisation instrument, it must:

• include in the credit rating:
• • all information about loss and cash-flow analysis that it has performed or is relying upon; and
  • an indication of any expected change in the credit rating;
• state what level of assessment it has performed concerning the due diligence processes carried out at the level of the underlying financial instruments or other assets of securitisation instruments; and
• disclose whether it has undertaken any assessment of such due diligence processes or whether it has relied on a third-party assessment, indicating how the outcome of such assessment impacted on the credit rating.

According to the regulation, credit rating agencies must review their credit ratings and methodologies on an ongoing basis and at least annually – in particular, where material changes occur that could have an impact on a credit rating. A credit rating agency must further establish internal arrangements to monitor the impact of changes in macroeconomic or financial market conditions on credit ratings.

10 Taxation

10.1 What tax considerations should be borne in mind from the perspective of the originator? What strategies, if any, are available to mitigate them?

Value-added tax, stamp duty, other documentary tax and registration duty are not imposed on the sale of receivables.

Bilateral agreements on double taxation and the prevention of fiscal evasion may also be relevant.

10.2 What tax considerations should be borne in mind from the perspective of the issuer? What strategies, if any, are available to mitigate them?

Securitisation special purpose entities (SSPEs) are subject to the general corporate tax, the rate of which is currently 9%.

Amounts paid in respect of the securitised Hungarian receivables, including default interest paid to a legal entity, will not be subject to withholding tax.

Bilateral agreements on double taxation and the prevention of fiscal evasion may also be relevant. Hungary has concluded the Foreign Account Tax Compliance Act Model 1 agreement with the United States. As a result, an SSPE may qualify as a reporting financial institution and will not be subject to withholding under Section 1471 of the US Internal Revenue Code if it duly performs its obligations.

10.3 What tax considerations should be borne in mind from the perspective of investors? What strategies, if any, are available to mitigate them?

In case of an individual investor, capital gains are subject to a tax rate of 15%. If certain conditions are not met, an additional 13% social tax is also payable. The tax rate also depends on:

• whether the gains are domestic or foreign; and
• where the individual is tax resident.

Bilateral agreements on double taxation and the prevention of fiscal evasion may also be relevant.

A Hungarian company pays corporate tax in Hungary, which is currently 9%.

11 Trends and predictions

11.1 How would you describe the current securitisation landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Given that there is very limited practice of securitisation in Hungary, we cannot comment on any new issues, anticipated developments or legislative reforms.

12 Tips and traps

12.1 What are your top tips for the smooth conclusion of securitisations and what potential sticking points would you highlight?

Prior to a securitisation transaction, a consultation with the National Bank of Hungary might be useful, particularly if the originator is a financial institution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.