Hungary has introduced criminal penalties for operators of unlicensed exchanges and traders

What’s new? On July 1, Hungary enacted a strict crypto regulatory law that imposes prison terms for operators of unlicensed exchanges and traders who make unauthorized transactions. Against this background, many fintech companies have suspended crypto services in the local market, including leading British neobank Revolut with 2 million Hungarian customers.

Material by Forbes

What else is known? According to the law, the Hungarian National Bank is responsible for controlling the crypto sector, and all crypto service providers must be licensed to operate in the local market.

The law criminalizes the use of unlicensed exchanges and any unauthorized transactions, with even harsher penalties for amounts over 50 million Hungarian forints ($146 000).

Under the updated Criminal Code, offending traders face two to five years in prison depending on the amount of the transaction, while unlicensed service providers can receive up to eight years in prison.

Meanwhile, possession of bitcoin or other cryptocurrencies remains legal.

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As of July 14, the central bank has still not published the license application procedure, which creates uncertainty for local crypto firms and global exchanges. For example, along with Revolut, crypto exchange Bitstamp has already suspended crypto services to residents of Hungary.

As for Revolut, users can sell existing cryptocurrencies and transfer some tokens to external wallets. The changes have not affected other banking services.

The authorities say the new measures are in line with the EU’s framework law on Markets in Crypto-Assets (MiCA) and add additional safeguards such as a mandatory “conversion confirmation certificate” for every transaction.

MiCA aims to harmonize crypto regulation in all countries of the bloc, but the measures adopted by the Hungarian authorities differ significantly in their strictness.

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Some industry participants point out that the penalties are much harsher than stipulated by MiCA, and the lack of licensing information is aimed at suppressing the industry.

Industry experts estimate that around 500 000 Hungarian citizens have bought cryptocurrency with legitimate, taxable income. The broad wording of the law and lack of guidance on its implementation have created a legal gray area, where previously legal activities can now lead to criminal prosecution.

The uncertainty could trigger an exodus of fintech companies from the country. Industry sources report that several Hungarian firms are already considering moving operations to more favorable jurisdictions elsewhere in Europe.

The law may be part of a broader regulatory crackdown by the government, which has previously imposed restrictions on corporate acquisitions by foreign firms. Tough measures against cryptocurrencies may also be driven by concerns about capital flight.