Hungary -- Stablecoin Regulations Regulatory Overview

Hungary, as a member of the European Union, falls under the regulatory umbrella of EU-wide legislation. The most significant and comprehensive regulatory framework for stablecoins and other crypto-assets is the Markets in Crypto-Assets Regulation (MiCA) (Regulation (EU) 2023/1114). MiCA came into force on 29 June 2023, with rules for stablecoins (Asset-Referenced Tokens and Electronic Money Tokens) applying from 30 June 2024.

Before MiCA's full application, the regulatory landscape for stablecoins in Hungary was less specific, often relying on existing financial services laws if a stablecoin could be shoehorned into definitions like e-money or securities. However, MiCA now provides a dedicated framework.

Here's a breakdown of the regulatory framework for stablecoins in Hungary, primarily through the lens of MiCA, along with relevant national legislation and the role of the Magyar Nemzeti Bank (MNB - Hungarian National Bank):

Regulatory Framework for Stablecoins in Hungary (Post-MiCA)

1. Classification of Stablecoins

MiCA introduces specific classifications for stablecoins:

• Electronic Money Tokens (EMTs): These are crypto-assets that purport to maintain a stable value by referencing the value of one official currency (e.g., a token pegged 1:1 to the Euro).
  • Regulatory Treatment: EMTs are largely regulated as electronic money under MiCA, which builds upon the existing Electronic Money Directive (EMD2) (Directive 2009/110/EC) but with additional specific requirements for crypto-assets.
• Asset-Referenced Tokens (ARTs): These are crypto-assets that purport to maintain a stable value by referencing any other value or right, or combination thereof, including one or several official currencies that are not legal tender, one or several commodities, or one or several crypto-assets. (e.g., a token pegged to a basket of currencies or commodities).
  • Regulatory Treatment: ARTs have their own specific regime under MiCA, often with more stringent requirements than EMTs due to their potential for broader systemic impact.

Pre-MiCA Context: Before MiCA, the MNB might have assessed stablecoins on a case-by-case basis. If a stablecoin functioned like e-money, it could have fallen under Hungary's Act CCXXXV of 2013 on the provision of payment services (2013. évi CCXXXV. törvény a fizetési szolgáltatásokról), which transposes EMD2. If it granted rights akin to securities, it could have been subject to Act CXX of 2001 on the Capital Market (2001. évi CXX. törvény a tőkepiacról), transposing MiFID II. MiCA clarifies this significantly.

2. Reserve Requirements

MiCA mandates strict reserve requirements for both EMTs and ARTs:

• For EMTs:
  • Issuers must hold 1:1 backing for all outstanding EMTs in highly liquid, low-risk assets denominated in the referenced fiat currency.
  • These reserve assets must be segregated from the issuer's own operational funds.
  • A significant portion of the reserve assets must be deposited at credit institutions (banks).
  • Issuers must have a clear redemption policy and provide transparency on the composition of the reserve assets.
• For ARTs:
  • Issuers must hold reserve assets that are fully backed and segregated from their own assets.
  • The reserve assets must be held in a way that minimises exposure to market risk and credit risk.
  • There are detailed rules on the composition and custody of the reserve assets, depending on what the ART references.
  • The MNB (as the competent authority) will supervise these requirements for Hungarian issuers.

3. Issuer Licensing

MiCA requires authorization for issuers of both ARTs and EMTs:

• Issuers of ARTs: Must be a legal entity established in the EU and obtain authorization from their national competent authority (the MNB in Hungary). This authorization process involves detailed requirements regarding governance, capital, operational resilience, and business plans.
• Issuers of EMTs:
  • Must either be a credit institution (bank) or an electronic money institution (EMI) authorised under EMD2 (and thus under Hungary's Act CCXXXV of 2013) that also obtains an additional MiCA authorization.
  • The MNB will be the competent authority for authorising Hungarian entities.

Reference:

• MiCA Regulation (EU) 2023/1114: Articles 16-20 (ARTs), Articles 48-52 (EMTs).
  • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023R1114
• Magyar Nemzeti Bank (MNB): The MNB is the primary financial supervisor in Hungary. Its website provides information on its supervisory activities and expectations for innovative financial services.
  • URL: https://www.mnb.hu/en

4. Redemption Rights

MiCA grants clear redemption rights to stablecoin holders:

• For EMTs: Holders have a direct contractual claim against the issuer and have the right to redeem the token at par value from the issuer at any time.
• For ARTs: Holders also have a direct claim against the issuer and the right to redeem their ARTs at market value (based on the referenced assets). The issuer must establish and disclose clear redemption policies.

5. Algorithmic Stablecoin Rules

MiCA specifically addresses algorithmic stablecoins:

• Algorithmic stablecoins that do not maintain stability through collateral (but rather through an algorithm that aims to maintain a stable value, often by burning/minting tokens) are effectively prohibited from being issued in the EU.
• MiCA states that any crypto-asset that "purports to maintain a stable value by referencing another value or right or a combination thereof" is an ART or EMT. If it fails to meet the stringent reserve and backing requirements for ARTs/EMTs, it cannot be issued. This implicitly targets unbacked algorithmic stablecoins.

Reference: MiCA Regulation (EU) 2023/1114, Articles 3(1)(6) and 3(1)(7) for definitions, and the general requirements for ARTs/EMTs that necessitate full backing.

6. CBDC Interaction

The MNB, like other central banks in the Eurosystem, is actively researching and monitoring the developments regarding Central Bank Digital Currencies (CBDCs), particularly the Digital Euro project led by the European Central Bank (ECB).

• MNB's Stance: The MNB has expressed interest in the potential benefits of a CBDC, including its role in enhancing payment system efficiency, financial innovation, and preserving the role of central bank money in the digital era. They are a participant in the broader Eurosystem discussions.
• Interaction with Stablecoins: A Digital Euro, if launched, would represent a risk-free, central bank-issued digital currency. This would coexist with regulated stablecoins (ARTs and EMTs) which are issued by private entities and carry credit and liquidity risks. The presence of a CBDC could:
  • Provide a highly trusted digital payment alternative.
  • Potentially reduce the demand for privately issued stablecoins, especially those used for general payments, by offering a superior, risk-free option.
  • Serve as a benchmark or anchor for private stablecoins, which could be traded against it or even use it as a reserve asset in some future scenarios.

Reference:

• MNB on the Digital Euro: The MNB has published its views and analysis on the Digital Euro.
  • URL: https://www.mnb.hu/en/the-m-nb/the-mnb-s-view-on-the-digital-euro

Key Hungarian Legislation (Pre-MiCA foundation, now supplemented by MiCA)

While MiCA is directly applicable, the MNB will be the national competent authority responsible for its implementation and supervision in Hungary. Existing Hungarian laws provide the foundation for financial supervision and will integrate with MiCA.

• Act CCXXXV of 2013 on the provision of payment services (2013. évi CCXXXV. törvény a fizetési szolgáltatásokról): This law transposes the Electronic Money Directive (EMD2) and the Payment Services Directive (PSD2) into Hungarian law. It defines electronic money, sets out licensing requirements for e-money institutions, and governs payment services. EMT issuers under MiCA will largely build upon this existing framework.
  • URL (Hungarian): https://jogkodex.hu/jsz/2013-ccxxxv-tv-a-fizetesi-szolgaltatasokrol-es-az-ezekkel-ossze-fugg--torvenyek-modositasarol/
• Act CXXXIX of 2013 on the Magyar Nemzeti Bank (2013. évi CXXXIX. törvény a Magyar Nemzeti Bankról): Defines the MNB's mandate, including financial stability, supervision, and monetary policy.
  • URL (Hungarian): https://jogkodex.hu/jsz/2013-cxxxix-tv-a-magyar-nemzeti-bankrol/
• Act CXX of 2001 on the Capital Market (2001. évi CXX. törvény a tőkepiacról): This law transposes MiFID II and other EU securities legislation, governing financial instruments, public offerings, and investment services. While MiCA now provides the specific framework for stablecoins, this act remains relevant for traditional financial instruments.
  • URL (Hungarian): https://jogkodex.hu/jsz/2001-cxx-tv-a-tokepiacrol/

Conclusion:

The regulatory framework for stablecoins in Hungary is, starting from June 2024, primarily defined by the EU's MiCA Regulation. This comprehensive framework classifies stablecoins into EMTs and ARTs, imposes strict reserve requirements, mandates issuer licensing by the MNB, grants clear redemption rights, and effectively prohibits unbacked algorithmic stablecoins. The MNB will act as the national competent authority, integrating MiCA's requirements into its existing supervisory practices, while also actively engaging in the broader EU discussion around CBDCs like the Digital Euro.