With regard to the activities of investment firms and commodity exchange service providers, the Act on Investment Enterprises and Commodity Exchange Service Providers applies a complex regulation which is in line with Community provisions. Accordingly, in addition to the definition of investment services and the complementary services thereof, and the determination of the material, technical, organisational and personnel conditions, the aforementioned act contains detailed rules for permissions, the informing, rating and classification of customers, contracting, the fulfilment of orders, outsourcing, risk management and responsibilities, transparency before and after trading and the transfer of portfolios. The provisions for multilateral trading systems and regular internalisation form a special part of same act.

According to the Act on Investment Enterprises and Commodity Exchange Service Providers, investment services can only be provided by investment firms, credit institutions and – with certain restrictions – mutual fund managers. The Supervisory Authority’s permission is necessary for this activity. The complementary services can only be performed by investment firms with a licence for investment services, with the exception of KELER Zrt. which functions as a central clearing house and depository. If the enterprise is domiciled in a EEA member state, the licence issued by the supervisory authority in the jurisdiction where the enterprise has its registered office is also valid for the area of the rest of the member states where the activity is only tied to a preliminary notification. An investment firm with a registered office in a third country and a licence from the supervisory authority as per the firm’s registered office can provide investment services through a branch to which the general rules apply.

The capital requirement for starting the investment firm activity changes according to the type of the activity for which the operating licence was requested and based on whether the customers’ financial assets and cash will be managed or not during the activity. Compared to the previous regulation, it is now possible for the start-up capital requirement to be replaced with a liability insurance if it is valid for the whole territory of the European Economic Area.

In order to obtain the complete licence, which gives permission for the performance of all activities, EUR 730,000 is required, while in the case of accepting and forwarding customer orders in respect of financial assets and for providing investment consulting services, the licence can be obtained with a start-up capital of EUR 50,000 if the investment firm will not be licensed to manage the customer’s financial assets and cash. If the investment firm wishes to obtain a licence for accepting and forwarding orders, for performing orders for the client and for portfolio management, and wants to be licensed for the management of the clients’ financial assets and cash, the start-up capital must be at least EUR 125,000. If it wishes to obtain a licence for the aforementioned activities, yet it does not want to be licensed to manage the client’s financial assets and cash, the start-up capital requirement is a minimum of EUR 50,000.

The so-called a) and b) type categorisation of agency activities as per the CMA was discontinued; the Act on Investment Firms and Commodity Exchange Service Providers introduces the intermediary category instead. A tied agent or an investment firm can act as an intermediary. In the case of investment services, a tied agent can only be connected to one investment firm, as long as this restriction is not applicable for investment firms. Only persons or enterprises included in the relevant records of the Supervisory Authority can act as tied agents; these may also be natural persons. The investment firm is fully responsible for the activity of the tied agent.

The Act on Investment Firms and Commodity Exchange Service Providers requires the establishment of new internal organisational units and positions; these are actually already in use by bigger enterprises. Such organisational units are the internal control unit (with the internal auditor as its head), the risk management organisational unit and the compliance officer.

What is new is that investment consulting services will now be included in investment services (previously it was a complementary service), which means their acknowledgement as independent services, ensuring investors the enforcement of stricter regulations on activities, the provision of information and other rules protecting them. Seemingly, it is a change that commission activities as per the CMA are omitted from investment services, but in terms of contents, such are covered when “accepting and forwarding orders” and “the fulfilment of orders for clients” are performed in parallel with each other. In the course of the activities of the market players, these two basic elements of the commission activities can be separated from each other; therefore, the act describes such as independent activities. Investment analysis and financial analysis appear as two new elements among services complementing investment services.

Investment service providers are obliged to inform their clients of the risks assumed and to explore the risk assumption capabilities of their clients. The rating and classification of clients, which determine the treatment of clients, are performed based on the appropriate application of the client-category system and the evaluation of the eligibility and compliance tests completed by the clients. In the case of professional clients and acceptable partners, the protection of retail clients is provided for in a more limited way. According to the new regulation, the investment firm has an obligation to give and obtain detailed information. Information must be given for both the period prior to the conclusion of the contract (preliminary information service obligation) and subsequent to the fulfilment of the order (follow-up information service obligation). Compared to the previous regulation, the obligation for the investment firm to obtain information prior to the conclusion of the contract was a serious change. If the investment firm performs investment consulting or portfolio management services, it must perform an eligibility test prior to concluding the framework agreement or the fulfilment of the order. In this test, the firm has to obtain information about the knowledge and practice of the potential contracting party or client and has to judge whether such party or client is able to make an informed decision. The investment firm must also obtain the necessary information in this test about the contracting party’s or client’s purposes and income situation. In the case of other investment services, the aforementioned act defines an obligation to obtain information with a slightly different content (compliance test). Compared to the previous regulation, the mandatory rating of the client is a significant new requirement. This will later differentiate the investment firm’s obligations towards the client  in nearly all aspects during the contractual relationship. Three basic categories can be formed: the retail client, who should receive most of the attention and the most detailed information, in whose case, the obligation to obtain information is the most sophisticated; the professional client, who does not need detailed information or tests, either; and finally, the acceptable partner, who can essentially be treated by the investment firm as an equal partner.

In terms of concepts, the expressis verbis appearance of the “most favourable fulfilment” principle from the client’s perspective, is a change in the Act. Despite its slightly misleading name, the principle is about consistent compliance with the carefully compiled execution policy. Its scope for action, however, is narrowed with the framework of the Act. The places of the fulfilment of the various transactions must be listed in the execution policy; during the fulfilment of a specific order and in the case of several places of fulfilment, the current proposals must be compared to each other and the one which is the most favourable for the client should be applied.