Brokerage compensation law unconstitutional

The Hungarian Constitutional Court on Tuesday annulled parts of a law that required commercial banks to pay billions of forints to bail out clients of failed brokerage Quaestor, the financial website portfolio.hu quotes the country's state news agency MTI.

As explained by portfolio.hu, Hungarian brokerage Quaestor collapsed early this year after it was found to have issued more than HUF 150 billion in fictitious bonds. In April, a central bank official estimated the collapse of Quaestor and other small brokerages will cost the financial sector around HUF 30 billion per year over a 10-year period. 

The court declared unconstitutional sections in the law that defined which clients could get compensation and the financial conditions of a compensation fund. 

The decision means that the holders of Quaestor bonds will certainly not get their compensation ranging between HUF 6 m and HUF 30 m. According to vs.hu, the government will create new legislation to compensate the victims, taking into consideration the objections of the Constitutional Court.

In reaction to the court's decision, the Hungarian Banking Association welcomed the development, which means that banks not guilty in the matter will not have to pay compensation.

Oppositon parties pointed out the responsibility of the National Bank of Hungary that failed to perform its duty and detect the frauds in time and also questioned whether people associated with the ruling party had taken out their money from the brokerage firm in time due to having insider information.

As a response, a spokesman for the ruling Fidesz party blamed the Banking Association for having turned to the Constitutional Court.