REPORT

on Activities of the Hungarian Banking Association

1^st Quarter 2005

Budapest, May 2005

CONTENTS

I. PROFESSIONAL ISSUES *

II. LOAN SCHEMES *

III. INTERNATIONAL COOPERATION *

IV. ASSOCIATION EVENTS *

In cooperation with specialists from member banks, the Hungarian Banking Association continued to actively participate in the review of draft laws and regulations affecting the banking sector. In developing its positions the Association worked closely with the Ministry of Justice, the Ministry of Finance, the Ministry of Agriculture and Rural Development, the National Bank of Hungary and the Hungarian Financial Supervisory Authority. The following main topics were addressed:

1. Tax laws and the government programme aimed at reducing bureaucracy

The Association initiated several amendments and adjustments to current laws and regulations in the first quarter. Within this framework, we also submitted proposals in relation to the proposed "Streamlining Act" on taxation and the government programme aimed at reducing bureaucracy. Our proposals were focused on the following key issues:

1.1 VAT on credit rating

Credit rating, which can be considered under the VAT Act as an ancillary activity related to tax exempt financial services (lending), imposes significant administrative (registration, billing) and financial burdens on banks.

Credit rating is an ancillary activity closely associated with lending. Banks do not perform credit rating as a service to other businesses or institutions. In our opinion, under the constitutional concept of legal hierarchy, the classification of a service may not be solely based on the Classification of Services, issued under the ordinance of the president of the Hungarian Central Statistical Office, which is not a statutory regulation. We requested that credit rating, performed by credit institutions on a mandatory basis pursuant to the Act on Credit Institutions prior to granting a loan, be classified as a tax-exempt ancillary financial activity.

1.2 VAT Act provisions on group taxpayers

Taxpayers with a VAT tax deficiency in excess of HUF 5 million are excluded from the group taxation option. At banks, which are major taxpayers, turning in VAT in the range of billions of forints annually, a tax deficiency may occur by an administrative error, however well-organised their operations are. We proposed that the "error limit" be substantially increased.

1.3 Tax allowances on security technology investments under the Act on Corporate Tax

Currently, there is no direct or indirect support available for security technology investments. The enhancement of security facilities protecting human life and property is an important national economic interest. Accordingly, we proposed that a tax allowance on security technology investments with a value in excess of HUF 50 million be provided under the Act on Corporate Tax.

1.4 Exemption of publicly offered securities from inheritance and gift duties

Publicly offered securities are popular liquid forms of investment among households and as such, deserve to be supported. We proposed that a duty exemption on government securities and investment units be provided retrospectively from January 1, 2005, at least under Group I in the Act on Duties.

1.5 Proposals related to the government programme for reducing bureaucracy

With complex and ever changing regulations, the requirements related to interest subsidies are hard to follow and manage: there are no standard documentation packages; due to the lack of sufficient IT processing facilities, manual work is substantial and there are no statutory deadlines for disbursement in the relevant regulations. It would be expedient for organisations involved in the management of government supports (the Ministry of Economy, the Ministry of Finance, the Ministry of Agriculture and Rural Development, Hungarian Development Bank and the Tax Authority) to appoint contact persons for banks to liaise with.

The administration rules related to environmental product fees are rather complicated, the data required for meeting the regulation are often hard to obtain. To reduce the administrative burdens we proposed that

• for domestically produced promotional stationary, the first domestic marketer should be the taxpayer;
• vehicle engine oils be fee-exempt;
• for financing facilities, including operating leases (and long-term leases), the lessee should be the taxpayer.

The rules provided by the Act on Personal Income Tax for documenting fringe benefits also impose substantial administrative burdens on banks. The current provisions are overregulated and impossible to control. We proposed that the simplified taxation rules previously applied be restored, that is: any and all benefits received by the employee are deemed as a fringe benefit and the tax is paid by the company, rather than by the employee as part of his/her consolidated income.

There are no standard tax returns forms for local taxes: every municipality has its own forms and the forms may be filled in exclusively by typing machines. The calculation and division of the tax base is complicated and, for major branches, rather time-consuming. We proposed that for the purpose of proportioning, its should suffice to give the division rather than filing separate tax returns.

Pursuant to Section 68 of the Act on Credit Institutions, only those with a higher education qualification may be elected as senior officers of a bank. There is no such restriction in the EU. In line with the international practice, the regulation should be complemented with a provision to say that in absence of a higher education qualification, 10 years of work experience is acceptable. We also proposed that in cases where a senior officer, whose election or appointment had once been approved by the Hungarian Financial Supervisory Authority is re-elected, only data changes should be required to be submitted under the application for approval.

An institution's capital market and money market activities should be consolidated in the legislation, given that credit institutions may also provide investment services. The definitions in the Credit Institutions Act and Capital Market Act are still inconsistent. Some definitions are meaningless and pose difficulties in banks' operations. An example is the term "liquidity and risk management": both Acts should be made more specific.

The Association proposed that the reporting requirements of the Hungarian Financial Supervisory Authority and the National Bank of Hungary be harmonised, rationalised and redundancies in information flows eliminated.

1. Calculation of supervisory fees

To ensure a uniform calculation of supervisory fees, the Hungarian Financial Supervisory Authority issued a circular concerning supervisory fees on custody services. In this context we proposed that the Supervisory Authority resolve the issue of double fee payments due to delivery repo trading deals, as neither the publication "Information for the calculation of supervisory fees for institutions and persons subject to supervision", nor the decree on supervisory reporting provide any solution for avoiding double fee payments.

2. Regulation on measures against counterfeit money

The National Bank of Hungary sent for review its proposed regulation on procedures for the protection of Hungarian and foreign legal tenders against forgery. Based on its authorisation under the Act on Central Bank, the National Bank of Hungary basically tried to incorporate current practices into a legal framework.

Based on banks' comments we provided the following opinion:

- the proposal that forint payments at bank tills may only be managed by tellers with at least 2 years of work experience is not workable (in this case, all beginners should be joined by an experienced employee to be sitting beside them, that is: a work for one should be performed by two for two years!).

- we objected to the provision requiring suspicious cash to be "forthwith" handed over to the National Bank of Hungary, given that currently such cash is first taken from the network to the commercial bank's head office to be examined and screened by experienced specialists in order to reduce the load on the central bank.

- we proposed that the central bank should also impose a deadline for itself for the examination of suspicious cash and advise the sender institution on the quality of the forgery (i.e., whether or not the teller should have noticed it at first glance),

- we pointed out that the amount of information a teller would be required to provide when forwarding suspicious cash to the central bank is excessive and in most cases impossible to meet (for example, the teller should be asking tourists to provide information other than that figuring in their passports).

Our comments were answered at the Payment System Forum's Cash Committee meeting. Based on our proposal, the required work experience for tellers was substantially reduced (from two years to three months), the information to be provided for suspicious cases was reduced, and sufficient time was provided for preparations for implementation of the regulation. It was also indicated verbally that the requirement for suspicious cash to "be forthwith handed over to the central bank" does allow for the current routine of examination at the commercial bank's head office. Banks represented on the Cash Committee requested the National Bank of Hungary to confirm its position in writing.

The regulation is expected to be issued after review by the European Central Bank.

3. Ombudsman's criticism regarding prompt collections

The Deputy Ombudsman for Citizen Rights compiled a report on constitutional queries regarding prompt collections. The report, copied in advance to the Association, expressed criticism over a number of legal provisions and practical measures that, according to the Deputy Ombudsman, prejudiced fundamental rights:

- the Ombudsman challenged the fact that a prompt collection against an individual's bank account would be disadvantage the individual as compared to an execution on its movables at home,

- the Ombudsman disagreed to the fact that funds exempt from execution by law can be collected from the customer's account upon execution and

- the co-account holder, not affected by the collection, is deprived of his/her funds without any legal grounds (without being notified in advance and thus, given the chance to protest).

The press release issued on the report only held banks partly responsible; however media comments that followed based on the press release held banks fully responsible for what they thought was an illegal collection practice.

As a first reaction, the Association issued a press statement in which it rejected all these groundless charges. We emphasised that banks do observe all the relevant statutory regulations, a fact that had not been questioned by the Ombudsman's report at all. We pointed out that the Report was not critical of banks but rather, of the regulations banks have to implement. We also stressed that participation in execution procedures is a delicate issue for banks, who in these cases must take action against their own customers. We proposed a fair discussion of the issue with the Deputy Ombudsman.

Prior to the meeting we solicited our member banks' position on the issue. Banks' were of the opinion that however delicate the issue, effective execution is of fundamental interest for banks and prompt collection is an important element of this procedure. The details of this legal instrument were developed a few years ago with the involvement of banks and thus far the system has worked basically without any complaints. Bank specialists said that the arguments presented by the Deputy Ombudsman were questionable, given that an execution on moveables at the customer's home may cause the customer a lot more inconvenience and damages than a prompt collection from his/her bank account; also, common property is not separated during execution on moveables, either (not just in the case of co-account holders), irrespective of the fact that the debt only concerns one of the parties.

Our arguments were presented at the discussion organised upon our proposal by the Deputy Ombudsman with the National Bank of Hungary, the Ministry of Justice and member banks. An important point of the discussion was the Justice Ministry's opinion, according to which the legitimacy of the debt is to be decided during the administrative or Court procedure, while in the execution stage, effectiveness is the most important requirement.

The Deputy Ombudsman thanked the Association for thoroughly addressing the issue and admitted that a number of issues were put in a different perspective. At the same time, he found that some other issues were still problematic from a constitutional point of view and turned to the Ministry of Justice for answers.

At the press conference following the meeting, all parties presented their views. These views were reflected in the media in a fair and correct manner.

4. Credit information system

As requested by the Ministry of Justice we continued our work aimed at developing a proposal for legal amendments to the credit information system. Banks were given the chance to express their opinions in writing as well as verbally during a consultation at the Association. During this consultation, a number of conceptual issues were clarified:

• although this could improve market security, the system should not register "interbank" loans granted to those financial institutions providing data for the system,
• customers deliberately misleading creditors and causing damages to creditors should be registered (there is now a precedent for this legal practice in the case of mobile phone providers),
• to ensure more information, banks insist on retaining negative data on the customer for five years and do not support the Justice Ministry's proposal for a differentiated retention time.
• banks do not require any credit rating services from the operator of the BAR system.
• the fairness of the registration is increased by the fact that the sale of the loan does not affect the debtor's status in the BAR system and the purchaser of the loan is obliged to take over the seller's commitments registered in the BAR system.

The proposed regulation was also reviewed at a government level. Participants were supportive of the Association's proposals. The main question is the future of a full positive list debtor database, which, many consider, would be the only meaningful progress compared to the current situation. The Association's position is that although it would strongly support the creation of a full positive list debtor database, there is no chance for any proper legal solution as long as the Data Protection Ombudsman disapproves the proposal. Accordingly, we will try to make some progress under the current legal philosophy by

- providing creditors with substantive information by broadening the exchange of negative information,

- improving the public approval of the system by providing customers with more information and remedies, and

- improving the functioning of the system by tackling those problems that have arisen in connection with the current regulation.

At the request of the Ministry of Justice the Ministry of Finance undertook to be the main submitter within the government of the Association's proposal, once finalised.

1. Payments regulations

The proposed government decree on payment services and electronic payment instruments and the related central bank ordinance on the management of payment transactions are delayed. In February 2005, member banks again submitted their comments and amendatory proposals, indicating that only few of their previous proposals had been incorporated in the new draft texts.

Definitions had to be modified even in the previous versions, and the liability rules for bankcard and e-payments were inadequate in all versions.

We compiled and submitted our comments by January 3, as requested by the Ministry of Finance. Using the statistics of the National Bank of Hungary we explained the legitimate request of banks that the different types of electronic banking services should be looked at separately when regulating the related liabilities. In our letter we stressed that the legislators should be mindful of the enormous risks that would ensue from applying the same rules to relatively small-value bankcard transactions and major e-payment orders, which are often in the range of millions of forints.

We developed some proposals for the Ministry of Finance with the involvement of legal and security specialists from member banks. On the one hand, in relation to e-payments (transacted through the internet, PCs or wire or mobile phones) we proposed that in disputed cases, the customer's liability should proportionally exceed the HUF 45,000 liability applied for bankcards, based on the average transaction value. On the other hand, we proposed the regulator to set up a joint IT working group to develop the minimum professional requirements for each type of e-payment channel; observing these requirements would relieve banks from any disproportionate liability in disputed cases. (While the February draft did not contain our proposal, the National Bank of Hungary has since revised its position and now supports it. At the same time, according to recent information, the Ministry of Finance, after having consulted the European Commission, continues to reject our proposal).

In relation to the draft texts of the proposed decrees of the Ministry of Finance and the National Bank of Hungary we expressed our view that although the comprehensive regulation of payments is a declared objective of the proposed decrees, the regulators have not addressed payment services provided by communications service providers under Section 128 of Act C of 2003. The lack of regulation in this area raises consumer protection concerns, given that the guarantee elements provided for other electronic payment instruments do not apply to these services, whereas phones are specifically mentioned as means of distance communication suitable for the conclusion of distance sale contracts in Annex I to EU Directive 97/7/EC.

2. Payment System Forum

The European Payments Council (EPC) has set the objective to create a Single Euro Payments Area (SEPA) by 2010. Working groups of the Payment System Forum, the EPC's mirror organisation in Hungary, continued to work actively in the first quarter of 2005. The Association is represented in all working groups.

The Direct Debit, OCR and Mobile Payments working groups of the Cashless Payments Technical Committee and the Legal Committee presented their reports on results to the managing body of the Payment System Forum, the Payment System Council, on March 25, 2005.

The Payment System Forum decided on the next tasks for these working groups at its March meeting. Among these, special mention should be made of the task given to the Direct Debit working group to re-negotiate with major companies and take up contact with other authorities (the consumer protection authority in the first place) to ensure that the amount charged on the utility payment made by the customer is clearly shown in the bills. In this regard our opinion is that if the amount charged for paying the bill is shown in the bill, then care should be taken that only those charges applied to the specific payment method chosen by the customer are debited to the customer. Charging postal fees to a customer paying his bills by bank transfer would just generate more customer dissatisfaction.

The Payment System Council reviewed the issue of finance for the Forum's projects, which is important for the Forum's working groups to be able to accomplish their forthcoming tasks. The Council decided that the secretariat should prepare a concept for opening an account with a member bank of the Forum (not the National Bank of Hungary), to which members would pay their membership fees and from which project payments would be made based on a preliminary budget to be adopted by the Payment System Forum. If necessary, the Payment System Forum's Operational and Organisational Rules should be revised accordingly.

The Payment System Council adopted the report of the Hungarian representative of the EPC; however, no decision was made on the creation of a national SEPA unit. Decision was made on the method of cooperation between the Payment System Forum and the EPC's Hungarian representative. Accordingly, activities of the EPC representatives and members of the EPC's working groups and information flows between the Forum and its organisational units will be coordinated by the Secretary of the Payment System Forum.

The Council approved the setting up of a Bankcard Working Group to develop a proposal at the request of the Ministry of Finance for paying for document office services by bankcards.

The Council supported the National Bank of Hungary's proposal to launch a new project under which, in relation to rewriting the GIRO clearing engine, the Payment System Forum's GIRO Committee would be involved in the functional specification of the new engine to ensure that it can meet the widest range of customer needs. The Council turned down the proposal for setting up a working group based on a request received by the National Bank of Hungary from an aid organisation for developing a new and more simple alphanumerical account number structure with letter codes to indicate the organisation.

3. Public procurement procedures

In relation to the transposition into Hungarian legislation of EU Directive 2004/18/EC on public works contracts, public supply contracts and public service contracts, we raised some issues for clarification with the Ministry of Justice, primarily in connection with the value limits for financial services, and particularly, those for municipalities, the customer base that affects banks the most from the point of views of public procurement. In our interpretation, a municipality may enter into a contract for financial services without a public procurement procedure if the value of the service is less than EUR 249,000, and, pursuant to Article 9 point (8) a) ii), the value is: the fees, commissions, interest and other forms of remuneration, which, according to point b) ii) of the same paragraph (as these are contacts without a fixed term that do not indicate a total price) means 48 times the monthly value. In other words, no public procurement procedure is required for the purchase of financial services if the total amount of fees, commissions, interest, etc. payable by a municipality is less than HUF 15 million at current rates. We requested the Ministry of Justice, as the organisation responsible for transposition of the Directive, to confirm this interpretation. We also noted that the List of bodies and categories of bodies in Annex III contains a list - although not a full one - in respect of old member states, which is obviously due to the fact that the Directive was adopted on March 31, 2004, i.e., before Hungary's accession. Therefore it may be warranted to complement the Directive.

4. Capital Market Act

The review of proposed amendments to the capital market Act continued and the development of a Hungarian position on the proposed UNIDROIT Convention aimed at harmonising material law provisions on securities deposited with intermediators commenced. Given the similarity of the topics, efforts urging the ratification of Hague Convention will hopefully be pushed into the background. Namely, the latter would provide for the free choice of governing law rather than providing specific material law provisions; this might lead to stipulating the law of the dominant party.

5. Credit Institutions Act

In the context of amendments to the capital market Act we made a textual proposal for amending the provisions of Section 213 of the Credit Institutions Act. The proposal is aimed making the practical application of these provisions easier and would also serve consumer (here: consumer loan borrower) interests. Namely, the current regulation requires the stipulation of such cost elements, related to the loan, which arise outside the legal relationship between the contractual parties and which the customer has fully paid up to the third party so concerned (e.g., notary public fees, stamp duty for copies of the proprietorship register) by the time the contract is concluded. In our view it would better serve the customer's interests if these cost elements were made known to the customer within the framework of preliminary information, not at the time of concluding the contract, by which time the customer has already paid for some of these costs and consequently, it is not the contract where he learns of these costs from.

We held a preliminary consultation on this issue with the Chamber of Hungarian Notaries, with the participation of bank specialists and legal counsels involved in retail lending. The meeting was attended by representatives from the Ministry of Finance and the Hungarian Financial Supervisory Authority. Also, we explained our position in a letter to the Minister of Finance; however, the Ministry's position is unchanged for the time being.

6. Uniform supervisory procedures

In our comments on the concept and draft text of the proposed uniform supervisory procedures and amendments to the Act on the Hungarian Financial Supervisory Authority we welcomed the idea of a uniform treatment of supervisory fees and repeated our proposal to clarify the payment of supervisory fees for custody services: currently, a circular issued by the Supervisory Authority (not a source of law) provides that supervisory fees for custody services for collective investments are to be paid as per paragraph i) of subsection (1) of Section 3 of the Credit Institutions Act, while supervisory fees for security custody services are to be paid according to the relevant provisions of the Capital Market Act. We expressed our concerns over a proposed new type of supervisory measure, called "Notice": our main objection was that there would be no appeal, procedural guarantees would not apply, and, although - just for these reasons - the Notice would not be legally binding, the proposal says that "that non-compliance with the contents of the Notice may be taken into account as a subjective circumstance"; we expressed our strong objection to this latter provision. Regarding supervisory fees on custody services we conducted a separate consultation with the Supervisory Authority and member banks concerned.

7. Statistical report on physical attacks on banks

A statistical report on physical attacks on banks in Hungary was compiled for the annual report of the FBE. Unfortunately, the favourable trend that had shown a decrease in attacks on bank branches and in damages for three consecutive years seems to have broken in 2004. The number of attacks on bank branches rose from 22 to 31 (an increase of 41%), the value of damages increased from EUR 87,000 to EUR 125,000 (a 44% increase). 52% of the attacks failed. Attacks were typically targeted at small branches with staff numbers less than 7. Parallel with this, guns appeared again in bank robberies, which turned public attention to bank security issues again.

With expanding internet banking facilities and customer base, security issues related to internet banking and the increasing frequency of bank card frauds also aroused public attention (primarily in the wake of reports from other countries). The spread of technical facilities used in physical and intellectual crime, the economy becoming even more open and increased border permeability after Hungary's accession to the EU makes it necessary for banks to review their security policies and to take appropriate preventive measures.

The working group set up based on the agreement between the Association and the National Police Headquarters is developing materials for the training of bank staff, security guards and police staff and is working on creating the prerequisites for efficient police action against attacks on bank branches.

8. Legislation on the prevention of money laundering

Under the legislation on the prevention of money laundering, the regulation on the identification of anonymous deposits provides that deposits may only be paid to the customer after proper authorisation from the competent department of the National Police Headquarters.

With the relevant procedure agreed on between the banks and the police last year, no particular procedural problems have occurred. Apart from the costs, the procedure itself is, of course, not too beneficial for customer relations. The Association supported the Police's initiative with the Ministry of Finance to amend the regulation so that the Police check does not have to be applied to deposits under HUF 2 million. The Ministry of Finance did not support the proposal. The National Police Headquarters has recently repeated its proposal and we again expressed our support to it. We trust that the Ministry will show more flexibility after reviewing the relevant international practice.

At the beginning of April the National Police Headquarters organised a meeting for banks to review experiences of the fight against money laundering. As an important point, the Police criticised banks' practice of reporting all transactions in excess of HUF 2 million as suspicious cases; this is a huge burden for the Police, preventing them from substantively addressing the information. Police is of the opinion that this practice is actually a violation of bank secret. Based on these comments it might be appropriate to review the current routines and to consider the comments of the Police.

The IMF reviewed anti-terrorism and anti-money laundering activities of Hungarian authorities. The IMF representative paid a visit to the Association. Although the final report on the review is not available yet, according to our information there were no negative comments concerning banks.

II. LOAN SCHEMES

Although the government's "nest-making programme" was introduced in February, a number of technical issues had to be clarified subsequently. The Association was actively involved in this process:

- while banks also had some direct consultations with the authorities (the Hungarian Sate Treasury, the National Housing and Construction Office and the Ministry of Finance) regarding the new reporting, support and guarantee contracts, the Association coordinated the modifications to Treasury reporting and the developing of a new employer's certificate form for public servant employees to certify their eligibility for support;

- since the relevant decree provides that banks may only accept from their customers invoices of contractors duly registered with the Tax Authority, at the request of member banks we contacted the Tax Authority to clarify how banks may obtain authentic information to this effect. The Vice-President of the Tax Authority requested the Association to forward the Tax Authority's position all member banks. In its written information the Tax Authority explained in details how the information provided on its home page and in the certificates issued on individual request can be used;

- after consultations with our member banks, we answered the Finance Ministry's questions as to how to provide proper information to the customer on the exact amount of support he/she would get;

- Representatives from the Association and member banks attended the meeting of the Housing
Sub-Committee of Parliament, reviewing the initial experiences of the government's "nest -making" programme. The Chairman of the Committee asked banks on their proposals to improve the programme. Banks said the scheme could be improved by raising the current age limit of 30 years, increasing the subsidy for second-hand flats, introducing a full positive list to allow lower interest rates, a faster handling of affairs by the Land Offices and by promoting preliminary savings. Banks not present at the meeting were also briefed by the Association in details on the meeting.

Banks supported the plan to amend the Agricultural Ministry Decree No. 2004 (1) on the Europe Plan Loan Scheme to allow extension, at the customer's request, of the grace period by one year; however, banks requested that question of guarantees be clarified in a clear-cut manner.

At the initiative of the Bonded Warehouse Association the Banking Association turned in a letter to the Ministry of Agriculture (Deputy State Secretary Ferenc Nyujtó) to speed up interventions.

The proposed decree of the Ministry of Agriculture will regulate issues related to the utilisation of land-based support funds from the Guarantee section of the European Agricultural Orientation and Guarantee Fund (EMOGA). Banks provided a number of comments concerning the proposed decree, to promote implementation.

Agricultural Development Loan Scheme

Hungarian Development Bank developed a proposal for a HUF 40 billion loans scheme with an exchange rate guarantee provided by the state. The proposal was reviewed by member banks at a meeting organised by the Association.

The Ministry of Agriculture made a proposal for extending the types of collateral in the current regulation (cash deposit and bank guarantee) to include suretyship, by amending Government Decree No. 17/2004 (II 13).

Although banks did not confirm the argument that this was a customer demand, they did not object to the proposal.

III. INTERNATIONAL COOPERATION

1. FBE Banking Supervision Committee - Capital Adequacy Working Group

1.1 Changes in the FBE position on the Capital Requirements Directive

Based on consultations with Commission officers and MEPs, the FBE concluded that there was no real chance for the FBE's proposals for consolidated group-level supervision to be included in the text of the Directive. Consequently, although it will continue to be an important objective in the long-term that the Directive is applied in a uniform manner and exclusively at a group level (with the minimum possible national discretions), due to the fragmented structure of prudential supervision, differences in deposit insurance schemes, the role of central banks as a lender of last resort and liquidity management aspects, this objective cannot be accomplished for the time being. In light of the above, the FBE would like to achieve that consolidated supervision is taken up publicly as an objective on the Commission's agenda. Accordingly, the FBE will try to include in the preamble recitals of the Directive a provision that the levels of application should be reviewed after five years. (In the meantime, Articles 68 and 69 of the proposed Directive, contradicting application at a group level, should be revised).

In view of the above, the FBE had to reconsider its position concerning the waiver on an individual application: while, until now, the FBE had aimed to achieve that the waiver is applied on a mandatory basis within the EU, now it accepts that the waiver will be a national discretion. Other important points are that the waiver can also be applied to the parent company; the AMA approach should only be applied at a consolidated level for the measurement of operational risk; the consolidated model provided in Article 129 is also applied to Pillar 2 and Pillar 3; the responsibility of the host country supervisor is recognised; and a zero per cent intra-group risk weight is applied to groups with central risk management and consolidated bookkeeping.

To enforce this new position, the FBE wrote a letter to the new EU Internal Market Commissioner. The letter highlights the paradox of a single market vs. fragmented supervisory structures (multiple reporting requirements, additional capital requirement). Understanding the fact of group level operations, the Basel Committee enforces application at a group level; thus, application on an individual level in Europe would be inconsistent with the international concordat agreement and would disadvantage European banks. Acknowledging that legal barriers hampering application at a consolidated level cannot be eliminated in the short-term, the letter specifies the steps that are required to achieve the goal. It welcomes the EU plan to review the coherence of the framework for European banking supervisory activities within the framework of the a post-FSAP agenda and requests the Commission to make its objective and timetable for the future application of the Directive at a consolidated level public and to explicitly include this objective and timetable in text of the Capital Requirements Directive.

(Within the framework of the post-FSAP agenda the European Commission will review the rules for liquidity requirements, deposit insurance schemes and bankruptcy situations rules and will make efforts to eliminate legal and other barriers hampering application at a consolidated level). However, it is expected that the current directives will be amended and fine-tuned, rather than introducing any fundamentally new regulations.)

1.2 EU Parliamentary developments

According to the original plans, the preliminary report of the EP Rapporteur, Mr Radwan was to be completed by the end of March. (The German-language report was presented to MEPs in the second week of April). The report and the related amendatory proposals are to be reviewed by the Committee on Economic and Monetary Affairs of the European Parliament (ECON) at the end of May. The ECON will vote on the final report of Mr Radwan in June and the amendatory proposals to be presented to Parliament will be compiled by the end of June. (Official translations of the Directive had been completed by the end of April). The CRD was only translated into the 11 languages used prior to the last enlargement of the EU; the Commission's lawyers explained this by the fact that the Directives to be amended were only available in those 11 languages, anyway). Nonetheless, it might happen that the ECON vote takes place as late as September. Consequently, the U.K. presidency will have no more than three months to enter the modifications required in order for the final proposal to be presented to ECOFIN (the European Council of Finance Ministers) in November. Currently, there is a good chance for the Directive to be passed in first reading, which, however, would imply that the FBE's amendatory proposals are not included in the Directive. If it came to a second reading, it would take place under the Austrian presidency, which does not quite share the FBE's position regarding consolidated supervision (Article 129) and the treatment of intra-group exposures. With the delay in the directive-making process, the only practicable date that can be envisaged for the introduction of the Directive is January 1, 2008.

1.3 European Central Bank report on the Capital Requirements Directive

At the request of the Council, the ECB made a report on the Capital Requirements Directive. The report was published in the EU official journal in February. In its report, the ECB stresses that the Directive, once properly transposed by the member states, will considerably strengthen the soundness and stability of the European banking system through the application of more sophisticated, risk sensitive capital standards. While stressing its overall supportive view of the Directive, the ECB made a number of general and specific comments with regard to the proposed Directive and its future application.

In its report the ECB lists legal instruments that would promote consistent implementation of the Directive across Europe. In the ECB's view the technical provisions on capital adequacy should be brought together in one directly applicable Lámfalussy Decision Level 2 regulation. This approach would ensure sufficient flexibility and reinforce convergent implementation. The reduction of national discretions is of utmost importance, as this would simplify the regulatory framework and contribute to a level playing field. The ECB recognises the progress that has been achieved by the CEBS towards reducing the number of options and waivers and encourages further work in this field. The general wording of several provisions of the proposed directive leaves a substantial margin for divergent interpretations by national authorities, which is against the principle of a level playing field.

The ECB addresses in details the role of the consolidated supervisor on a consolidated basis, stressing that the model envisaged in the Directive will contribute to increasing efficiency and reducing the overall cost of supervision and will strengthen the stability of the financial sector. The ECB recommends that in light of practical implementation the Directive be reviewed after three years. The ECB agrees with the timing of the introduction of the new capital requirements and supports the introduction of transitional requirements to limit the impact on credit institutions' minimum capital requirements over the first three years after transposition implementation of the directive. Regarding the length of data histories the ECB recommends thatthe transitional provisions should support credit institutions in their transition to the advanced IRB Approach. The ECB stresses the importance of ex-post monitoring of the structural and possible procyclical impacts of the Directive.

In the report the ECB provides detailed comments in relation to the definition of central banks, the conditions of solo consolidation, the weighting of intra-group exposures, the recognition of external credit assessment institutions, the permanent partial use of the standardised approach, a the consistent treatment of commitments in IRB and standardised approaches, the importance of the supervisory review process, the capital buffers and , the issue of divergent minimum capital ratios above the 8 % threshold, the cooperation between authorities in an emergency situation, the inconsistencies with Basel II in the context of operational risk, the legal risk, and the capital requirements for certain investment firms.

1.4 Disclosure of credit ratings versus conclusion of a Code of Conduct between Banks and SMEs

According to the Rapporteur on the Capital Requirements Directive, the Directive should include the obligation to disclose credit ratings. Although the European Commission does not support the proposal, the only way it can see to avoid it is that the associations sign a Code of Conduct between banks and SMEs that would regulate the contents of the obligation of disclosure in a "softer" way, leaving it for the banks to decide on the contents.

The European Commission initiated the drafting and conclusion of a Code of Conduct between banks and SMEs several years ago. The Commission had several discussions on the issue in 2002 with the six European banking associations and with SME associations and a working group was set up in September 2002 to draft a Code of Conduct.

The Draft Code provides that the lending process must be transparent for both the borrower and the lender. Accordingly, SMEs should provide all relevant information related to their business (business plans, data, reports); in return, the bank should inform the SME prior to the credit approval process of the relevant factors affecting the credit decision and the rating procedure. The credit decision should be communicated in a clear way and: it is considered best practice, if requested, to supply an explanation on the decision should be given by the credit institution. Prior to the conclusion of a credit agreement, the credit institution should make available detailed information on the terms and conditions for the requested credit, including rules under which terms and conditions can be changed unilaterally by the credit institution. The SME should be informed of any subsequent changes made to the terms and conditions. A legal or technical language should only be used where necessary. The credit institution should avoid any unnecessary delay in communicating a credit decision to the SME. The SME should inform its account manager at the credit institution, when it anticipates or experiences a relevant change in circumstances, and particularly, any financial difficulties, that could influence its banking relationship.

The draft Code was supposed to be signed in October 2003. Three SME associations and one European banking association seemed to be prepared to sign the Code. According to the Commission, eighty per cent of the national banking associations supported the draft; however, signing at a European level failed due to the concerns arisen. The issue of the FBE signing the Code was raised not long ago again, but the Executive Committee dropped it. The European Committee encourages credit institution and SME associations to sign and apply the Code at a national level.

1.5 FBE sub-working group on reducing national discretions

Reducing national discretions is an important objective for the CEBS. A working group, set up to address the issue, identified as many as 143 national discretions in the proposed directive. Of these, the working group suggested of cancelling 23 cases; in the case of 41, banks should be allowed to choose between options and in the case of 79, the national discretion should remain.

With a view to creating a single European market, the uniform application of the Directive and a more radical reduction of the number of national discretions are regarded by the FBE as a key issue. Therefore, the FBE set up its own sub-working group to continue the effort launched by the CEBS. The sub-working group started out from the CEBS's report of September 15, 2004. In addition to those national discretions mentioned in the report the working group identified an additional six. National discretions were ranged into four categories:

A: those proposed to be cancelledRemoval of the national discretion (28)

B: those to be chosen by the bankOption for credit institutions (67)

C: those to be applied according to the regulations Application of the rule ofby the competent supervisor of to a the credit institution (ensuring a uniform application at the European level) (19)

D: mutual Mutual recognition of the decision of the national supervisors’ decisions (same regulations for entities operating in the same market) (35)

(According to the expert group, those elements in groups B, C and D are not actual national discretions in the strictest sense.). Further developing the work done by the CEBS, the sub-working group also provided the definition for competent supervisor for each national discretions (consolidated [home country] supervision, local [host country] supervision, supervisor of the debtor's borrower's country, collateral supervisor [supervisor of the country of the party providing in which the collateral securing a loan is located]). The CEBS welcomed the report compiled by the sub-working group and will use it as a starting point for its further work aimed at reducing the number of national discretions.

1.6 CEBS Fourth Consultation Paper (CP04) on a Common Solvency Ratio Reporting Framework

The CEBS in January 2005 announced its launch of formal consultations with banks, market players and end-users on a proposed new common solvency ratio reporting framework. (The consultations were carried out during the three-month period following January 26). The new reporting framework is aimed at reducing companies' reporting burdens and reinforcing the European single market.

The issue of a common reporting framework was raised by the Commission and discussed at the ECOFIN Council, and the CEBS was mandated to develop the new framework. In developing the system the CEBS focused on three principles: flexibility, consistency and standardisation. In addition to improving the exchange of information between supervisory authorities, the proposed common reporting framework is a response to the requests expressed by the banking industry. Greater commonality would substantially reduce banks' compliance burden and would contribute to removing obstacles to financial market integration.

The CEBS has developed an XML/XBRL -based model for the purpose of the proposed common reporting framework. The relevant pieces of information are integrated in templates and then brought together within a data model developed by the CEBS. The CEBS intends to complete the XML/XBRL coding before June 2005. The framework consists of a number of templates to be completed by the reporting institutions. Within the common framework, the basic information to be reported will be standardised across Europe; the only difference that may be there is the breakdown applied in the different member states.

Hungary is represented in this project by the Hungarian Financial Supervisory Authority. The Supervisory Authority involved banks in the review of the CEBS's Consultation Paper. The Association provided the following opinion on the proposal:

The Association welcomes the proposed common reporting framework and the intention to standardise the national and EU reporting requirements of the competent supervisory bodies (banking supervisors and central banks). Under current Hungarian regulations banks are required to compile a number of reports with almost identical data contents; in addition, their European parent companies require similar reports. These redundant requirements are tying up significant human, technical and financial resources. The forms and contents of the proposed templates seem to be acceptable at first glance; however, the degree of details the national supervisory authority would be requiring within its own discretion is not indifferent. Definitions in the relevant Hungarian regulations are not always identical with those used internationally; therefore it will be important to harmonise the various terms and define them in a clear-cut manner. An official Hungarian translation of the document should also be published.

It is also important to have standard definitions for components affecting regulatory capital and capital adequacy ratio. Accordingly, repo transactions (delivery repo, collateral repo) and immaterial goods (especially software) should be defined and applied in a uniform manner across Europe.

1.7 CEBS Fifth Consultation Paper (CP05) on the Framework for Supervisory Disclosure

The CEBS published its Fifth Consultation Paper (CP05) on the framework for supervisory disclosure on March 23, 2005. (Comments to be submitted before June 24). The purpose of the document is to promote the uniform implementation of the new Capital Requirements Directive and new supervisory practices and procedures across Europe. The framework is intended to enable institutions to compare the criteria and methodologies that supervisors use in evaluating and reviewing them and to provide aggregate statistical data on key aspects of the implementation of the CRD. To ensure meaningful comparison, disclosures will be accessible via the Internet (using both the CEBS website and national websites) and common formats will be used. The framework is to be implemented by year-end 2006 as a target date for qualitative information and by mid-2008 for statistical data.

Thee CEBS's proposal is based on the information requirements provided in Section Article 144 (1) of the CRD; accordingly, national supervisors will have to show in the tables (experimental for the time being) the references to the relevant prudential laws and regulations (Table 8 tables8), information concerning the application and recognition of national discretions and options (Table 2 tables2); the general criteria and methodology for supervisory reviews (Table 1 table1) and statistical data on the implementation of the CRD (5 tTables 5).

1.8 CEBS Sixth Consultation Paper (CP06) on Financial Reporting

The project is aimed at developing a standardised consolidated financial reporting framework for credit institutions that is consistent with international accounting standards (IAS/IFRS). It is intended for use by credit institutions for the purpose supervisory reporting within the EU. The standardised financial reports are planned to be designed, similarly to the prudential reports, in an XML/XBRL format. The framework is not intended to be mandatory. Each national supervisor will decide how extensively the framework is to be implemented within its jurisdiction.

The CEBS document stresses that the FINREP and COREP frameworks should be developed in a coordinated manner, with special attention to the points where the reporting requirements coincide.

1.9 New FBE sub-working groups

The European Commission initiated the review and removal of barriers to mergers and acquisitions (M&A) in Europe. In order to participate in the work, the FBE set up a new ad-hoc working group, mainly from nominees to the Economic and Monetary Committee and the Global Banking Committee. According to plans, the working group is to compile, by mid-June, a proposal for discussion by the European Commission.

Another new sub-group will be set up to participate in the work aimed at identifying and removing barriers to the implementation of uniform supervisory practices and, in the long-term, a consolidated supervision in Europe. At its first meetings, the sub-working group will address issues related to the harmonisation of deposit insurance schemes.

The IASB issued for review a revised proposal for the fair value option in IAS 39 in February. The main principles remained unchanged in the new document. Certain parts of the text, related to the conditions for reporting financial instruments as gains or losses and their valuation were complemented and adjusted to be more specific, to ensure an unambiguous and clear application. Reliable valuation was given increased emphasis.

In its comments the FBE expressed its full support for the revised proposal: the new proposal will help reducing accounting volatility arising from the use of different valuation methods in financial reports and will allow the recognition of hedges based on practical risk management aspects and objectives used in banking. (The previous version contained more complicated rules for hedges and for the separation of embedded derivatives). For the proper treatment of own debt exposures (an important aspect for banks) and to promote the introduction of the component approach, the FBE is proposing further enhancements and has offered its assistance to the IASB.

The FBE does not wish to cause any undue delays in closing this chapter due to the above issues; however, it regards it as important that the IASB take these points into account in its decisions. The FBE agrees that the regulators should require the institutions to specify those circumstances in their accounting and risk management policies, where the fair value option is used and deemed reasonable. Thus, the practical use of the fair value option could be made apparent.

Regarding the practical application of the revised proposal, the FBE requested a reassurance in respect of the option to choose between the fair value option and hedge accounting. In the FBE's interpretation, in the case of accounting mismatches credit institutions may choose between the use of the fair value option and hedge accounting to eliminate or reduce the mismatch.

A supplementary manual is planned to be compiled on the methodology of the measurement of fair value to promote implementation.

The taxation of interest income and related information requirements taking effect as of July 1, 2005 are treated by the FBE Fiscal Committee as a priority. A summary report was compiled, in which member states gave their positions on the adoption of the EU legislation on saving taxation in their domestic legislation and practice. The FBE sent this report to the European Commission, urging for an early solution to the still outstanding issues. The FBE drew attention to the fact that there are a number of definitions in the EU legislation that should be made more specific and that not all member states and non-EU states have been able to prepare themselves for the introduction as of July 1, 2005. The status report for Hungary was compiled by the Association in cooperation with the Ministry of Finance. In Hungarian legislation, reporting requirements are provided in Schedule 7 to the Act on the Rules for Taxation. The information to be reported is now being developed, bank have provided their comments on the first draft format of the report designed by the Tax Authority.

The European Union is examining the possibility of developing a new pan-European pension scheme under the name 26^th Member State Regime. The new scheme could be chosen optionally in addition to the national pension scheme. Under this scheme, banks would offer their multinational and local customers pan-European products and services that are currently not available due to national legal barriers (consumer protection, contractual law). The 26^th Member State Regime is a financial and legal integration, whereby extra costs that should be counted with in each of the 25 member states in connection with the introduction of a new product and the creation of the necessary legal and practical conditions could be eliminated. The cross-border European product would widen customer choice and, with the low costs involved, could be introduced at an attractive price and adequate security ensured by uniform consumer protection regulations.

In the FBE's opinion, adoption of the provisions of the Hague Convention for disputes related to securities in custody would disadvantage European banks in their dealings with American customers. The provision of the Convention, according to which the contractual parties may freely agree on the governing law for disputes related to securities in custody would clearly favour financially powerful non-European banks, investment firms and customers, as they could insist on stipulating, for example, the Law of the State of New York as the governing law. (Currently, such demands can be easily rejected by EU service providers on the grounds of Directives 98/26 and 2002/47).

Stipulating a non-European law as the governing law would entail undesirable consequences in terms of legal (lawyer) costs, litigation procedures, execution and potential liquidation procedures. In trans-Atlantic securities account management deals, where the U.S. law is expected to be stipulated as the governing law, obtaining a legal opinion in advance would involve substantial extra costs. Subjecting themselves to U.S. law would be highly disadvantageous for European custody service providers. It is hard to perceive a governing law not addressing the issuer's rights in relation to issues such as dividend payments and taxation or the laws of the place of conclusion of the contract, place of settlement or place of account keeping. In case of signing the Hague Convention, European-level legislation and national laws would have to be revised at several points. The professional community regarded the transposition of Directives 98/26/EC and 2002/47/EC into domestic legislation as a progressive move contributing to the stable development of the securities market. System risks involved in the adoption of the Hague Convention would be a significant step back from this progress.

The Social Affairs Committee held its 20th meeting on February 10 in Brussels. The Committee launched an Enlargement Project, under which a bilateral dialogue will be organised between new and old member states. Hungary will be hosted by Austria, the meeting is planned to take place in the autumn. At the meeting, the banking associations and employer organisations (unions) of the two countries will exchange views on social dialogue issues.

The Committee launched a Demography Project to analyse how the ageing of the society will affect the banking system. Within this, the situation in the individual member states, and the correlation of demography with the employability of the older generation, job opportunities for the younger generation and social security.

The Committee is addressing the proposed amendment to the Working Time Directive. The subject of the debate, inter alia, is whether or not the mandatory application of the maximum working week should be retained, and how on-call time should be considered. The Committee encourages a continuous exchange of views and information between members.

At the Association's invitation, the Committee held its 21st meeting in Budapest. The meeting reviewed the ongoing projects of the Committee. The competent leaders of the FBE briefed the Committee on the latest developments in the Corporate Social Responsibility (CSR) project. The Green Paper, assessing the impact of demographic changes, and issues related to the impact of structural changes on employment were reviewed. The Committee developed its position on the Social Programme for 2005-2010 and reviewed the draft report compiled by the sub-committee on the impacts of cross-border mergers and acquisitions.

At its meeting of January 17, 2005, the Association's Board reviewed issues related to the operations of the EPC and took the position that Hungary's joining the Single European Payment Area (SEPA) was for a large part a government task, and the National Bank of Hungary, responsible for developing the payments and settlements systems and ensuring their efficient operation has a key role to play in it. The banking industry will, of course, be actively involved in implementing the Single European Payment Area but it is the central bank's responsibility to develop and enforce the relevant rules. The Association does not have the scope of authority and consequently, cannot assume the task of setting up the Hungarian SEPA organisation: the National Bank of Hungary should play the leading role in coordinating and timing the process.

Pursuant to the EPC's Road Map, the Hungarian SEPA organisation should be set up by end-2005 at the latest. Then, it should develop its own schedule in accordance with the Road Map.
Responsibilities of the Hungarian SEPA organisation would include the preparation of quarterly SEPA indicator reports, enabling the EPC to monitor the timely implementation of the developments required.

The Association initiated the setting up of the Hungarian SEPA organisation, with the additional task to familiarise the parties concerned with the international programme of SEPA and review domestic tasks related to its implementation.

The schedule to be drawn up by the Hungarian SEPA organisation should ensure the implementation of the three pan-European payment methods (credit transfers, direct debits and bank card payments).

At its Brussels meeting, the EPC's decision-making body adopted important decisions. The most important of these was that, despite continuous attacks, the EPC maintains its original objective and approach, trusting that the European banking profession will be able to implement SEPA in a self-regulated manner, without any authority regulations.

The decision-making body adopted the Hungarian proposal for organising a meeting for new member states to determine how the EPC can assist in setting up the national SEPA organisations.

At its meeting of February 16, the FBE Payments Systems Committee discussed tasks related to the implementation of the EPC Road Map. The Road Map, adopted at the EPC plenary meeting of December 16, 2004, was presented by the EPC's President, Gerard Hartsink. Mr Hartsink said the issue was followed with keen attention by authorities and market players alike. He announced that he was invited by the European Central Bank to attend the March 3 board meeting of the central banks of the 12 euro-zone states, where he would explain the Road Map, stressing that managements should make sure that the targets are met. The question is whether banks are able to support self-regulation. There are two other options: one is to make rules, the other is to let market discipline work. Today, rather than documents, actions to meet actual market needs are required.

Mr Hartsink said there was agreement between members on the schemes for credit transfers and direct debits, but no consensus yet regarding the bankcards scheme. The question was mooted: why not adopt the VISA or MasterCard scheme as a pan-European scheme? This could be regarded as a first step, although it is a question whether it would be accepted by all members of the EPC. The key issue here is that the pan-European scheme will affect interchange fees. Wholesalers will have a key role in collecting cross-border transactions.

Another issue raised was the role central banks should play in the transition plans; or in more general: whether national banking associations would have the capacity to enforce the EPC's decisions. Since decision-making capacities differ in terms of both structure and organisation in the various member states, some would be able to enforce rules within their own competence, some would need the cooperation of their central banks to do so. It also became clear that there was one thing missing from the Road Map: communication with the customers. There had been some initial conversations with consumer protection organisations, but no feedback was received as to what their key issues were. Mr Hartsink acknowledged the importance of communications and the need for coherence between national and European-level communications. A plain language version of the Road Map is now under preparation. The group suggested that at the March 3 meeting Mr Hartsink raise the issue of interchange fees and seek the authorities' opinion on the acceptance of these fees.

The Secretariat gave a short briefing on latest developments concerning the New Legal Framework (NLF). The EPC sent its response on behalf of the European banking industry regarding version 5.0 of the NLF to the Committee by the time required. The new head of the Committee, Mr McCreevy, and his cabinet have familiarised themselves with the proposal. Mr McCreevy is willing to regulate the retail market, although in slower steps, and it seems he will pay more attention to business players.

The EPC's Legal Support Group is working on two documents: a business impact study and a guide on influencing. The Payments Systems Committee (PSC) gives special emphasis to contact building. The timetable is unclear, as the deadline for a new draft directive (July 2005) cannot be met. The New Legal Framework will be a topic at the March 3 ECB meeting. Cross-border cash delivery is not included in the text of the NLF. There is no new information on what the special proposals of the FAFT are related to. The Committee drafted the text for the new directive, for its own use.

Peter Twilhaar, head of the TARGET Working Group, at the request of members of the Payments Systems Committee gave a presentation on the TARGET2 Project. The speaker did not given an answer regarding the possibility of night business hours for TARGET saying that the demand for a technical night window will be reviewed together with other pending issues at the forthcoming meetings of the working group.

The Secretariat advised that the preparers of a study assessing bank charges and internal market competition in connection with the proposed amendment to EC Regulation 2560/2001 on cross-border payments contacted the Secretariat for information for the purposes of the study. The FBE was requested to provide information on the fees for national transfers, payments and purchases, and cash withdrawals from ATMs (Section 2 of the study). The Secretariat will send a formal advise to the PSC and members of the FBE. The working group said the raising of the 12,500 euros limit to 50,000 euros was a valid problem from the point of view of statistical reporting and requested that this issue be raised at the March 3 ECB meeting.

In the context of preparations for the enlargement of the Euro-zone the working group supported the Secretariat's proposal to set up a Fiduciary Money Working Group for those ten new member states planning to introduce the Euro in the coming years. The secretariat will contact and invite the countries concerned to participate in the working group.

IV. ASSOCIATION EVENTS

The Hungarian Banking Association held its General Meeting on April 12, 2005. Under the first item of the agenda, the Hungarian Prime Minister, Ferenc Gyurcsány gave a briefing on current economic policy issues. The Prime Minister stressed he aimed to develop partnership relations with the banking sector; he said he would take up the fight against anti-capitalist and populist demagogy and asked banks to support him by making some gestures and introducing some consumer-friendly measures. Responding to the Prime Minister's briefing, bank leaders stressed the need for confidence-restoring measures, consistent with the expectations of the EU.

In the subsequent part of the General Meeting the Association's Secretary General provided verbal notes to the report on 2004 activities of the Association and to the proposal for main tasks for the Association in 2005. Both submission was unanimously adopted by the General Meeting.

The General Meeting also adopted the report on the financial management of the Association in 2004 and the proposal for the Association's budget for 2005.

The General Meeting elected the Association's President and Secretary General. Based on the recommendation of the Nominating Committee, Tamás Erdei was elected for the next three years as President, Dr Matthias Kunsch as Vice President and Dr Sándor Csányi, dr Károly Gergely, Sándor Czirják and Dániel Gyuris as members of the Board. Dr Rezső Nyers was elected as Secretary General for another five-year term.

At its meeting of February 22, 2005, members of the Bank Card Forum discussed the future form of operation of this Forum. The discussion was prompted by the fact that the modification to domestic interchange fees, agreed on at the previous meeting of the Forum (specifying the fees for bank card transaction and their distribution between acquirers and issuers) had not taken effect, because not all participants had signed the statement to be sent to Visa and MasterCard. This fact questions the decision competence of the Forum. There seem to be two ways for the future activities of the Forum:

- the Forum continues operations, with an informative character, with the objective to promote exchange of information between member banks,

- an organisation recognised by bank card companies is formed.

Members opted for the latter; accordingly, the transformation of the Forum will have to be organised. Decisions adopted thus far will remain in force and the Forum will continue to be of an informal character until the transformation is completed.

At the two meetings held in the first quarter (January 14 and March 19), the working group continued its consultations with the head of the IT Supervision Department of the Hungarian Financial Supervisory Authority, aimed at specifying the requirements provided in Section 13/B of the Credit Institutions Act. The objective is for banks to prepare themselves and meet the Supervisory Authority's requirements, while continuously enhancing the security of their systems. The working group will draft a wording proposal to make the provisions of the Act more specific.

The working group heard presentations from András Gerencsér and Ferenc Suba from the Ministry of Informatics and Communications on the role and activities of the European Network and Information Security Agency (ENISA). Ferenc Suba, Vice-President of ENISA, offered their cooperation with CERT Hungary, the Hungarian member of CERT, in three areas:

- information collection on access attempts, incident handling

- prevention,

- training.

Within the framework of this cooperation, members of the working group may avail themselves of assistance from the Internet unit of the National Police Headquarters, the Computer and Automation Research Institute of the Hungarian Academy of Sciences and the IT centre of the Budapest University of Technology and Economics, attend presentations offered by network security specialists of the FBI and participate as specialists in the ENISA network security working group.

At the invitation of the Association, associate members of the FBE and the FBE Executive Committee held their next meetings on May 12 and May 13 in Budapest. At the meeting of associate members, Erika Marsi, Director General of the Hungarian Financial Supervisory Authority offered a presentation on preparations made by the Supervisory Authority for the implementation of the new Capital Requirements Directive.

At the FBE executive Committee meeting, post-FSAP rulemaking steps, the Capital Requirements Directive, the Financial Instruments Market Directive, the Money Laundering Directive, the Directive on the Taxation of Savings Income, the future framework for European banking supervision, International Accounting Standards, and payments systems issues were reviewed, in addition to administrative issues of the FBE. (More details on these issues are provided in the various chapters of this report).

Participants expressed their thanks for the good organisation of the Budapest meetings and for the hospitality extended to them by the Association.

top of page