Securitisation 2022

Last Updated January 13, 2022


Law and Practice


Gárdos Mosonyi Tomori Law Office is a Budapest-based law firm with 20 lawyers. It is a member of Advoc (, a leading network of independent law firms, which enables it to easily work in international deals and to ensure that clients receive first-class service abroad as well as domestically. Banking and finance and capital markets have been the two major areas of focus for the firm since its foundation. Recent highlights include advising solar power company NAP Nyrt on its listing on the Budapest Stock Exchange. The team regularly provides legal assistance to companies in relation to securities issuances, both public and private, and advises public companies on corporate matters.

This guide provides an introduction to the Hungarian rules relating to securitisation as of 1 January 2022. However, it is important to note that there is still very limited practice to comment on for two reasons:

  • the number of transactions is very limited, so there is no real market practice to comment on; and
  • the rules are still relatively new, so there are significant uncertainties in relation to their interpretation.

In order to insulate securitised financial assets from the financial risk of the originator, even in the case of the originator’s insolvency, it is necessary for the transfer of those assets to qualify as “true sale” and not as a secured loan.

The most important characteristic of a true sale is that the receivable is transferred to the buyer, so the seller of the financial assets ceases to carry any risk related to the performance of the sold asset – ie, to the solvency of the debtor of the underlying obligation. If the buyer of the asset has a right of recourse (ie, remains entitled to re-transfer the assets and/or to claim payment from the seller) in case of the debtor’s non-payment, the transfer qualifies as a security within the framework of either a factoring or a simple secured loan transaction. Other elements of the transaction that may give rise to the recharacterisation of the transfer as providing security include if the transfer takes place at a price that may not be considered a realistic market price, or if the transferor retains control over the transferred financial assets. As it is possible under Hungarian law to provide receivables as security, recharacterisation does not automatically invalidate the transaction. However, if the receivable is provided as security, it is required under Hungarian law to register the security interest over the receivables. Failure to do so might have various detrimental effects depending on the type of transaction, primarily resulting in a less favourable priority position.

In a true sale, the buyer is not considered a creditor, and the transferred assets are protected from any claims of the transferor’s creditors. In a secured loan, however, the transferee belongs among the creditors, and the transferred assets form part of the transferor estate, which serves as coverage of its debts, although the transferor as a secured creditor (if all the perfection requirements have been met) enjoys priority vis-à-vis the ordinary creditors.

If the transferor becomes insolvent following the transfer, those assets that are the subject of a true sale do not become part of the insolvency estate, nor will the transferee’s rights relating to those assets be in any way affected by the commencement of the insolvency procedure. However, those assets that serve as security become part of the estate; with the exception of certain specific forms of securities, the creditor will cease to be entitled to exercise any of its rights relating to the collateral. From the beginning of the insolvency procedure, only the insolvency officer may sell or otherwise deal with any assets of the insolvent debtor; secured creditors only have the right to receive disbursement from the proceeds of the sale of assets that serve as security of their claims. If these proceeds do not cover the full amount of the secured creditor’s claim, the uncovered part will be treated as an unsecured claim, and the creditor will receive proportionate disbursement together with the ordinary creditors.

It is normal practice to obtain an opinion of counsel to support the bankruptcy remoteness of the transfer. If the transfer meets the requirements of a true sale, the counsel will be able to opine that the insolvency of the transferor shall not affect the transferee’s rights with respect to the transferred assets without significant qualifications (ie, the opinion should only be qualified by the usual reservations relating to the operation of law in general).

If the originator becomes insolvent, then fraudulent, undervalued and preferential transactions concluded within the suspect period of five years, two years or 90 days (respectively) can be challenged by the insolvency officer. The insolvency remoteness of the transferred assets can thus be achieved, in addition to meeting the relevant perfection requirements, by making sure that the transaction is concluded at market value and on arm's-length terms.

Hungarian law does not contain special rules on SPEs that would help to make the transferred financial assets bankruptcy remote. Still, the parties may decide to set up an SPE, in which case it is primarily the directors’ responsibility to make sure that the SPE is operated on a solvent basis, meeting its obligations as they become due. Otherwise, enforcement and insolvency procedures may be initiated against the SPE. The primary way to maintain solvency is to limit the scope of the SPE's activities to securitisation transactions, and to make sure the SPE uses any amount repaid by the debtors of the transferred receivables solely to perform obligations arising from the securities issue. The constitutional document of an SPE (articles of association or deed of foundation) must designate the primary activity of the company. However, ultra vires restrictions do not apply, so any restriction provided for by the SPE’s constitutional documents does not have effect against third parties.

In order to help the insolvency remoteness of the SPE, securitisation might be the exclusive activity of the company (securitisation special purpose entity or SSPE), and it cannot pursue activities or undertake obligations that would entail obligations beyond those undertaken in relation to securitisation.

In the case of the bankruptcy of the seller, the assets of the SSPE cannot be used by the seller's creditors. If the SSPE issues securities in several tranches, an investor of tranche “A” cannot seek enforcement from receivables in tranche “B”. The same applies in the bankruptcy of the SSPE. The bankruptcy administrator may transfer all contracts of the SSPE as a portfolio.

Financial assets like claims arising from a loan and other receivables are usually transferred by assignment. In order to effectuate a transfer, the assignment has to have a legal cause. The two typical legal causes are sale and purchase, and providing security. In the first case, the seller assigns the claims for consideration permanently, while in the latter the claims are transferred merely as security. Recourse factoring belongs to this second group: the factor provides a loan to the assignor, and accepts that repayment of the loan will primarily take place through the payment of the assigned receivables by the debtors, provided that the assignor will be obliged to repay the loan if the debtors of the assigned receivables fail to pay.

Unless specifically prohibited by law, existing claims are transferable, with the exception of so-called personal claims which, by their nature, are tied to a specific person. Furthermore, only claims that do not serve as collateral for other transactions can be transferred within the framework of securitisation. Future claims may only be assigned if the legal basis from which the receivable will arise (for example, the loan agreement in the case of loan receivables) already exists at the time of the assignment. Non-assignment clauses are ineffective against third parties; therefore, an assignment will be effective even if it would be a breach of contract between the debtor and the assignor.

Irrespective of the legal causes, the method by which the receivables are transferred is the same: assignment. Assignment is a mere contract between the assignor and the assignee, by which the claim is transferred to the assignee, and thus the obligation arising from the agreement that serves as the legal cause of the transfer (mainly sale and purchase agreement or factoring agreement) is fulfilled.

Although the claim is transferred by the assignment (provided it is based on a valid legal cause), the assignment in itself does not have any immediate effect on the obligations of the debtor. To make the transfer effective against the debtor, the debtor must be notified of the assignment. Such a notification has two important effects: following notification of the debtor, the terms of the receivable cannot be amended, and the debtor can only raise any defence against the assignee and set-off any counterclaim that already existed at the time of receiving the notice.

Following a notice of assignment, the debtor either continues to perform its obligations to the assignor, or performs its obligation to the assignee, depending on whether, in addition to the notice, he or she also received a payment instruction that provides that the performance shall be made to the assignee. If for any reason the debtor performs to the assignor, the assignor shall keep the amount received separate from its own assets, and shall deliver it to the assignee without delay.

If the assignment has been made on the basis of a sale and purchase transaction, no further step is necessary. However, if the claims are transferred in a factoring transaction or otherwise as a security, the factoring agreement or the security assignment has to be registered in the online collateral registry. Lack of registration does not affect the validity of the contract, but the transfer shall not be effective against third parties like the other creditors of the debtor.

Under Hungarian law, securitisation may be achieved by three means: transfer of receivable, novation and declaration of trust. Although legally possible, novation is not used on the market for two reasons. First, it requires a tripartite agreement, which is not convenient in the transfer of a large number of receivables. Second, the consequence of novation is that the security of the receivable ceases to exist. The Civil Code introduced the trust into Hungarian law, but it is not used for securitisation transactions. Therefore, receivables are typically transferred by way of assignment on the basis of a true sale. A sale of receivables requires the agreement of the seller and the buyer; therefore, the debtor is not a party to the agreement. The transfer does not require the notification of the debtor (although notice may serve an important role in securing the buyer’s position) or registration of the transfer in a public registry. Accessory securities (most importantly accessory charge and surety) automatically transfer to the buyer.

Neither value-added tax (VAT), stamp duty, other documentary tax nor registration duty is imposed on the sale of receivables.

SPEs are subject to the general corporate tax, the rate of which is currently 9%. Financial institutions are subject to an extra tax.

Amounts paid in respect of the securitised Hungarian receivables, including default interest paid to a legal entity, will not be subject to withholding tax.

Bilateral agreements on double taxation and the prevention of fiscal evasion may also be relevant.

Hungary has concluded the FATCA Model 1 agreement with the USA. As a result, an SPE may qualify as a reporting financial institution, and will not be subject to withholding under section 1471 of the US Internal Revenue Code if it duly performs its obligations.

SPEs are subject to the general corporate tax, the rate of which is currently 9%.

Amounts paid in respect of the securitised Hungarian receivables, including default interest paid to a legal entity, will not be subject to withholding tax.

Bilateral agreements on double taxation and the prevention of fiscal evasion may apply. Please note that Hungary has concluded the FATCA Model 1 agreement with the USA. As a result, an SPE may qualify as a reporting financial institution, and will not be subject to withholding under section 1471 of the US Internal Revenue Code if it duly performs its obligations.

Neither value-added tax (VAT), stamp duty, other documentary tax nor registration duty is imposed on the sale of receivables. In the case of financial institutions, an extra tax is payable in addition to the corporate income tax.

There is no available practice in this regard to comment on.

No special accounting rules apply to either SPEs or securitisation transactions. EU Regulation (EC) 1606/2002 on the application of international accounting standards (International Accounting Standards Regulation) applies directly to companies that are registered in Hungary. Companies usually prepare their annual accounts in compliance with the national accounting standards. Those that are listed on a stock exchange must prepare their consolidated accounts in compliance with International Financial Reporting Standards (IFRS).

Under national accounting standards, a receivable or other claim that is transferred to a third party buyer so that the right of recourse is expressly excluded shall be removed from the balance sheet of the transferor. If, however, the transferee is entitled to a right of recourse to the transferor (however the parties may designate this right), it qualifies as a contingent liability and in this form remains in the transferor's financial statements.

Lawyers give legal opinions on the existence and/or validity of receivables or claims a party may have. Legal opinions also cover the description and potential outcome of any legal disputes affecting the value of a receivable or claim.

General legislation applies to securitisation transactions and SPEs. The Civil Code regulates the transfer of receivables, other claims and assets, and the rules on assignment also apply to the transfer of receivables in the course of securitisation. Purchasing receivables may qualify as a financial service, and in this case the Credit Institutions Act covers licensing and any other regulatory aspects of the transaction. EU Regulation 2017/1129 (Prospectus Regulation) and the Capital Market Act apply to the issuance of securities.

The Prospectus Regulation and the Capital Market Act distinguish between offerings that require the publication of a prospectus and those that do not. Offerings are not subject to the publication of a prospectus in a limited number of cases – eg, if the security is only offered to qualified investors, or if the security is offered to fewer than 150 investors in a Member State of the European Union. If an offering does not fall under the specific cases listed in the Prospectus Regulation, a prospectus has to be prepared and published.

Under EU Regulation 2017/2402 (Securitisation Regulation), the European Securities and Markets Authority has been mandated with regulating the disclosure requirements. The disclosure obligation under the Securitisation Regulation extends, for example, to information relating to the underlying exposures. The ITS and RTS to be adopted by the Commission (not available at the date of preparing this report) will contain the details of disclosure.

The National Bank of Hungary (NBH) may impose administrative sanctions on the originator, sponsor or original lender of a securitisation in the case of non-compliance.

Taking into account the fact that the private issuance of securities often does not require the publication of a prospectus subject to a licence from the regulator and that it is much simpler from a documentation perspective, issuers usually start with such private offerings. Investors in private offerings are either institutional investors or retail investors (as special rules apply if the number of investors is below 150 or if the aggregate value of the securities issued does not exceed EUR1 million within 12 months). The rules relating to public offerings are the same as in all other EU Member States. With some exceptions, a securities dealer (credit institution or investment company) is necessary for both public and private offerings. The fee of the dealer makes up a significant part of the transaction cost. Preparing and conducting a private offering typically takes one to two months. A public offering, together with the necessary licensing phase, could take eight to ten months.

It is normal practice to obtain a legal opinion on whether the offering qualifies as a private or public offering, and if it requires the publication of a prospectus or not. As the conditions of the Prospectus Regulation and the Capital Market Act are clear, the opinion should only be qualified by the usual reservations relating to the operation of law in general.

In a private offering (ie, when a prospectus does not have to be published), the Capital Market Act requires the issuer or the dealer to ensure that information is provided to all investors to enable them to make an informed assessment of the market position, the assets and liabilities, the financial position, profit and losses, the legal status, any foreseeable future developments, and the prospects of the issuer and of the rights attached to such securities. In certain cases, the offering of debt securities must take place through an investment service provider.

In a public offering, as a general rule, the issuer, the offeror or the person requesting admission to trading on a regulated market or registration in a multilateral trading facility shall publish a prospectus. The Prospectus Regulation provides a list of events (eg, if securities of the same kind are already admitted to trading on the same regulated market, and the newly admitted securities represent, over a period of 12 months, less than 20% of the number of securities already admitted to trading on the same regulated market) when the publication of such prospectus is not required.

There are no special Hungarian rules on credit risk retention. This issue is regulated by the Securitisation Regulation. The basic rule is that the originator, sponsor or original lender of a securitisation shall retain a material net economic interest in the securitisation of not less than 5%, on an ongoing basis. Prior to holding a securitisation position, an institutional investor other than the originator, sponsor or original lender shall verify that this obligation is met and that the risk retention is disclosed to the institutional investor.

Non-compliance with the risk retention obligation is supervised by the NBH. Among other sanctions, the NBH may impose fines on the relevant entities and also withdraw their licence.

The general rule of the Securitisation Regulation, subject to certain exceptions, provides that the originator, sponsor and SSPE of a securitisation shall make certain information available to holders of a securitisation position, to the competent authorities and, upon request, to potential investors on the underlying exposures on a quarterly basis. The Securitisation Regulation further requires the publishing of quarterly investor reports, which must contain the following:

  • all materially relevant data on the credit quality and performance of underlying exposures;
  • information on events that trigger changes in the priority of payments or the replacement of any counterparties; and
  • information about the risk retained.

The exact scope of information to be provided depends on whether a prospectus has been drawn up in compliance with Directive 2003/71/EC of the European Parliament and of the Council.

The NBH may impose administrative sanctions on an issuer that fails to comply with the rules on reporting.

Rating agencies’ securitisation activities are not regulated. The Securitisation Regulation provides that, where a third party needs to be authorised by the competent authority in order to assess the compliance of securitisations with the STS criteria, said third party cannot be a rating agency.

Capital and liquidity rules regarding credit institutions and investment firms are harmonised throughout the European Union: Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 and Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC implemented Basel III requirements. There are no special Hungarian rules on this topic.

The corresponding rules for insurance companies are also harmonised by Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) – as transposed into Hungarian law by Act LXXXVIII of 2014 on the Business of Insurance and Government Decree 43/2015 (III. 12) on the capital and solvency requirements of insurance and reinsurance companies – as well as Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

With the exception of the rules on synthetic securitisation (see 7.1 Synthetic Securitisation Regulation and Structure), there are no rules that apply to the use of derivatives in securitisations.

There are no rules on investor protection that apply specifically to securitisation. The rules on disclosure intend to help investors by providing them with transparent information. In the case of a breach of the rules on disclosure, the NBH may impose sanctions on the party that is obliged to disclose.

The general rules of investment protection apply: the Investor Protection Fund may provide protection for eligible investors if the investment service provider fails to deliver the assets (securities or money) that are registered as the holdings of the investor and have been transferred to the possession of the provider under the contract. The maximum compensation is EUR100,000.

There are no special material rules that apply to banks that securitise their assets or invest in securitisations.

Generally, an SPE can be set up in any corporate form that provides for limited liability. However, if the SPE is intended to be set up as an SSPE regulated under the Securitisation Regulation, it can only choose the corporate form of a private or public limited company, or it might operate as a branch of an EU-based company. The SSPE cannot be part of a concern.

Typically, securitisation entities try to avoid activities that may qualify as financial services, in order to avoid banking regulations including licensing requirements applying to the SPE. The difficulty is that purchasing receivables or similar financial claims as a business qualifies as a financial service, and it is difficult to avoid such an activity in securitisation transactions.

According to the interpretation of the NBH, the servicing of receivables is a fundamental part of the purchasing of receivables. Therefore, if the seller acts as a servicer in relation to the transferred receivables, the seller (assignor) would qualify as an intermediary (tied agent) of the transferee. Acting as tied agent in itself does not require a licence from the regulator, but the agent needs to fulfil certain criteria, including criteria relating to the personnel employed by the servicer. However, depending on the powers of the servicer, the activity might require a licence from the regulator. A relevant factor in deciding whether the servicer’s activity requires a licence is whether the servicer has the right to reschedule the debtors’ payment obligations.

SPEs are often set up in foreign jurisdictions in order to avoid being characterised as a financial institution.

As the Hungarian securitisation market is very small, it is not possible to comment on typical forms of credit enhancements. In addition, SPEs are often established outside of Hungary, and different elements of the transaction are governed by a law other than Hungarian, so the requirements of the applicable law are taken into account when selecting the form of credit enhancement. From a legal perspective, all typical credit enhancement tools are available, and one or more of these are typically used in securitisation transactions. Usually, the guarantee of a related entity is used; cash reserves and letters of credit are also applied in transactions.

There is no settled case law available on subordination. Based on the bankruptcy rules, it could be argued that the bankruptcy administrator will not honour the terms of the subordination agreement; therefore, it would confer purely contractual rights on the parties.       

There are no government-sponsored entities on the securitisation market, and there is no practice to comment on.

Securitisation transactions are usually arranged and financed by foreign banks, and the securities issued in the course of the transaction are purchased by foreign investors.

The transfer of financial assets requires an agreement between the transferor and the transferee with respect to both the legal basis or title of the transaction and the transfer (assignment) itself. One document may cover both agreements, or they may be dealt with in separate documents. The legal basis is usually the sale and purchase on arm's-length market conditions. The assignment is usually concluded separately, at a later stage, on the basis of the agreement that serves as its legal basis. The transfer is bankruptcy remote if it is based on a true sale. Please see 1.1 Insolvency Laws regarding the requirements of a true sale transfer. The mere agreement of the transferor and the transferee is enough for a true sale, with notice to the debtor or registration not being required; other perfection requirements do not apply either (for the legal relevance of notice, see 1.3 Transfer of Financial Assets).

The documentation used to effect a bankruptcy-remote transfer usually covers the following principal subject matters:

  • a description of the assets to be transferred;
  • the undertaking to sell and to purchase those assets;
  • the counter value – ie, the purchase price to be paid by the transferee in exchange for the transferred assets;
  • the method by which the sale is consummated;
  • the assignment itself;
  • servicing of the assets; and
  • representations, warranties and covenants.

Besides the standard warranties covering existence, capacity and approvals, the seller typically makes the following representations and warranties:

  • that there is no material adverse change;
  • that financial documents give a true, complete and fair view;
  • that there is no litigation that would adversely affect the transaction; and
  • that no stop purchase event or early amortisation event has occurred.

The transfer of claims is effective if and when an assignment is concluded on the basis of a valid legal cause. This means that neither notice, registration nor any other measure is required in order for the transfer of receivables to become perfect. However, in order to limit the debtor’s right to set-off and the scope of defences the debtor may raise, it is customary to notify the debtors at an early point in the transaction. There are transactions where the debtors are only notified later, if default or other pre-defined events or conditions occur.

Sellers in securitisations typically undertake the following covenants:

  • to provide the purchaser with financial statements;
  • to obtain and maintain all authorisations;
  • to send notice to the purchaser of the occurrence of certain events (eg, stop purchase event, change of control);
  • to obtain a solvency certificate;
  • to provide information in relation to rescinded or extinguished receivables; and
  • to carry out the necessary formalities in relation to the release of security.

If the seller acts as servicer, it is typical to include covenants covering these activities as well. Such covenants usually include the obligation to protect the rights of the purchaser, and to maintain all systems necessary for the collection and management of receivables, for example.

Due to the fact that servicing could require a licence, parties typically avoid having the Hungarian seller act as servicer. If a servicer is appointed, its tasks typically cover the collection of payments from the debtors, and the transferring of such payments to the issuer. Hungarian law prohibits the enforcement of someone else’s claim, so the servicer would not be in a position to enforce the claims against the debtors at court.

Typical default under the notes in the case of securitisation includes non-payment, breach of obligation under the transaction documents, and the insolvency of the issuer.

The indemnification obligations of the originator vis-à-vis the issuer exist typically in case of losses arising from the breach of the transaction documents (eg, transfer documents being invalid or ineffective, sanctions being applied in connection with the processing of personal data, tax sanctions being incurred on a secondary or joint liability basis). Furthermore, the servicer could also undertake indemnification obligations vis-à-vis the issuer in relation to losses arising from servicing (eg, receivables not enforced).

The issuer is established in order to carry out some specific purpose. The activity of the SSPE is twofold: first to purchase the receivables, and second to create and sell the securities in the market (hence the SSPE is the "issuer"). SSPEs have no physical location, no additional purpose and no personnel other than what is strictly required in accordance with the regulation applying to the specific legal form in which the SSPE is set up. By transferring the receivables to the SSPE, the originator "insulates" them from creditors: in the case of insolvency, the collateral held by the SSPE is still good and the servicer ensures that payments on the collateral continue to be made, so that investors still receive their principal and interest. Among other reasons, this accounts for the fact that the securities issued by the SSPE can get a better rating than the rating of the originator.

The issuer is a legal entity other than the originator or the sponsor. The issuer is usually an SSPE, operating in the form of a private or public limited company, or it might operate as a branch of an EU-based company in line with the Capital Markets Act. Issuers may be financial institutions, but if the issuer is an SSPE, its activities are limited to the services relating to the securitisation.

A sponsor is usually a financial institution that, upon the mandate from the originator or the investor of a securitisation transaction, will establish a securitisation transaction by purchasing exposures. Occasionally, the originator may be a third party that buys the pool with the intention to securitise it thereafter; in that case, the originator is also named as sponsor.

The sponsor’s main responsibilities include arranging the following:

  • the structure of the risk profile of the receivables to create different tranches of notes;
  • the economics of the transaction;
  • credit enhancement;
  • liquidity support; and
  • profit extraction methods.

The sponsor also ensures the transaction proceeds through each step to close.

It is usually a bank that acts as underwriter in a securities offering, which is an essential element of a securitisation transaction. The role of underwriters in securitisations is similar to that in other methods of securities issuance; underwriters participating as broker-dealers by maintaining an inventory and making a market enhances the issuance process. Underwriters enhance the issuance process by fulfilling essential arranger roles of representing the issuer (SPE). On the basis of a market analysis, the underwriter does the following:

  • advises the originator or the sponsor on how to structure the transaction;
  • devises "tranches" of securities with different investment characteristics, and the allocation of the cash flows generated by the underlying financial assets;
  • generates the offering documents;
  • markets and sells the securities; and
  • provides liquidity support to the issuer.

Usually, underwriters buy a specified amount of the offer, and then resell those to investors. Sometimes, underwriters retain a certain portion of the securities issue for their own account.

A servicer acts on behalf of the SSPE, deals with the receivables on a day-to-day basis, and performs the administrative duties necessary to collect payments (principal and interest payments from the obligors) on the assets acquired by the SSPE in order to maximise cash flows for the benefit of the noteholders. Another important role of the servicer is to implement collection measures and liquidate the collateral in the event of default. If the issuer is also the lender of the underlying assets, there is a greater likelihood that the issuer would retain these servicing rights. This role may be performed, unless retained by the issuer, either by the originator or by a separate entity, on the basis of and in accordance with a servicing agreement.

Investors are the ultimate purchasers of the notes issued by the SPE. As holders of the notes, the investors are entitled to receive the payments (principal and interests) based on the cash flow generated by the underlying assets. The largest investors in securitisations may be alternative investment funds or hedge funds, but also pension funds, insurance companies and, to a lesser degree, commercial banks.

In order to look after and preserve the rights of investors, the SPE often appoints a representative of noteholders. Generally, the representative oversees the cash flows and monitors compliance with covenants, the performance of the underlying assets and collateral. The representative's tasks also include declaring default or amortisation events, executing the resolutions of the noteholders' meeting, and co-ordinating the noteholders’ actions.

Due to the additional counterparty credit risk and potential complexity related in particular to the content of the derivative contract, the Securitisation Regulation provides that the STS criteria should not allow synthetic securitisation. The CRR provides that originators may also calculate risk-weighted exposure amounts and expected loss amounts for the securitised exposures in case of synthetic securitisation, if certain conditions are met. The first condition is that significant credit risk is considered to have been transferred to third parties, whereas the second condition relates to the risk weight applied to the securitisation positions. The CRR provides further rules on the originator institutions' calculation of risk-weighted exposure amounts securitised in a synthetic securitisation, also covering the treatment of maturity mismatches.

In Hungary, no specific rules apply to synthetic securitisation, from which it also follows that the parties are free to use this tool. As no specific rules apply to synthetic securitisation, the parties can shape the transaction as they see fit. Although legally possible, synthetic securitisation is not present in the Hungarian market.

The typical assets securitised are trade receivables. Although loans could be securitised, the significant changes after 2008 in relation to foreign currency loans could lead to lawsuits relating to the validity of these contracts. The uncertainties relating to these receivables make them less appealing.

See 8.1 Common Financial Assets.

As the practice of securitisation is very limited in Hungary, we are not aware of any new or unusual legal issues arising from enforcement or preparing for enforcement that have directly affected parties in securitisations. However, on a more generic level, the enforcement of claims arising from financial contracts has been affected by new legislation introduced to address the economic fallout of the COVID-19 pandemic. Amongst other measures, a payment moratorium has been introduced, under which the debtor’s payment obligations are ex lege postponed, unless the debtor decides to opt out of the moratorium. Although the details of the moratorium have been amended several times, the basic rule is that, during the term of the payment moratorium, the creditor may not terminate the contract solely due to the fact that the debtor has failed to repay the loan, and the creditor may not enforce claims arising from the contract; also, a late payment interest for this period may not be required. The period of the moratorium is currently extended until 30 June 2022.

Material New Regulation or Legislation

The Securitisation Regulation has been amended by EU Regulation 2021/577 as follows:

  • the STS framework has been extended to on-balance sheet synthetic securitisation; and
  • the originator, sponsor or SSPE of a securitisation may use a third party authorised by the competent authority to check whether the securitisation complies with the requirements, without affecting the liability of the originator, sponsor or SSPE in respect of their obligations under the Securitisation Regulation.
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Gárdos Mosonyi Tomori Law Office is a Budapest-based law firm with 20 lawyers. It is a member of Advoc (, a leading network of independent law firms, which enables it to easily work in international deals and to ensure that clients receive first-class service abroad as well as domestically. Banking and finance and capital markets have been the two major areas of focus for the firm since its foundation. Recent highlights include advising solar power company NAP Nyrt on its listing on the Budapest Stock Exchange. The team regularly provides legal assistance to companies in relation to securities issuances, both public and private, and advises public companies on corporate matters.

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