KEY DEVELOPMENTS & THE LATEST TRENDS IN HUNGARY – FROM A LEGAL PERSPECTIVE

Introduction

It is not an exaggeration to say that Hungary has been in the forefront of gambling law-related developments and disputes in the EU in the past 10 years. The reason for such status is that rapidly changing regulatory frameworks were implemented by the legislator in the otherwise dynamically growing Hungarian iGaming market and international operators have continuously expressed their concerns about the EU law compliance of these regimes. Looking at the status quo we detail below, there are good reasons to believe that this situation will continue in the future as well. At the same time, thanks some rather favorable conditions (e.g. in terms of gambling taxation) the Hungarian market remains to be an interesting target both for national and EEA online gambling service providers.

In the foregoing, we provide a brief insight into the origins of the current Hungarian iGaming system, then turn to the main rules of online sports betting operations (including licensing) and the most important new provisions on payments. We should touch upon the EU law concerns around the sports betting framework and the current enforcement appetite of the Hungarian regulator and legal remedies, too. Last but not least, we would like to introduce the capabilities of DLA Piper’s CEE-wide network of gambling experts both in terms of licensing-regulatory advice and court challenges.

Past legal disputes paving the way for the liberalisation of online sports betting

The origins of the current online sports betting regime date back to 2013 and 2014, when a new online gambling system was introduced in Hungary. From November 2014, only concessionaires of land-based casinos were allowed to provide online casino games, while online sports betting remained in the monopoly of a state operator, Szerencsejáték Zrt.

This framework was contested by international operators before the national courts and before the Court of Justice of the European Union (CJEU):

– The CJEU (and later national courts) concluded that some of the key elements of the system, especially in the field of online casino concessions, were contrary to the laws of the EU and so cannot in practice be applied (see the C-49/16. Unibet and C-3/17. Sporting Odds judgments).

– In terms of online sports betting, the picture was not entirely clear, as the CJEU referred the decision on the system’s compliance back to national courts. These litigations are now completed before Hungarian courts with the conclusion that the sysem in place until 1 January 2023 was in breach of EU laws.

The legal challenges of the past regime led to an extraordinary situation where Hungarian laws could not be in practice applied to EU operators. This was respected by Hungarian authorities, as after the mentioned CJEU judgments, there were no enforcement activities against EU-based operators. Since spring 2018 (Sporting Odds), both pillars of the Hungarian online gaming regime needed re-regulation.

This long-awaited step was taken 4 years later, as in 2022 the Hungarian legislator has adopted amendments to Act No. XXXIV of 1991 on Gambling Operations (Gambling Act) and the Hungarian regulatory body, the Supervisory Authority for Regulatory Affairs (SARA) has also amended its equally significant Decree No. 20/2021 (X. 29.) (Implementing Decree):

– On the one hand, with the mentioned amendments there is no substantial change in the previous online casino games system, meaning that this sector did not undergo a liberalisation and after 1 January 2023, still only land-based casino concessionaires may get online casino games licenses.

– On the other hand, the Hungarian online sports betting sector has been subject to a major revision where the previous monopolistic system has transformed into a license-based liberalised one from 1 January 2023.

Most important licensing requirements

As a starting point, the maximum duration of licences is seven years and licensees may operate only one website. The Hungarian requirements around the licensing of online sports betting services may be divided into 4 main groups, these are personal conditions, application requirements, player protection connected rules and lastly payments related provisions.

The two main personal conditions revolve around the experience of license applicants and the exclusion of certain operators (bad actor clause):

– According to the Gambling Act, organisers (or their affiliates) must have at least 5 years of experience in online gambling operations. Such experience must have been gained in remote gambling or online casino games in an EEA State and the relevant authorisation should have been issued by the competent authority of the same EEA State, meaning that cross-border operations are not relevant in this perspective.

– In addition, no license may be issued if the applicant company (or another connected company or person), organised gambling without a licence within 5 years prior to the submission of its license application, and this has been established by an administrative authority or by a final decision of a court of an EEA State (5-year ‘bad actor’ clause).

Looking at the application requirements,

– EEA-state applicants may submit their application for a licence only through their representative, duly authorised by a notarial deed and registered with the SARA. EEA applicants may only make valid statements to the SARA through their representative.

– EEA companies may only organise remote gambling through their Hungarian branches, which shall be established within 90 days of the issue of their license. Similarly to EEA applicants themselves, the local branches of EEA applicants shall also have a representative.

– EEA companies shall provide their branch with an initial (share) capital of at least HUF 1 billion (~EUR 2,600,000) on an ongoing basis. Also, licensees shall pay an amount of HUF 250 million (~EUR 641,000) as securities and HUF 600 million (~EUR 1,5 million) as supervision fee (for the whole duration of their license).

– Lastly, in case of online sports betting, all of the operator’s servers must be located in Hungary. Pursuant to the rather broad definition of a server in Hungarian law, backup/ mirror servers also fall under the server placement rule.

As for player protection, to facilitate the principle of responsible gambling and player protection, organisers will have to prepare annual player protection action plans and inform the SARA about the implementation of these. The minimum measures are set out in the Implementation Decree and organisers shall inform the SARA of the implementation of their plan in writing and thereafter by means of a personal consultation.

Rules on payments

The Gambling Act provides for a number of possible payment methods that players may use to pay bets to operators. The provisions on transfers from payment accounts and online credit cards linked to these exclude the use of payment accounts that are held with payment service providers (PSPs) not established in Hungary and thus not authorized by the Hungarian National Bank. When making payments to players, operators shall use payment accounts held with PSPs established in Hungary and authorised by the Hungarian National Bank, and they should transfer the amounts to similar payment accounts.

The Gambling Act lays down detailed rules for PSPs to comply with both in cases when PSPs contract with licensed gambling operators, as well as when it comes to the prevention and elimination of illegal (not-Hungarian-licensed) gambling activities. The main rules include their obligation to “block” prohibited payment accounts, “block” gambling-related online card payments to and from countries other than Hungary, the prohibition to enter into a framework contract for opening and managing a payment account or into a card acceptance contract with licensed gambling operators and a general ban to being involved in illegal gambling operations.

EU law concerns around the system in force

When we assess the above mentioned licensing requirements and payments rules, both principles and jurisprudence of EU law and Hungarian law are raised as potentially infringed provisions. For example, the branch requirement rules on representatives, the server placement rule and the bad actor clause are all rules that seem to go against the freedom to provide services (Article 56 of the TFEU) and may also be discriminative, protectionist requirements. The infringement of the freedom of establishment (Article 49 of the TFEU) may also be relevant, since the branch requirement, representatives, payments rules seem to infringe the principle of equal treatment between national companies and companies of other Member States. In addition, the mentioned requirements may go against secondary EU law and Hungarian constitutional law, too.

Our conclusion is that there are arguments to support the non-compliance of the current online sports betting framework, though this is to be decided by the competent courts (national and possibly by the CJEU).

Hungarian enforcement trends, legal remedies

In light of the underlying intentions of the current regime (e.g. the official reasoning of the Gambling Act’s amendment), there was no doubt that the legislator would like to support Hungarian authorities to enforce local gambling laws. Accordingly, the SARA has already made attempts to enforce gambling laws, including the initiation of authority proceedings against international operators and the imposition of a large number of website blockings on such operators. The SARA has also qualified bank accounts of certain operators as prohibited payment accounts. Looking at the SARA’s current enforcement appetite, we expect that the SARA will be very active in the enforcement of the revised regime and criminal risks may also arise.

However, with reference to the previous chapter, we note that if a formal sanction of the SARA is based on the breach of Hungarian law that is non-compliant with the EU laws (which is a probable scenario), the sanction cannot be enforced for that reason and in general, even if certain cooperation mechanisms are provided for in EU law, authorities might face serious difficulties with the enforcement in practice.

Otherwise, in terms of legal remedies, against any sanction imposed by the SARA or other authorities, litigation before administrative courts is a viable option in Hungary, as Hungarian courts have solid experience in applying EU law and even turning to the CJEU

CEE Gambling network of DLA Piper

At the end of the chapter on Hungary, please let us briefly introduce the CEE-focused gambling initiative of DLA Piper which is a network of experienced colleagues from multiple European jurisdictions such as Germany, Austria, Czechia, Poland, Slovakia, Hungary and Romania.

According to the forecast of the European Gaming and Betting Association (EGBA), it is expected that Europe’s gambling market revenue will steadily grow in the coming years, mainly driven by the online limb of operations. Following the developments of this very innovative and dynamic sector, the starting point for our active knowledge-sharing and cooperation was the recognition that we see rather similar trends-challenges in the CEE region and that our offices are already successful in the areas of court procedures against non-compliant national regimes (e.g. in Romania, Hungary) and in providing clients with licensing and regulatory advice (e.g. in Poland, Romania, Hungary, Czechia, Germany, Austria) as well.

By building on these achievements, on the one hand, the respective DLA offices are able to provide legal advice that incorporates the significant know-how we have gathered so far at the CEE level when succesfully challenging national legal systems with reference to EU laws both before national courts and the CJEU and when providing regulatory advice to market-leading clients.

On the other hand, thanks to the seamless in-house cooperation guaranteed by our network, we also provide clients with products that relate to multiple jurisdictions, e.g. with country reports and monitoring updates on different regulatory, advertisement, enforcement, criminal developments as well as a series of gambling webinars with a specific focus on the CEE region.