Hungarian Central Bank Reveals Cracks In EU Passporting Regime As Fintechs Grow

October 4, 2021
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The Hungarian central bank has issued a press release about Revolut which suggests that fintechs can only fully rely on the EU passporting system as long as they have a limited presence in a “host state.”

The Hungarian central bank has issued a press release about Revolut which suggests that fintechs can only fully rely on the EU passporting system as long as they have a limited presence in a “host state.”

Last week (September 28), the Hungarian National Bank (MNB) issued a press release warning customers that the London-based payments provider does not have a branch in the country and is not licensed by the Hungarian central bank.

Expressing prudential concerns and a desire to protect customers from sharp practice, the MNB said that it would “welcome” Revolut’s establishment of a subsidiary bank in Hungary under its direct supervision.

The MNB noted that, in addition to payment services, Revolut Bank will also lend money and take deposits.

According to Forbes, the fintech giant’s value has grown by 500 percent since it hit $5.5bn in February last year.

If a payments provider that relies on the EU passporting regime grows too big, it may have an effect on the host state’s financial stability and the way in which its regulators protect customers. That is the case in Hungary, as well as in any other host states, Gergely Szalóki, a partner at Schoenherr law firm in Hungary, told VIXIO.

When it performs services in Hungary and elsewhere in the European Union, Revolut relies on its Lithuanian licence and the EU’s passporting regime.

The passporting system is built on the assumption that the same standards apply to banks and financial service firms that are licensed to operate anywhere in the EU or European Economic Area and that the EU’s national governments should treat them as if they themselves had authorised them. These passports are the foundation of the EU single market for financial services.

The MNB is reminding the public that Revolut obtained its licence in Lithuania and, because of this, Hungarian authorities do not supervise it. Consumers in Hungary, and in other EU states, are therefore required to reach out to the Lithuanian authorities in the event of any dispute or complaint against the fintech company.

As a host state, the MNB has limited power to force the company to obey its country’s laws.

In the absence of any law that allows the host state to bring the company under its direct supervision, the central bank can only send it gentle requests.

By doing so, the MNB is taking the same course as it did before when it suspected that Revolut was in breach of Hungary’s consumer protection laws, Szalóki added.

Cross-border payment providers can rely on the passporting system, but they can do so only to a certain extent, he said, adding that once their presence reaches a certain size, the host states are bound to argue that they should license and supervise them directly themselves.

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