New Regulation for Consulting

In October 2024, the Hungarian government implemented a new regulatory framework governing cryptocurrency advisory services. This legislation, detailed in the “Magyar Közlöny” (the official Hungarian gazette), introduces several significant changes aimed at increasing the oversight of crypto advisors.

While these changes are designed to enhance consumer protection, they also raise concerns about accessibility, enforcement.

Key Provisions of the New Regulation

The new decree stipulates that anyone offering cryptocurrency advisory services must have at least one year of relevant professional experience in the financial, insurance, or cryptocurrency sectors. Additionally, advisors must hold specific qualifications, such as a university degree in IT, economics, or law, or a professional certification in investment products​ (BitcoinBázis). This marks a significant shift from previous, more flexible requirements.

Furthermore, the regulation mandates strict compliance with anti-money laundering (AML) and know-your-customer (KYC) protocols. This is intended to safeguard against illicit activities like money laundering and terrorism financing. The Hungarian National Bank (MNB) is tasked with overseeing compliance, and failure to meet these new standards could result in penalties, including the suspension of advisory licenses​​ (Daily News Hungary).

Advantages of the Regulation

The primary benefit of the new regulation is enhanced consumer protection. By requiring advisors to have both professional experience and relevant qualifications, the government is attempting to ensure that only those with sufficient knowledge of the financial markets and digital assets can provide advice. This could help mitigate the risks associated with investing in cryptocurrencies, which are often highly volatile and susceptible to market manipulation​.

Additionally, the regulation aligns Hungary’s crypto advisory sector with the broader EU regulatory framework under MiCA. This harmonization will likely reduce legal uncertainty and make Hungary more attractive to international investors and companies operating in the crypto space, who may view the country’s clear legal guidelines as a favorable environment for conducting business​.

Problems and Challenges

Despite its benefits, the new decree presents several challenges. One key issue is the potential barrier to entry for smaller or independent crypto advisors who may not have the formal qualifications or the requisite one year of professional experience in the specified fields.

Another problem is the burden placed on regulators like the MNB. As the cryptocurrency industry continues to grow rapidly, the MNB will face increasing pressure to enforce compliance effectively. Ensuring that all advisors meet the new standards will require significant resources, and it remains to be seen whether the MNB has the capacity to manage this growing sector​.

Moreover, the regulations may inadvertently encourage some advisors to operate informally or in the grey market to avoid the stringent licensing and qualification requirements. This could undermine the government’s efforts to professionalize the industry and may expose consumers to even greater risks if they turn to unlicensed advisors operating outside the regulatory framework.​

Finally, there are concerns about the pace at which the regulation was introduced. The decree came into effect just eight days after its publication, giving advisors little time to adapt to the new requirements. This sudden implementation could create disruptions in the advisory market, with some professionals potentially having to pause their services while they acquire the necessary qualifications or experience​.

Conclusion

Hungary’s new regulation on cryptocurrency advisory services reflects the government’s commitment to aligning its financial system with international standards while ensuring greater consumer protection. By requiring advisors to have specific qualifications and experience, and mandating strict compliance with AML and KYC protocols, the regulation seeks to professionalize the industry and reduce risks associated with cryptocurrency investments.

However, these changes also present challenges, particularly for smaller advisors and the regulatory authorities tasked with enforcement. As Hungary moves forward with its crypto regulation, it will need to strike a balance between safeguarding the market and fostering innovation, ensuring that the country remains an attractive destination for both investors and entrepreneurs in the rapidly evolving digital asset space​ (GLI)​


Comments

Leave a Reply

Your email address will not be published. Required fields are marked *