NCEffective Insolvency and Creditor Rights Systems
In 2003, the European Bank for Reconstruction and Development (EBRD) conducted an assessment of Hungary's insolvency legislation based on the 1991 Bankruptcy Proceedings, Liquidation Proceedings and Member's Voluntary Dissolution Act as amended to that date. Drawing on that survey, R. Harmer and N. Cooper reported that Hungary had achieved only "low" overall compliance with the international standards on insolvency developed by a number of international organizations, including the World Bank. The key weaknesses comprised an unclear definition of insolvency, lengthy commencement procedures, treatment of secured creditors, and shortcomings in the reorganization process. Subsequently, based on changes introduced in 2006 to the basic insolvency law, a 2006 EBRD survey raised Hungary’s overall compliance rating to "medium.” Citing the results of this survey, a subsequent 2008 EBRD report titled “Commercial Laws of Hungary” acknowledged the improvements in the legal framework for secured creditors and commencement of the proceedings. However, it was pointed out that significant weaknesses in the Hungarian insolvency legislation persisted regarding the reorganization process and the definition of insolvency, among other issues. It was also mentioned that amendments beyond those made in 2006 are reportedly in progress, but have still to be introduced. Overall, the EBRD concluded in 2008 that major problems in the content of the law and its implementation continue to hinder the introduction of a modern insolvency regime in Hungary.
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NCInternational Financial Reporting Standards
The Hungarian accounting framework is primarily governed by the Act on Accounting, which includes the Hungarian Accounting Standards (HASs). The HASs, according to a 2004 World Bank assessment of accounting and auditing practices in Hungary, differ from the International Financial Reporting Standards (IFRSs), despite significant efforts at harmonization. Being a European Union member, Hungary complies with the European Commission (EC) Regulation No. 1606/2002, which requires the application of IFRSs in the preparation of consolidated financial statements of listed companies. The 2008 EC report on the implementation of Regulation No. 1606/2002 points out that Hungary permits application of IFRSs in consolidated accounts of all entities within the scope of the Act on Accounting, but not in the annual accounts. The use of IFRSs in the annual accounts is allowed for informal purposes only. In this regard, the 2004 World Bank assessment recommended adoption of IFRSs for all public interest entities in the country. As far as convergence of HASs with the international standards is concerned, a 2009 PricewaterhouseCoopers publication indicated that no such plans have been announced.
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ENPrinciples of Corporate Governance
In its 2003 Corporate Governance Sector Assessment Project, the European Bank for Reconstruction and Development (EBRD) observed that corporate governance legislation in Hungary is in "high compliance" with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. A World Bank assessment conducted the same year confirmed that the Hungarian regulatory and legislative framework with regard to corporate governance is "robust." Two more EBRD reports published in 2008 strike a similar note, finding that Hungarian capital market and corporate governance frameworks are in line with best international practice. Nonetheless key deficiencies identified by the reports remain, especially regarding the enforcement of corporate governance provisions. For instance, per the EBRD reports, while minority shareholders receive equitable treatment, the enforceability of minority shareholders rights, related party transactions and efficiency of redress actions are areas of particular concern. In its more detailed analysis in 2003, the World Bank pointed out weaknesses in the role and functioning of the supervisory board and in share registration. Some of these issues have since been addressed. According to a 2007 EBRD report, significant corporate governance legislation was enacted in 2006 and 2007. Most importantly, a new Companies Act has been introduced. Also, the Budapest Stock Exchange updated a non-binding guide on Corporate Governance Recommendations in 2008, which takes into consideration the OECD principles and European Commission regulations.
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ENInternational Standards on Auditing
According to a 2009 KPMG report, the Chamber of Hungarian Auditors (MKVK) started adopting International Standards on Auditing (ISAs) as early as 1999. Individual ISAs were introduced over a period of three years, and auditors were expected to comply with the international standards beginning on January 1, 2001. In an assessment of accounting and auditing practices conducted in 2004, the World Bank confirmed that the MKVK had adopted almost all ISAs existing at the time as Hungarian Standards on Auditing (HSAs) and was in the process of adopting new standards published by the International Auditing Assurance Standards Board (IAASB). The 2008 MKVK self-assessment also states that Hungarian law encloses the full text of the IAASB pronouncements and that all ISAs in effect as of 2006 had been adopted and subsequent amendments to the international standards had been incorporated. More recently, in its Action Plan prepared in 2009 for the International Federation of Accountants, the MKVK stated that it will continue to translate new and revised ISAs and make them publicly available, inform members about auditing developments, and revise educational programs to make sure that the most recent pronouncements are included in the curricular.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
The International Monetary Fund (IMF) conducted a detailed assessment of Hungary's compliance with the Financial Action Task Force's (FATF) 40 recommendations and 9 special recommendations on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and released its findings in a 2005 report. The report concluded that the country was fully or largely compliant with 38 of the FATF's 40 recommendations (R) and 9 special recommendations (SR). The country was not however fully or largely compliant with all the core requirements as stipulated by the FATF. In fact, the country was deemed only partially compliant with R 13 and SR II and non compliant with SR IV. Following the 2005 IMF report, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), released two follow up reports in 2006 and 2008. These reports however, do not provide compliance levels based on their updated information. According to the 2008 MONEYVAL progress report, Hungary has adopted an Action Plan in order to facilitate the implementation of the recommendations put forward by the 2005 IMF detailed assessment. Hungary has also passed the 2007 Act on the Prevention and Combating of Money Laundering and Terrorist Financing, which transposed the Third European Union (EU) Money Laundering Directive into Hungarian Law requiring all EU member countries to implement FATF Recommendations. The Act is expected to remove major shortcomings highlighted by the 2005 detailed assessment, including gaps in the CFT legal framework and implementation shortcomings in the AML regime in Hungary. A 2007 IMF report also notes that since the 2005 IMF detailed assessment, Hungary has made further progress in improving its AML/CFT regime. The FATF, in its 2008-2009 Annual Report, named Hungary as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.
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FCCore Principles for Systemically Important Payment Systems
In 2002, when the International Monetary Fund (IMF) conducted an assessment of the payment systems in Hungary, it considered three systems: the large-value payment system (VIBER), the retail payment system called the Interbank Clearing System (ICS), and the securities settlement system (KELER). All three were deemed systemically important payment systems (SIPS) by the assessors. According to more recent information provided by the Hungarian National Bank (Magyar Nemzeti Bank, or MNB) in its 2007 Report on Financial Stability and its 2008 Annual Report (published in 2009), these systems continue to be the prominent players in Hungary's payment infrastructure. The 2009 Report on Financial Stability notes that all three SIPS functioned well through the recent global financial crisis maintaining sufficient liquidity. The 2007 European Central Bank (ECB) report on payment systems in non-Euro countries also describes ICS as a SIPS. VIBER, as the large-value payment system in the country, is of systemic importance by default. The 2002 IMF report concluded that VIBER and ICS comply with the Core Principles for Systemically Important Payment Systems (CPSIPS) as defined by the Committee on Payment and Settlement Systems (CPSS). The only deficiency recorded was with KELER, which does not fall under the purview of this standard. Furthermore, the 2002 IMF report indicated that the MNB complies with all its payment system oversight responsibilities. VIBER is a real-time gross settlement (RTGS) system and, according to the MNB's 2008 Annual Report, it accounts for the largest volume of payment transactions in the country. In its 2002 report, the IMF noted that the legal basis for the payment and settlement systems in the country is provided in the Central Bank Act. According to the ECB report, the Act gives the MNB the legal authority to establish payment systems and to oversee and monitor payment and securities clearing and settlement systems. Two separate World Bank reports from 2008 addressed Hungary’s compliance with CPSIPS, and labeled Hungary’s payment systems as having a “high” or “medium high” level of development.
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