Third Hungarian brokerage loses licence as scandal spreads

By bne IntelliNews March 11, 2015

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Hungary's central bank has revoked the licence of brokerage Quaestor and appointed a state supervisor, in an escalation of the scandal enveloping Hungary's financial services market.   

Regulators have expressed concern that the company may have issued bogus bonds worth hundreds of millions of euros. At the same time, political pressure is building. Quaestor is the third Hungarian brokerage to have its licence suspended within a few weeks.

The Magyar Nemzeti Bank (MNB) said on March 10 that it had discovered irregularities that forced it to suspend Quaestor's licence during a probe that it launched on March 9. The same day, Quaestor Financial Hrurira - a group member established to issue bonds - filed for bankruptcy, citing a lack of financial resources to repay bonds.

The MNB says the firm may have issued over HUF200bn (€650mn) in bonds, despite an issuance programme limiting it to HUF60bn. Many clients are reported to have requested the firm redeem debt following the recent scandals at two other local brokerages. 

On February 24, the MNB suspended the licence of Buda-Cash, saying the brokerage could not account for about HUF100bn (€327mn) of client cash. Days later, the licences of four banks linked to the brokerage were also revoked. On March 6, the MNB partly suspended the licence of brokerage Hungaria Ertekpapir due to “irregularities”.

"Due to abuses and criminal offences at Buda-Cash Brokerage the confidence in financial service providers has taken a critical hit," Quaestor said in a statement to Portfolio.hu. 'The Buda-Cash scandal has triggered such a panic on the security market that made normal operation of the market impossible. This situation was further aggravated by the case of Hungaria Ertekpapir.” 

Speaking to the parliament’s economic committee, MNB deputy governor Laszlo Windisch said Quaestor could have issued HUF150bn worth of fictitious bonds. In a bid to tighten regulation, the MNB will push for more frequent probes, larger fines, and other measures, Windisch said.

The central banker said Quaestor could have issued HUF150bn worth of fictitious bonds. He also suggested that the company is suspected of doctoring IT systems, local news portal hvg.hu reported. Buda-Cash has been accused of similar offences. 

However, the ongoing scandal is becoming a political hot potato, meaning regulators will be wary of offering too much detail. "It is too early to speak about financial damage, as we don't know if the value of assets covers the value of bond issuance," Windisch pointed out.

After the Fidesz government took effective control over the central bank in 2012, the MNB took over the role of financial markets regulator. That has prompted criticism from the opposition. However, the government and MNB claim that the Buda-Cash scandal developed under the previous Socialist administration, even though Fidesz has been in power for the last five years.

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