The Act on the Hungarian Financial Supervisory Authority provides for the operation of the Supervisory Council as of January 1, 2002. The Supervisory Council is a 15 member advisory body to the President of HFSA. Members of the council are of professional with outstanding theoretical knowledge and practical experience. The Supervisory Council comments on the issues pertaining to HFSA's strategic and regulatory role and development.

During their first meeting members of the Supervisory Council discussed the present and future efforts aimed at the improvement of the efficiency of consolidated supervision. Consolidated supervision is a key requirement in the supervisory practices of developed countries; it features in the recommendations of international professional organizations and is also prescribed by EU directives. The essence of consolidated supervision is that the supervisory authority looks at the group's exposure as a whole. In a broad sense consolidated supervision includes all enterprises wherein financial undertakings have a dominant share, where the Supervision gathers information through requesting reports and conducting on-site inspections; while in the narrow sense consolidated supervision focuses on financial organizations (such as credit institutions, investment firms, insurers, financial undertakings and ancillary undertakings), where the Supervision may take action on the basis of ratios and indicators.

In 2000 when the Hungarian supervisory authorities were joined, increasing the efficiency of consolidated supervision was one of key professional justifications for the move, and it has been in the focus of HFSA's strategy ever since that time. For that reason HFSA

1. has published supervisory principles that are equally enforced in the supervision of all sectors, while the Supervision considers the expectations raised against supervised organizations applicable to itself as well;

2. has established its professional independence, administrative and financial freedom, although the Supervision has been unable to obtain regulatory independence, which would entail the right to issue rules and regulations;

3. has set up an organizational structure that best suits the aims of consolidated supervision;

4. has developed a market-oriented supervisory approach, relying on comments received from the supervised organizations and contributing to market and regulatory progress by way of providing professional guidelines and consultation; hence HFSA has reached beyond its administrative duties and become a service provider;

5. has adopted unified philosophy, methods and procedures and set up systems for relationship management and group-level on-site inspections;

6. has revised and streamlined the supervised institutions' reporting procedures and installed advanced risk management and monitoring systems;

7. has introduced quality assurance that meets all requirements pertaining to EU accession covering all activities of the Supervision;

8. has put its analytic investigations on a consolidated basis;

9. has been implementing comprehensive IT development projects, which allow the consistent treatment and processing of data arriving from different sectors;

10. has drafted proposals for the amendment of credit institution, capital market, and insurance acts, which reflect the need for legal harmonization with EU directives, since different sector level provisions must support consolidated supervision in unison.

The steps recently made by HFSA have been internationally recognized, while still outstanding tasks are also pinpointed. International Monetary Fund: In its report published in June 2002 IMF regards the independence of the supervisory system essential with respect to the stability of the financial system. They conclude that "With the enactment of the 2001 Credit Institutions Act, compliance with the Basel Core Principles for Effective Banking Supervision (BCP) has further improved. In particular the introduction of consolidated reporting and supervision is an additional safeguard for preserving the soundness of the system." With respect to the new Capital Market Act the paper concludes that ".the autonomy and accountability of the HFSA have also been strengthened. .These  legal efforts bring Hungary ever closer to international standards and practices." IMF cites as a shortcoming that ".the work of the HFSA could be made more efficient and effective if the agency was given regulatory powers." "Autonomy of the HFSA is ensured in several respects." "The only area where autonomy could be further enhanced is by empowering the HFSA to issue legally binding regulations." The position of the EU Committee is similar.

So far HFSA has implemented all methodological developments allowed by current legislation, and further advances call for statutory amendments. It is HFSA's intention to have the draft amendments passed as soon as possible following broad professional consultation. The Supervisory Council's meeting was an important milestone in this consolidation process.

Hungarian Financial Supervisory Authority