The Forex companies started to transfer their businesses to many small countries in an attempt to secure more clients from those countries and the nearby regions. The trend of extending to foreign countries has become a standard practice. Many brokers choose countries which do not officially belong to Western Europe, hoping to work under more flexible conditions, given that many of these countries don’t have very strict regulations and are not as vigilant in enforcing the ones that do exist. Although Hungary might not belong to the Western world, the laws in place are not as lax as some might think. Brokers registered in Hungary are not free to operate as they wish, and those who came looking to circumvent the law and manipulate the market should better close their offices in Hungary and look for another country. Since it entered the EU, Hungary committed to serious reforms and maintains a strict policy regarding governance of business entities. The official regulator for financial markets in Hungary is its National Bank, which performs a series of tasks to keep the market safe and sound. MNB or Magyar Nemzeti Bank is the National Central Bank of Hungary, and it belongs to the European System of Central Banks. The Bank dates back to 1924 when it was established. One of the bank’s priorities is fostering international relations and participation in professional international economic fora.
The main responsibilities of the Bank are price stability, monetary policy and issuance of the national currency (the Forint). The Forint or HUF is astonishingly weak against the USD (1 USD equals 279.302 HUF). The economy of Hungary is one of the most complex in the world, according to Economic Complexity Index, but the economy is not in bad shape at all, occupying the 49th place regarding the GDP per capita. The big gap between the USD and HUF is a bit worrying, but the Hungarian Prime Minster blames external factors and the global economy for the high volatility of the HUF. The Bank is also in charge of the financial and capital market of the country, which means that Forex companies fall under the Bank’s supervision as well. One of the main goals of the Bank is to keep the market safe and customers protected by:
- Ensuring transparency, fairness, and integrity
- Healthy competition
- Keeping clients’ funds separate from the company’s
Basically, the Bank performs all the duties which are essential for keeping the market under control. It also reserves the right to impose administrative sanctions, penalties, and fees on all brokers who step outside the legal framework. It has the right to investigate all subjects under its surveillance and takes appropriate measures against violators, including blacklisting the wrong-doers. Hungary is an EU member state, and as such, it has to comply with EU regulations, including the MiFD directive which refers to the securities and financial market. The MNB’s main focus is harmonization with and implementation of EU directives. According to EU regulations, Forex companies have to meet the highest industry standards and follow the best practices set out by law.
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Supervising and Arbitrating
Like other national banks who supervise financial markets, the MNB also tries to enforce the relevant laws to keep the market free of any form of malverzation. The Bank’s supervisory activities include a broad scope from preventing money laundering and financing of terrorism activities to IT supervision, tracking down unauthorized financial service providers and notifying the public on illegal operations in an efficient manner (i.e. as quickly as possible). It tries to identify and manage potential risks in the market through risk assessment strategies and acts accordingly. The Bank resolves disputes via the Financial Arbitration Board (FAB), a body which acts as an independent forum for dispute settlement. Court procedures can be costly, exhausting, and time-consuming, whereby settlements by FAB are handled more efficiently.
Developing Forex Market
Forex trading has not yet developed in Hungary as much as in some other EU countries, but still, a noticeable number of participants actively trade in the Hungarian market. Participants, i.e. traders, and investors come from both, Hungary and other countries. Many international broker companies which already earned a global reputation can also be found in Hungary. This is a convenient solution for all the international traders who would like to try their luck in the Hungarian market, but want to trade with a well-known, recognized broker. Many regional offices are available in Hungary. EU citizens enjoy the benefit of trading in any EU state under the same conditions as in their own country which gives them the advantage of security. These traders gain access to another market under a similar or the same procedure.
MNB Regulated Forex Brokers
Brokers who want to legally operate in Hungary have to obtain a license from the MNB. The application procedure includes several steps like listing the starting capital which has to be sufficient to cover potential and real risks (meaning that the broker has to be able to pay out their clients in case of liquidation). Another step includes recruiting competent staff and people with relevant qualifications and work experience. For example, some positions in the company require five years of experience; others require a specific degree, etc. The companies submit all the requested data and wait for approval. MNB registered brokers are generally trusted among locals, but still, every individual should carefully research every broker they want to register with. This is a general rule that applies to all traders from around the world.
We already said that a proper license must be in place in order to establish a broker business. Top Hungarian Forex brokers will have one or more acknowledged license(s), and, in most cases, the information will be proudly displayed on their website. Some of the qualities top Hungarian brokers must possess include a trading platform of outstanding performance with no malfunctions, at least three account types, an efficient customer support and numerous banking options. Hungary is a convenient offshore solution for brokers from more developed countries. The registration procedure costs less than in more developed EU member states, the labour force is more affordable, yet competent, and the regulation policy keeps traders and investors safe. Hungary’s geographical location is also an advantage for brokers because it opens the door to clients from south-eastern and central Europe.