“The Buzz in Hungary,” according to Wolf Theiss Budapest Partner Janos Toth, “is two things: The recent activity in the solar energy sector in the country and work resulting from new legislation within the EU for data protection and anti-money laundering.”
Speaking on the first subject, Toth notes that the significant indications that the Hungarian government is intending to develop solar (photovoltaic) projects has generated a great deal of interest in potential investors in the first half of this year, even though, he says “nothing has closed yet.” Still, he says, project owners are to finalize the initial rounds of regulatory licensing with Hungarian energy regulator, "and now that the deadlines are approaching the market has become very vibrant with strategic and financial investors.” According to Toth, “the projects that are in the forefront of investor interest still qualify under the old renewable compensation system, which includes some very beneficial compensation schemes in terms of both length and the amount of compensation available, so everybody who has interest in this particular field is focused on trying to get as much volume as possible in terms of licensing from the energy regulator, which would allow them a nice ROI.”
Photovoltaic projects have not been particularly active in Hungary for the past decade, Toth reports — unlike in the Czech Republic and Romania, for example — but last year the government began putting more “pure" emphasis on solar. According to Toth, “that’s really made the market excited. Obviously some of these projects are not viable, but these will be weeded out by the market, if not the regulator. But a considerable amount of these projects will likely go into the implementation phase, bringing upheaval to the Hungarian renewable market, which has been silent lately.” And, he says, "from a general policy perspective it’s a sign that Hungary has decided to catch up with the rest of Europe.”
Unsurprisingly, Toth reports, "lawyers who are able to consult with clients on this regulated field are busy with due diligence and joint venture creation mandates.” There’s obviously a heavy real estate element on such projects, so property lawyers are active as well.
The other Buzz, according to Toth, is more regional in nature: An uptick in compliance work. "What we see,” Toth says, "not only in Hungary but in all of the countries in our region, is businesses coming to us with regional requests for audits, reviews, analysis of their processes and systems, and consulting on how to ensure compliance.” Toth draws specific attention to the EU’s new Anti-Money Laundering Directive and the widely-reported data protection regulation (the GDPR).
The deadline for implementation of the EU’s 4th AML directive, according to Toth, lapsed at the end of June, and "some of the countries in the region have still not implemented the legislation locally.” Toth points out the significant impact of the new rules on affected industries, as companies in "the traditionally regulated industries like the financial sector, and insurance, but also lawyers, notaries, and even traders of goods and businesses involved in customer/client sales over a certain transaction value need to update or in some instances entirely reshuffle their operations.” According to Toth, clients who are now required to disclose ultimate beneficiaries are especially concerned about this. "And the devil is in the details,” he says, "as national parliaments have to regulate this themselves — so this will change from country to country. In some countries the tax authorities will keep the information, in some the registry of companies will handle it.” Other relevant and controversial questions involve “how third parties can get access to such beneficiary owner information, and in what circumstances.” According to Toth, "this is all very sensitive.”
Hungary implemented the Directive with its June 2017 Anti Money Laundering Act, but Toth warns that “the law says that the central registry of ultimate beneficial owners would be set up and operated under a separate piece of law — but that separate law has not been created yet. So we’re generally compliant, but how the central registry will work is not clear yet, and we probably won’t see that law created during the summer months when parliament has no sessions.”
Turning to data protection, Toth notes that businesses still have some time to implement the GDPR requirements, but he says "they’re starting to realize how pressing this will become in a few months, and we’re already seeing the prudent business operations starting to review their data privacy processes to see if there are any changes required for compliance.”
Finally, Toth says, "I can also mention that, in Hungary as across Europe, the M&A market — which was unexpectedly slow during the first half of the year — is coming back. The reasons may be multi-fold, but it appears that, after a relatively silent first half of the year, general interest in the M&A market is back.” Toth says that "mid-market deals are picking up everywhere and in all sectors — manufacturing, real estate, trade and services, etc.” The Wolf Theiss Partner admits that “this is encouraging” as it “means that there’s real potential for a good year in 2017 after all, following a really good year in 2016.”