2026-08-07 | Crypto

The European Union and Internal Market Background of Deregulation

The legislator’s express explanatory statement points to the recognition that, in the field of crypto-asset conversion services, the validation obligation required until now functioned as a competition-restricting requirement that simply was not sustainable in conjunction with the implementation of the internal market of the European Union.

This deregulatory and market-opening step organically fits into the comprehensive financial strategy of the European Union. The basis for this is provided by the MiCA Regulation on markets in crypto-assets. The European Union legislation clearly lays down the importance of a harmonised framework, since the absence thereof could cause fragmentation of regulation, which would distort competition within the internal market. Furthermore, it would also make the cross-border expansion of crypto-asset service providers more difficult.

By abolishing the validation obligation, the domestic legislator eliminates this market fragmentation at national level, guaranteeing that the Hungarian regulatory environment does not impose competition-distorting administrative obstacles contrary to European Union law on innovative financial service providers. With this amendment, the domestic legal system gives room to the fair competition envisaged by the MiCA Regulation and to the uninterrupted development of cross-border digital financial services.

Comprehensive Changes Affecting the Legislation

Act XXXVIII of 2026 amends three existing pieces of legislation, thereby fundamentally eliminating the entire doctrinal and institutional background of the validation system.

In order to understand the changes, it is worth clarifying what this burden actually was: under the previous regulation, the purpose of the validation of crypto-asset conversion was the successful identification of the customer and the transaction during the conversion order. This service extended, among other things, to examining the origin of the crypto-asset, verifying ownership of the wallet, as well as examining related persons and profiles.

In practice, this meant that a crypto-asset could legally be converted into money or another crypto-asset only in possession of a declaration of conformity issued by such a validation service provider. This strict requirement is now repealed from Act VII of 2024 on the Market in Crypto-Assets, as are Subtitles 4/A and 4/B of the Act, thereby deleting all previous substantive legal provisions relating to validation service providers and their supervision, including the concept of an unauthorised crypto transaction.

In parallel with this, the institutional provisions related to validation are also removed from the Act on the Supervisory Authority for Regulated Activities, and thus the supervision and registration of service providers validating crypto-asset conversions are removed from the scope of duties of the Supervisory Authority for Regulated Activities.

The most tangible and most significant element of the legislative package is the radical decriminalisation step concerning the Criminal Code. Within this framework, the subtitles “Abuse of Crypto-Assets” following Section 394 of the Criminal Code and “Provision of Unauthorised Crypto-Asset Conversion Services” following Section 408 are repealed in their entirety. This means that the specific criminal offences relating to unauthorised conversion, which were previously punishable by even several years of imprisonment, cease to exist, thereby clearing the market of excessive criminal law exposure.

Transitional Provisions and the Strict Data Destruction Protocol

In addition to the substantive law amendments, the legislation lays down extremely clear and radical transitional rules concerning the immediate closure of ongoing cases, by supplementing the Crypto-Asset Act with a new Section 16/B.

Upon the entry into force of the Act, all ongoing authorisation and supervisory proceedings related to the validation of crypto-asset conversion services shall be terminated ex officio by the Supervisory Authority for Regulated Activities in accordance with the rules of the general administrative procedure. In order to establish legal certainty, the legislation provides that previously issued authorisations relating to the activity of providing crypto-asset conversion validation services shall automatically cease to have effect on the date of entry into force of the Act.

In addition, the legislator placed particular emphasis on the protection of personal and business data by introducing an unprecedentedly strict data destruction protocol. The Act expressly requires that data obtained by validation service providers or the authority in connection with conversions and unauthorised crypto transactions must be deleted in an irreversible manner within only three working days following the entry into force of the Act.

This safeguard rule ensures that data processing arising from the previous, outdated regulation does not continue to burden market participants, providing a clean slate for innovation in the new environment aligned with European standards.