March 12, 2015 / 5:21 PM / 3 years ago

Hungary proposes tighter rules on investment companies

* Hungary, government, ruling party propose tighter rules

* Frequent controls, on-line access, higher fines proposed

* Brokerage scandals caused steep losses, hurt confidence

BUDAPEST, March 12 (Reuters) - The National Bank of Hungary on Thursday proposed tighter rules to govern investment services in the central European country after a series of scandals involving three brokerages and hundreds of billions of forints worth of missing client money.

The central bank suspended the licence of brokerage Quaestor this week on suspicion that it issued up to 150 billion forints ($526 million) of bonds without a permit. Another brokerage, Buda-Cash, could not account for about 100 billion forints worth of clients’ money last month.

The National Bank, which acts as the country’s financial market regulator, proposed more frequent routine controls of investment service providers as well as higher fines, on-line access to databases and more ways to control the flow of money.

The bank said it had coordinated its proposals with the Economy Ministry and parliament’s Economic Committee. The ruling centre-right Fidesz party also called for tighter rules and the Economy Ministry proposed revisions as well.

“The examination of Buda-Cash... made it clear that financial market regulations need significant tightening to strengthen the security of investment service providers’ clients,” the central bank said in a statement on its web site.

It proposed that the current routine audits executed every five years be done every three years. Fines should be extended to every employee who commits fraud and capped at 500 million forints instead of 20 million now.

The central bank proposed that its powers include sending supervisors to any financial market company whether or not it is suspected of wrongdoing. It said supervisors should be entitled to close any open deals to better assess client assets.

The bank said it wanted to audit financial market companies’ information systems for reliability and controllability. It said its controllers should have remote access to financial firms’ electronic records.

Banks, insurance companies and any other investment firms should be obliged to maintain named accounts at the central clearing house as should major individual investors, it said.

It also proposed boosting investor protection and insurance measures, strengthening auditors and demanding a prior permit for the appointment of leading executives at investment firms.

The head of Hungary’s fund managers association told Reuters in an interview that the tightening up of the rules should not be overdone. ($1 = 285.2000 forints) (Reporting by Marton Dunai; Editing by Hugh Lawson)

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