REPORT

on Activities of the Hungarian Banking Association

3^nd Quarter 2003

November, 2003

I. PROFESSIONAL ACTIVITIES *

II. LOAN FACILITIES *

III. INTERNATIONAL COOPERATION *

IV. ASSOCIATION LIFE, EVENTS *

I. PROFESSIONAL ACTIVITIES

1. Proposed inter-bank private debtor and credit information system

At its meeting of June 10, 2003, the Association's Presidium adopted a decision to investigate the possibility of setting up a voluntary inter-bank debtor database (ÖLBAR). A working committee was set up to address practical and legal issues related to the operation of the proposed system. The Committee consists of professionals from the National Bank of Hungary, Interbank Informatics Service Ltd. (BISZ Rt.) and Giro Ltd., the Association and member banks. The operational concept of the system was drawn up and presented to banks.

At the inter-bank working committee's meeting of July 10, 2003, the concept and preparations for the system were presented by Lajos Rácz, President & CEO of BISZ Rt. The ÖLBAR database would operate on a mutual basis. Through a single query, users would have access to negative details legally provided by other users, as well as to positive details. Users not joining the system would only have access to negative data. The IT system required for the database would be developed by BISZ Rt. from its own resources, no contributions would be requested from banks or from the owner and the current fee system would remain unchanged.

Participants pointed out that for the system to be viable, banks representing the dominant part of the lending market (80-90%) should join, the issues of system administration, users' rights and obligations and customer approval should be addressed and agreed upon in detail and the opinion of the Data Protection Ombudsman should be obtained. The report drawn up on the meeting was distributed to all member banks. Banks were requested to submit proposals for the next steps and to indicate if they were interested in joining the system.

Based on the banks' answers it was established that the 80% coverage required cannot be achieved through a voluntary system. Reviewing the issue at its meeting of September 8, 2003 the Presidium concluded that the proposed inter-bank private debtors database could not be viably set up on a voluntary basis; accordingly, the initial concept of a mandatory debtor database should be revised based on the opinion of the Data Protection Ombudsman and the relevant international practice; in the course of designing the system, the Data Protection Ombudsman should be consulted; the National Bank of Hungary should be requested to continue to promote the concept of a mandatory system.

The relevant proposal was revised. The new concept is mindful of the recommendations made by the Data Protection Ombudsman in the fall of 2002. No personal numbers or other identification numbers would be used in the system; only loans with amounts exceeding a set lower limit would be registered and the concept of an initial upload would not be applied. The system would be open to additional remedies apart from the current consumer protection and legal remedies. The proposal is currently under review.

2. Motion to the Constitutional Court on determining the tax base for local trade taxes

The Association turned to the Constitutional Court, requesting the Court to pronounce the unconstitutionality of those provisions of Act C of 1990 that provide, exclusively for investment and other financial services provided by credit institutions and investment firms, that expenses cannot be taken into account when determining the tax base for local trade taxes (whereas the deduction of interest expenses from interest revenues is allowed under the same law).

Parallel with drafting this motion we have several times initiated with the Ministry of Finance that the law be amended with respect to and to the benefit of the banking community, the answers were negative. During the review of the law package on amendments to certain tax laws, in relation to trade tax, while understanding and supporting the government's objectives to improve the budget, we expressed our opinion that financial activities should be treated under uniform standards and thus, also in terms of taxation. At the same time, from the banking industry's perspective, special emphasis should be given to improving the competitiveness of the securities market and other derivative market segments by reducing the current high costs, and even more so with regard to Hungary's approaching EU accession.

3. Implementation of the Act of 2002 on the Prevention of Money Laundering

Certain problems were encountered during the implementation of this Act. One was related to the implementation of identification requirement. Pursuant to the Act, no transaction may be performed for clients whose data specified by the law are not fully available. Banks have conducted surveys since the middle of this year to determine the number of customers affected. Surveys show that corporate customers of major banks are affected the most. Owners' and clients' authorised representatives' data are those that are typically missing. The Association's Anti-Terrorism and Money Laundering Committee proposed that the Hungarian Financial Supervisory Authority issue a standard Notice (to ensure level playing field) to be sent out by banks to their customers, attached to their bank account statements. The Supervisory Authority was highly cooperative and, after joint preparations with the Association, the text of the Notice was sent to the banks' for their reference. Several banks availed themselves of this solution; some problems were experienced in the way the campaign was conducted and in some of the wordings. The review of identification details is currently in process.

Data requirements for international transfers are another major issue (although arousing less anxiety). In the mandatory Sample Procedures drafted by the Hungarian Financial Supervisory Authority, the law was interpreted in such a way that a transfer may not be executed or forwarded if any of the 3 data specified by the law are missing. Banks indicated that in 80% of the cases only two of the three required data are available and therefore this provision of the law cannot be implemented. With the active participation of member banks and through the Inter-Ministerial Committee, the Association furnished the Ministry of Finance and the Financial Supervisory Authority with sufficient information proving that the relevant provisions of the law cannot be implemented; a respective draft amendment to the Act is now under an inter-ministerial review. (The problem was rooted in the fact that the FATF's requirements to be introduced from 2005 have been adopted in Hungary, but not so in other countries yet).

4. Proposed new laws

The Association reviewed the proposed amendments to the relevant laws on taxes, contributions and other fiscal dues for 2004. In addition to our proposal concerning trade tax, we submitted comments on the proposed building and land taxes. With regard to proposed amendments to the Act on Personal Income Tax, we expressed our objection to the plan to cancel tax allowances on pension contributions and private pension fund membership fees and to the increase in administrative burdens due to the abolishing of tax allowances on benefits in kind. We submitted arguments against the plans to tax interest revenues and against the proposed changes to the corporate tax and dividend laws. In relation to the latter we repeatedly pointed out the need to extend loss accrual to banks. Regarding the Act on Rules of Taxation we submitted proposals to adjust the provisions on the redemption of state guarantees.

We reviewed the proposed new public procurement law and submitted proposals concerning the rules for bid bonds to be provided under open public procurement procedures.

5. Market development in the government bonds market

The work launched by the Government Debt Management Agency to prepare the Hungarian primary dealers' system for accession to the EU continued. Major progress was made in two issues: the Government Debt Management Agency accepted the primary dealers' proposal for requirements for investment service providers to be qualified as primary dealers. The proposal in question is based on European practices and the requirements proposed are currently being reviewed by the Association with the involvement of the Ministry of Finance and the Ministry of Justice, for conformance with the relevant EU legislation. Also, a joint effort with the Government Debt Management Agency was launched to promote development of the government bonds market. Within this framework, a sample contract was drafted jointly with the Government Debt Management Agency (with the involvement of experts). The objective is to develop a sound contractual framework for repo and securities loan transactions. The sample contract will also contain contractual netting rules also meeting the Financial Supervisory Authority's requirements for rating trading book exposures.

The work is based on the relevant European framework agreement drafted by the European Banking Federation and accepted by the European Central Bank.

6. VAT charged on credit rating

The problem of VAT charged on credit rating is not new and, as indicated by banks, has not been be completely resolved under the new Credit Institutions Act effective from January 1, 2003. Although the amended Schedule No. 2 to the Credit Institutions Act clearly provides that lending activities include credit rating, yet, exemption from VAT is not always applied to credit rating. During lending, credit institutions must assess the customer's financial and income position and the presence, actual value and enforceability of the collateral required before approving the credit. For this activity, a credit rating fee is charged. Banks say according to some official standpoints credit rating is an independent service subject to a 25% VAT. We turned again to the competent State Secretary at the Ministry of Finance to clarify and resolve the issue.

7. Application scheme for European Structural Funds

Preparations for an efficient utilisation of subsidies and complementary resources from the European Structural Funds will be a top priority in the coming period until Hungary's accession to the EU. The work has commenced recently under a cooperation between the Association and the National Development Plan and EU Grants Department of the Prime Minister's Office. The Operative Programme Management Authorities are also involved in the project. Rules for applications for funding under the European Structural Funds and disbursement rules affecting banks will be developed under this project. A coordination forum will be set up with the participation of the aforementioned institutions and banks affected. This forum will have the task to develop a standard set of bank documents to be used in the application stage (e.g., certificates, and eligible types, of own resources, rules and procedures for guarantees and collaterals, etc.) by drawing on the experience gathered by banks in connection with applications for funding under the Pre-Accession Funds.

Parallel with this, a co-financing working group will be set up to provide potential applicants with information by compiling a co-financing catalogue specifying the instruments offered by the financial sector, their main features and the financial institutions offering the product.

 

8. European legislation
1. Directive on market abuse

The European Parliament and Council Directive on Market Abuse and the proposed regulation to implement it were reviewed by the Ministry of Finance with the involvement other professional organisations, authorities and fellow institutions. Basically, market abuse covers two types of activities: insider dealing and market manipulation. As is well-known, the Lámfalussy process provides for a multi-level legislation and implementation system: first, the framework principles are set up, then, the implementation details are developed, followed by a uniform implementation of common EU standards in member states. Implementation and law-application adequate for the purpose are to be inspected. Although the directive on market abuse has not yet been adopted, the drafting of implementation rules has commenced. Three regulations are implied. One is related to the disclosure of inside information and the explanation and definition of market manipulation. Another covers the issues of appropriate disclosure of information and conflicts of interest. A third one provides a detailed presentation of regulations related to share buy-back and securities stabilisation programmes.

2. Directive on investment services

The Investment Services Directive (ISD) was substantially revised. The new proposal will regulate the financial instruments markets and will extend to investment services and regulated markets. The proposed directive contains a set of operational requirements and licensing procedures for investment firms (no major changes expected in this respect). Investor protection will be tightened; for instance, the service provider will have to be able to demonstrate that the deal has been made in the best interest of the client and at the best price obtainable in the marketplace. Special emphasis will be given to transparency and integrity under the new directive. Given that the proposed regulation would allow for the creation of alternative markets apart from the exchanges, the drafters find it important for prices to be published on a regular and continuous basis. The proposal stipulates the rights of investment firms and provides for standard rules for operations and settlements on the regulated markets.

3. Directive on consumer credit

The proposed directive on consumer credit was circulated by the Money and Capital Market Department of the Ministry of Finance in June 2003. Given that there was no Hungarian version available, the response from banks was rather moderate. A number of provisions of the proposed directive will affect banks' operations. The proposal addresses issues related to advertising, consumer information, data protection, compulsory information to be included in credit and surety agreements and conditions for the termination of agreements. The proposal provides for the concept of responsible lending: before concluding the credit agreement or increasing the credit amount the creditor should ascertain whether the borrower and the guarantor will be able to meet their obligations under the agreement.

The directive will provide for member states to operate databases on debtors and guarantors in default in their territories. Creditors will have access to these databases and will be able to query the debtor's or guarantor's other existing commitments. The directive also addresses issues related to consumer rights in relation to queries (rights to notification and correction). Creditors shall consult the database before granting credit. Creditors operating in other member states shall have access to the database. The directive also makes it possible to set up positive list debtor databases by allowing the central database to include a central register of credit and surety agreements.

The proposal allows borrowers a 14-day right of withdrawal. In case of withdrawal the amount received from the borrower will be refunded and interest will only be charged on the actual time for which the funds have been used.

Under our comments submitted to the Ministry we provided some proposals to make certain provisions of the directive more specific; we proposed that the withdrawal time should be 7 days instead of 14; we challenged the provision on joint and several liability of credit institutions' for any default on delivery of any goods or services in accordance with the relevant contract; we proposed to provide for a reconciliation of the expiry dates of contracts concluded for an indefinite period and the related surety contracts. A discussion on the proposed directive was held at the Ministry of Finance on August 14, 2003; most of our comments were accepted.

II. LOAN FACILITIES

In our second-quarter report we indicated that the government has changed the conditions for micro loans: the maximum loan amount has been reduced from HUF 6 million to HUF 3 million; on the other hand, borrowers may avail themselves of interest and guarantee subsidies for loans with a loan amount between HUF 3 million and HUF 10 million granted from bank resources.

The proposed loan scheme was reviewed with member banks in several rounds and our observations and comments were forwarded to the Ministry of Economy and Transport. Just as in the case of the Europe Loan Scheme, most comments were related to the management of government subsidies. Our proposal that the client pay gross interest to the bank and get the relevant interest subsidy (4 percentage points for this year) from the competent government agency or cooperating agency was not accepted. However, it was accepted that if the interest subsidy is not received by the bank by due date, then the bank may withdraw the relevant amount from the client's account and the ensuing administrative tasks shall be the responsibility of the client and the agency involved.

The call for offer, issued the Ministry of Economy and Transport based on the revised documents, was published on the Ministry's home page at the end of September and hard copies were also distributed to banks. The relevant cooperation agreements were signed in October.

2. Agricultural loans

Based on the relevant government resolution, the Ministry of Agriculture enacted a decree on a subsidy scheme to mitigate losses incurred by agricultural producers due to frost and draft damages. Under this decree, non-refundable government subsidies to a total value of HUF 10 billion have been made available for producers affected and HUF 30 billion have been allocated for government guarantees for loans granted from banks' own resources. Since the guarantee may not exceed 60% of the loan amount, the volume of loans available under government guarantees is HUF 50 billion.

The draft decree was reviewed by the Association and member banks in several rounds, comments and observations were forwarded and reviewed with the competent organs of the Ministry of Agriculture.

The government subsidy may be utilised against a certificate to be issued by county offices of the Agriculture Ministry to the effect that the damages suffered are within the range set in the decree. (Banks do not need to verify this condition).

The maximum loan amount is HUF 250 million and the loan may be utilised in several stages. Loan applications for damages in summer produce may be filed in the following month, those for damages continuously suffered during the year are to be filed by December. Accordingly, loans under this scheme are expected to be disbursed in the fourth quarter of the year.

2.2 Provision of bank guarantees for agricultural export and import products after May 1, 2004.

In our 2^nd quarter report it was indicated that the Ministry of Agriculture proposed to issue a decree to allow for application fees to be covered by bank guarantees instead of cash. This measure was planned to be introduced from October 2003 to allow the competent government agencies as well as banks and customers to prepare themselves for implementing this system after May 1, 2004.

In the meantime, the Ministry's concept has changed: the idea to introduce a new system for an interim period (October 2003 - May 2004) was dropped. Accordingly, preparations are now focused on a new system to be implemented after May 1, 2004.

The relevant government decree was drafted in accordance with this concept. To our surprise, bank guarantees were omitted from the draft and only bank sureties were mentioned. Having reviewed the draft decree with member banks, we emphasised that bank guarantees, as security instruments, should by all means be included in the draft decree. We also proposed that the sample text for bank sureties be modified, given that it contained a number of provisions that are only applicable to bank guarantees, not bank sureties.

We also pointed out the need to clarify the way by which the list of credit institutions eligible to provide bank guarantees for the transactions in question should be communicated to the competent EU committee.

III. INTERNATIONAL COOPERATION

48th Meeting of the FBE's Banking Supervision Committee

The 48^th Meeting of the Banking Supervision Committee redefined the Committee's strategy and the tasks and roles of its working groups, partly in connection with the approaching enlargement of the EU. A new and special task for the Committee is to set up communications between the FBE and the European Banking Committee (Level 2) and the Committee for European Banking Regulators (Level 3) under the Lámfalussy decision-making process. The Banking Supervision Committee agreed with merging the Basel Working Group into the CAD 3 Working Group. Participants proposed that the Financial Conglomerates Working Group should renew its activities to ensure a uniform implementation of the relevant directive.

Issues related to the implementation of the new capital accord in the EU were reviewed by the Committee in details. It is almost certain by now that the introduction of Basel II will be delayed. The draft of the proposed regulation (Advanced Notice of Proposed Rulemaking, ANPR) was published by the competent US regulators following the respective Senate committee meetings. Comments were to be submitted until November 3. U.S. regulators may only approve the final capital accord after a consultative period and following an assessment of the comments received. U.S. regulators maintain their standpoint to only implement advanced measurement approaches for credit and operational risks in the U.S. (AIRB and AMA) and then, only for a limited number of internationally active large banks. As a result of consultations regulators want to simplify the admittedly complex framework (while maintaining risk sensitiveness). In relation to ANPR,

• alternatives satisfying the above requirements are being sought,
• an answer is expected to the question whether in the AIRB approach capital should be allocated for expected and unexpected losses or only for unexpected losses (if the latter, then the definition of capital should be modified and the parameters re-calibrated),
• U.S. regulators are to conduct at least one more quantitative impact study and may be some other economic impact studies as well.

With all these, the acceptance of the new capital accord at the Basel Committee's meeting in December is questionable (the Basel Committee's and the ECB's chairmen have now admitted to the possibility of postponement). Also, all this will necessarily impact the overall EU capital adequacy legislation process.

The FBE has defined the approach to be taken with regard to possible decisions of the Basel Committee (1 - a new impact study and another round of consultation; 2 - adoption of the accord on a non-mandatory sovereign basis; 3 - suspending the work, failing agreement). The FBE's current position is that a short (maximum 6-month) review focused on the most important issues would only be acceptable, in which case the EU directive-making process should be postponed for that period to avoid any inconsistencies with the Accord. In practice this would mean a year delay in implementing the Directive. In case of any substantial revisions to the Draft Accord, the FBE will require additional consultations.

The Banking Supervision Committee decided that consultations on the contents of the proposed directive should continue on experts level. The Capital Adequacy Working Group was given the task to draft an opinion to be submitted by October 22. Sub-working groups (consolidation, small banks, operational risk, Pillar 2) were also involved in drafting the reply.

The extension of the Lámfalussy decision-making process to the banking industry called for the European Banking Industry Committee to be set up as the consultative partner to the European Commission in respect of regulations affecting the banking sector. Founding members of the Committee include the European Banking Federation, the European Savings Banks Group and the European Association of Co-Operative Banks. Representative organisations of other financial institutions will also be involved in the dialogue, subject to the topic (leasing and financing firms, building societies, mortgage banks). The FBE is planned to have 6 votes and the other founding members 3 and 4 votes, respectively, on the committee.

Capital Adequacy Working Group

The most important elements of the FBE's opinion communicated to the European Commission in relation to the proposed CAD are as follows:

The new European Capital Adequacy Directive should be consistent with the new Basel Capital Accord. Deviations may only be allowed in those issue not addressed by the Basel Committee. Consistency with Basel II will make it easier for European capital regulations to be applied in third countries; it will also make it easier to assess the applicability of capital regulations of third countries in the EU. However regretful the possible delay in Basel II, Basel II and the European legislative process should continue to be closely coordinated; the time gained should be used by the Committee for consultations with the parties involved on details of the proposed regulation.

The FBE supports the Commission intention to apply the new capital accord to all credit institutions and investment firms, irrespective of size. It also agrees that investment firms with limited licences should be exempt from the accord; at the same time, the FBE is opposed to treating investment firms differently from banks, as that would be against the same activities/same regulation principle.

The regulation should be designed so that it can be properly adjusted to reflect the development of the financial markets and future changes in the Basel Capital Accord. In the FBE's opinion the Directive itself should define the principles and objectives of the regulation and the framework required for the implementation of rules to be stipulated in the Appendix. Technical details will be specified in the Appendix and may be amended under a comitology procedure.

The FBE calls to reduce as quickly as possible the number and scope of remaining national discretions.

The letter emphasises the need to draw a clear line between Pillar 1 and Pillar 2: Market institutions will have the responsibility to comply with the requirements of Pillar 2; supervisory authorities will have the duty to inspect compliance and to take appropriate measures, including the imposition of additional capital requirements, if necessary.

A key issue in implementing the new accord will be the approximation of supervisory practices. To help identify differences during implementation supervisors will be required to provide information on their own regulatory practices via public notices.

The FBE is of the opinion that differences in supervisory inspection practices may lead to a non-uniform implementation of the new capital accord in the EU.

The levels of consolidation at which the capital requirements should be met are of fundamental importance. Accordingly, the FBE welcomes the Commission's revising of its previous proposal. The FBE supports the concept of introducing a lead supervisory model under the EU capital reform. All banks should use the same approach when determining their capital requirements; the capital requirement under Pillar 1 should be a single minimum requirement to be applied on a consolidated level for the parent company and its subsidiaries in their home countries, while the second pillar should be applied at the highest consolidation level by the supervisory authority of the parent company's home country. Only in exceptional cases may Pillar 2 be applied in the subsidiary's home country. The model envisages the forming of supervisory colleges led by the competent supervisory authority of the consolidated group's home country; involved in the supervisory colleges would be those 4 to 6 major competent supervisory authorities where the group's activities are focused. In this model, the home country supervisor would be responsible for overseeing compliance with capital adequacy requirements on a consolidated basis, authorising the use of the foundation and advanced IRB approaches and advanced approaches for operational risk (AMA); checking on the presence of capital to cover operational risk, approval of internal systems and the carrying out of inspections. Branches and subsidiaries are treated differently under this model.

In addition to the above, detailed comments were provided on certain elements of CAD3 (partial use of the IRB approach, small companies, housing loans, mortgage bonds, risk mitigation tools, securitisation, treatment of large exposures, issues related to the trading book, treatment of operational risk, contents of Pillar 2 and Pillar 3, etc.).

IV. ASSOCIATION LIFE, EVENTS

1. German bankers' delegation

Arranged by Hypothekenbank, Essen, a delegation of 31 bankers from Germany visited the Association on October 3. The purpose of the visit was to acquire information on capital investment opportunities in Hungary. The Association's Secretary-General gave an overview of Hungary's economy and growth prospects. Questions were asked about consistency between central bank and budget policies and about Hungary' inflation outlooks.

2. Internet Banking seminar

The Association launched a series of lectures on Internet banking in Hungary. At the session held on October 16, presentations were offered on the role of the Internet, Internet using habits in Hungary and the market-shaping impacts of Internet banks. In his introductory lecture, Tibor Dessewffy, sociologist, reviewed the questions how and by whom the Internet is used in Hungary, including Hungary's position in terms of Internet use internationally. The lecture also addressed the question to what extent users feel their private data compromised and how politics or government actions can be influenced through communications over the Internet. International comparison reveals that although the number of Internet users grew significantly over the past few years, the number of households with Internet access was only 8% in 2002; consequently, there is still a considerable growth potential in the area of Internet use in Hungary.

Kálmán Kovács, Minister of Informatics and Communication gave an overview of the Government's IT vision and strategy and Hungary's current Internet coverage. He emphasised that 2003 was a turning point, since up to 2002 Hungary ranked among the last in the OECD's survey on Internet use. 2003 saw a significant increase exceeding the EU average in the number of broadband Internet users, partly due to the Government's objective to promote Internet use at large under its Europe Plan by supporting PC purchases, cutting Internet charges by 25% and promoting the development of broadband Internet networks through tax allowances. Social programmes focused on selected target groups were introduced in 2003 within the framework of the John Neumann Year (digital education material, "intelligent settlement", programmes for disabled, minority and elderly users, etc.). The programme was accompanied by the strategy named Successful Nation, also known as Key Central Programs (MITS), with branch and IT sub-strategies under the National Development Plan. Particularly important sub-strategies in the MITS programmes for the banking sector are: electronic signature, smart cards and security enhancement. Banks play a key role in promoting the use of cards. The use of multi-application cards can also create the conditions for cooperation between the administrative and banking sectors. The government's long-term plans include the creation of a single-window electronic service for the management of affairs and payments with central government agencies through the government portal. For this, a cooperation framework with banks is to be established.

A lecture on internet-based administration and public services was offered by Antal Bódi, Head of Kopint Datorg's Government Portal Division, presenting how the "provider state" is able to meet the challenges of the era through the Internet. Information, interaction and transformation are key elements in Internet-based government services. The Government Portal enables government agencies to maintain regular communications with citizens and other organisations. The Portal is also a forum for opinions and comments. Developing the e-Government Strategy and Programme Plan for 2005 is a key task for the coming period. In this, the Comprehensive EU Integration Programme will play an outstandingly important role.

In her lecture entitled Internet Banks in Hungary, Mariann Divinyi Mészáros, Division Head of Inter-Európa Bank, reviewed, based on Inter-Európa Bank's experience, the history of Internet banking services in Hungary, evolution of the number of customers, potential target groups, needs and requirements of old and new customers, customers' Internet banking habits and customer aspects taken into account in banks' development plans.

Ádám Lovastyik, Director of HBW Express Savings Co-Operative talked about the market-shaping impacts of Internet banking, focusing on current problems and teething troubles and technological development prospects.

Ákos Kadlecovits, Head of Department, CIB Bank, addressed issues related to the future, trends and prerequisites for a large- scale use of Internet banking, including potential growth areas and the relevant development strategies. This lecture was also a kick-off for the afternoon workshops, where banking professionals presented their own experience, problems and development ideas. It was proposed that banks as a community should coordinate their strategies to be able to respond to the government's requirements and ensuing tasks.

3. Bank Card Forum

The Bank Card Forum held its next scheduled meeting on October 20, 2003, with the participation of 26 professionals from member banks.

Lectures were offered by Dr István Varga, Head of the Consumer Protection Department of the Hungarian Financial Supervisory Authority and István Prágay, Head of the Payments, Emmission Regulation and Organisation Department of the National Bank of Hungary (MNB).

Dr István Varga reviewed the regulations affecting the financial sector in connection with Hungary's accession to the EU. Bank card and consumer protection regulations and the relevant EU institutional systems were addressed in details. (Information and documents related to the financial sector are available on the Internal Markets DG's home page). Other items covered included consumer protection strategies applied by the EU and those followed by the Hungarian Financial Supervisory Authority, the need for a standard legal framework, FIN_NET (a forum for settling cross-border financial disputes) and the plan of establishing a common telephone line for bank card cancellation. Problems related to interconnecting debtor databases were also addressed.

István Prágay gave an overview of the adoption of EU financial recommendations, guidelines and directives, emphasising that effective from May 2004, EU financial regulations will be automatically adopted in the relevant Hungarian legislation. He also gave a detailed presentation about the 8 recommendations drafted by the European Payment Council with a view to developing a Single Payment Area. The Association's Secretary-General and Mr Prágay were invited to attend the October 30-31 meeting of the Council.

The Council has the following objectives:

• protection against fraud,
• open competition in promoting the use of bank cards in the European market,
• coherent regulation,
• promoting the standardisation of authorisation, clearing and terminal specifications.

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