In recent years the EU has adopted several directives that both aim to increase transparency in companies and help “clean up” the countries’ economies. Hungary was one of the last European countries to adopt a law establishing a register of ultimate beneficial owners (UBO register). Ultimate Beneficial Owners (UBO) are individuals who benefit from a company even though they are not formally named as the owner of the business. The EU legislation on anti-money laundering and counter terrorist financing imposes obligations on Member States to identify UBOs. The Hungarian Parliament passed Act XLIII of 2021 (Act), which entered into force on 22 May 2021, introducing the rules for the establishment and operation of a UBO register.
Under Hungarian law all companies are required to have a bank account, and the new Act required payment service providers (Account Managers) to upload all available information into the UBO register by 12 June 2021 (First upload), on the legal entities and UBOs for which they hold accounts. The UBO Register will work as a central database and will be managed by the Hungarian Tax and Customs Administration. It is important to highlight that after the First upload, regular data uploading by the Account managers started on 1 October 2021.
The provision of UBOs’ data to the Account Managers is the obligation and responsibility of legal entities registered in Hungary and of the fiduciary asset managers (Data Providers). They are obliged to keep records of the data on their UBOs, to update such data and notify the Account Managers of any changes to the data within 15 days.
The question arises as to who has access to the register and in what form:
1. From 1 August 2021, Data providers and UBOs have free access to the data stored.
2. From 1 February 2022, authorities, public prosecutors, courts, and supervisory authorities also have access to all data stored in the register free of charge, without prior notice. According to the current rules the Hungarian UBO register will be linked to the UBO register of other EU member states by February 1, 2023, so the parties are able to transmit the UBOs’ data to public authorities, prosecutors, courts, and supervisory authorities of other EU Member States and at the same time they will have access to the UBO register of other member states. The stored data may also be transferred to a third country, but the implementation of this rule will be developed in the future. A similar rule applies to service providers (such as law firms) subject to the Prevention of Money Laundering Act, which may also have free access to the data stored in the register for the purposes of anti-money laundering screening (ALM screening).
3. From 1 July 2022, third parties will have access against the payment of a fee and in a manner determined by the registry.
When the first data is provided, the affected organisations will receive a national registration number and they will be ranked on a scale of 1-10, namely the so-called “TT index”. The “TT index” is an indicator of the level of reliability of the UBOs’ data. After the first data upload, each company will be granted 10 “TT index” points.
Discrepancies can be reported from 1 February 2022, as follows:
- Public authorities, prosecutors, courts, and supervisory bodies may report to the registry if they detect a discrepancy in the UBOs’ data. In this case, the TT index is reduced by 2 points.
- If a service provider subject to the Prevention of Money Laundering Act (with the exception of the Account Managers), discovers a discrepancy during ALM screening, it must notify the UBO registry within 5 working days. In the case of reported discrepancies the value of the TT index will be reduced by 1 point.
If the TT index falls below 8 points, the Data provider’s UBOs’ data is classified as ‘uncertain’. If it falls below 6 points, it is classified as ‘unreliable’. In these cases, the UBO registry will notify the Data provider within 5 working days, which will have the opportunity to modify or confirm the data.
The legal consequences arising from the above categories will apply from 1 July 2022.
- If an entity is categorised as “unreliable”, the name, tax number and classification of the entity will be published on the National Tax and Customs Administration website immediately.
- If it is labelled “uncertain”, the same applies if this classification persists for 180 days.
- In addition, Data providers with ‘unreliable’ rating must be subject to a high-risk level ALM screening. A further legal consequence of such rating is that service providers have to refuse to execute a transaction exceeding the value of HUF 4,500,000.
Patrik Zsolt Kovács