Currently the Act on the Capital Market contains the following elements/requirements regarding the nominee concept:
- The nominee is a shareholder representative in the Hungarian legislation; that is the nominee concept interpreted only in case of shares.
- An entity may act as a nominee in Hungary if it is authorized to do so under its national law. Furthermore, it has to adhere to the stipulations of the Hungarian Capital Market Act.
- The clients of the entity must authorize the entity directly to act on their behalf as a nominee and this authorisation must be concluded in an agreement that must be a separate contract (i.e. cannot be a part of e.g. the custody agreement) in order for the entity to act as a nominee.
- There cannot be an intermediary between the nominee and the shareholder, i.e. there must be a direct relationship between the entity acting as nominee and the shareholders.
- Any shareholder, the issuer, or the Supervision (i.e. the Central Bank of Hungary) may ask the nominee to reveal the identity of the underlying beneficial owners at any time; any person who is able to substantiate his valid concern is entitled to request the Supervision to reveal the identity of the shareholders represented by a nominee.
- The issuer or the Supervision may ask the nominee to prove that it has been authorised by the underlying beneficial owner(s) to act as a nominee, i.e. the nominee might be requested to show the nominee agreement or other document evidencing his capacity as a nominee, proving his authorization/appointment.
Last Thursday, the representatives of KELER and several custodian banks (among them UniCredit Bank Hungary) held a meeting with the aim to lobby for the amendment of the Capital Market Act as follows:
- The nominee concept should be extended to all types of securities that are defined in the Hungarian legal regulations.
- The requirement that the nominee agreement should be a separate agreement and cannot be part of e.g. the custody agreement should be abolished.
- The requirement forbidding an intermediary between the securities holder and the nominee should be abolished. This would make possible for e.g. a foreign global custodian to authorize the local custodian to act as a nominee on behalf of the customers of the global custodian (which is currently not possible as there is no direct contractual relationship between the local custodian and the customers of the global custodian).
- The authority to ask the nominee to prove that it has been authorised by the underlying beneficial owner(s) to act as a nominee should be restricted to the Supervision, while issuers still would have the option to ask the nominee to reveal the identity of the underlying beneficial owner(s).
Preparing the amended wording of the Capital Market Act according to the above proposals is under process. The finalized amended Act will have to be approved by the Hungarian Parliament, with the date to be yet defined.
Impact on investors: Amending the nominee concept as detailed above would move barriers from foreign global custodians to act as nominee in Hungary, extending the capability of local custodians to represent their foreign clients as their appointed nominee.
Irén Deli, Senior Relationship Manager
Tel. +36 1 301 1914 Fax +36 1 475 3043