Hungarian banks have sounded the alarm over the government's controversial Putin-style 'transparency bill', warning that it is already fuelling capital flight and eroding confidence in the domestic financial system, according to report by Telex.hu, one of the independent media outlets targeted by the legislation.

Under the 'transparency bill' submitted to Parliament on May 14, the Sovereignty Protection Office would blacklist media outlets, NGOs and other legal entities that receive overseas funding and are deemed to "threaten Hungary's sovereignty." Civil groups deemed a threat to sovereignty that are receiving EU funds could also be criminalised.

Once on the blacklist, such groups would be banned from receiving personal income tax donations, a key funding channel, and would face onerous administrative burdens. Listed organisations would face intrusive financial monitoring, severe fines up to 25 times the amount received and possible dissolution.

Civil society leaders warn the bill could be used as a political weapon to silence dissenting voices ahead of next year's general elections.

The legislation seeks to tighten controls on "foreign influence" of not just political parties but civil society through financial surveillance and reporting obligations that bankers say are legally incoherent and politically motivated. Most importantly, complying with the legislation is technically unfeasible and it would need years of IT developments to comply, they said.

The bill has prompted behind-the-scenes lobbying by Hungary’s banking sector and sparked a surge in inquiries from high-net-worth clients seeking to move assets abroad for protection.

Sources said the legislation shows a "complete lack of understanding" of how the financial system operates. There are technical questions as to what constitutes "direct or indirect" foreign funding, and when exactly they would be expected to start monitoring flagged organisations, upon blacklisting, or only when notified by the tax authority.

Lenders would be expected to screen transfers, including donations, foreign currency transactions and past account activities. The new proposal would enable state oversight of transactions without clear safeguards.

Although the bill officially targets NGOs and media outlets seen as hostile to the government, bankers report that most of the concerned inquiries have come from wealthy entrepreneurs, including some with past ties to the Orbán regime. "They're asking whether their private banking arrangements can be moved to jurisdictions completely beyond Hungarian oversight," one source said.

Wealthy individuals are reportedly seeking advice from banks on offshore savings and account management options, citing fears that personal data, assets and even banking secrecy could be compromised. Investors are questioning whether their financial affairs remain safe in a country where the law could potentially be used against anyone under the guise of defending national sovereignty, Telex adds.

Bankers have also warned that the legislation, if approved, could trigger downgrades by rating agencies, raising borrowing costs further and damaging investor sentiment.

In a related development, Fidesz is reportedly seeking to further tighten the legislation. A proposed amendment would enable authorities to retroactively confiscate 1% personal income tax donations made this year to organisations placed on the blacklist, bringing the measure forward by a full year.

Prime Minister Viktor Orban, speaking in a radio interview on May 23, described the current version of the 'transparency bill' as "particularly mild." By Monday, May 26, the ruling conservative-nationalist party had submitted a new legislative package to expand its scope. If adopted, the changes would impose even greater pressure on critical media outlets and NGOs already constrained by the law's original provisions.

The legislation, widely likened to Russia's "foreign agent" law, arrives ahead of national elections and amid rising support for Peter Magyar's Tisza party, posing an unexpected challenge to Orban's 15-year reign. Rights groups and legal experts warn that the bill marks a dangerous escalation in Hungary's democratic backsliding and is likely to provoke fresh EU infringement proceedings.