Lessons Learned over Three Years: Amendment of the Hungarian Trust Regulation
The Hungarian Parliament passed an act in June 2017 with the aim of improving Hungary's business competitiveness. Among other things, the amendment has changed the regulation of trusts and their management, hopefully for the better, since the past three years have shown that a lack of such experience still exists.
The legal concept of trust was introduced into Hungarian law in 2014, when the new Civil Code entered into force. Contrary to expectations, however, potential market players were hesitant to launch their businesses, mainly due to crippling bureaucracy and the vague regulation of trusts.
Under the new rules, trust management is considered a commercial activity if the trustee administers at least two trusts. Also, the new rules are considerably stricter but clearer regarding transparency, conflict of interest and business reputation. The act gives law firms the opportunity to act as a trustee on a commercial basis in Hungary, ie independent attorneys (who do not form a firm) still may not provide this service.
As for dismantling excess bureaucracy, the act aims to clearly define the role of the Hungarian National Bank in relation to trusts. As trustees are not necessarily supervised entities, the role of the National Bank will mainly be to approve and register trustees as well as to examine whether trustees still comply with the approval and registration requirements. The act clarifies the rules of the approval and registration procedure and sets forth clear rules regarding the assessment period, the register and measures and sanctions to be taken by the Hungarian National Bank in case of non-compliance.
Ultimately the act aims to kick-start the trust market in Hungary. The lesson from the last three years is that many potential market players who wanted to enter and develop the Hungarian trust market abandoned their plans mainly due to regulatory uncertainties. The new rules provide a much clearer regulatory framework, the rules of trust administration have become more business friendly, and potential trustors may find the new regulation attractive.