Kapolyi Law Firm held a client breakfast at Larus Restaurant together with Rubrik – a cybersecurity firm headquartered in Palo Alto, California.

 Amidst the rapid digitalization of Europe’s financial sector, the pressure to adequately address the corresponding rise in cyber threats has been building up. The Digital Operational Resilience Act aims to address this challenge through a unified strategy for ICT risk management and digital resilience. With the act’s compliance deadline just a year away, financial institutions in Hungary and across the EU need to get their ducks in a row.

The aim of the event was to help clients in the financial sector understand how to navigate the Digital Operational Resilience Act (DORA) and identify effective implementation strategies.

The participants heard from Kapolyi’s senior lawyers – Head of Capital Markets Dr. Viktor Krezinger and Head of IT Dr. Éva Kazella.

Dr. Krezinger explained the tasks and responsibilities that the DORA regulation has set out for managers of financial institutions and what the penalties for non-compliance are.

Dr. Kazella offered practical advice on how to ensure successful compliance of ICT systems with DORA regulatory requirements. She also walked the participants through methods and best practices for achieving regulatory objectives, emphasizing the importance of integrating these practices into ICT systems through a structured approach.

The speakers were joined by Rubrik’s Account Executive Dávid Bokrossy, who highlighted critical practical aspects of the regulation.

Following the presentations, the participants had an opportunity to ask questions and discuss their main concerns, priorities, and projected timelines.

So what is the Digital Operational Resilience Act, and what challenges does it strive to address? Let’s dive in.

What is the Digital Operational Resilience Act?

In force since January 16, 2023, the Digital Operational Resilience Act (DORA) is an EU directive that consolidates and harmonizes the strategy for addressing ICT risk management in the financial sector across EU member states.

One of the main changes the DORA introduced is the requirement for financial institutions to follow “targeted qualitative rules for the protection, detection, containment, recovery, and repair capabilities against ICT-related incidents, or for reporting and digital testing capabilities.” In short, the DORA emphasizes digital resilience. That’s in contrast to the strategy that has so far been favored by financial institutions – namely managing the main categories of operational risk through capital allocation without necessarily managing all the components of operational resilience.

As outlined in Article 1(1), the requirements set out by the DORA focus on the following core areas:

• ICT risk management,
• major ICT-related, operational, and security payment-related incidents reporting,
• digital operational resilience testing,
• information and intelligence sharing in relation to cyber threats and vulnerabilities,
• ICT third-party risk management,
• cooperation among competent authorities, and rules on supervision and enforcement by competent authorities.

The deadline for implementing the technical standards set out by the DORA is January 17, 2025.

It is worth noting that financial institutions – credit institutions, trading venues, investment firms, crypto-asset service providers, insurance and reinsurance undertakings, and other entities in the sector – are not the only ones that need to align their operations with DORA requirements. The directive also applies to “critical ICT third-party service providers” of financial institutions, including providers of cloud computing services, software, data analytics, and data center services. For the list of entities that the DORA does not apply to, see Articles 2(3) and 2(4).

The rising need for a coordinated cybersecurity strategy

The Digital Operational Resilience Act did not get formed in a vacuum. In fact, the pressure for a unified cybersecurity and digital resilience strategy across member states has been building up for a while.

In her speech in 2020, European Central Bank President Christine Lagarde warned that a well-organized cyberattack on major financial institutions could lead to a financial crisis.

The COVID-19 pandemic significantly accelerated digital transformation across most industries – the financial sector has been no exception. From the modernization of payment systems to the proliferation of digital currencies and the rise of online banks, the sector has integrated a whole range of innovations over the past few years.

This deepened the digital ecosystem and infrastructure, thus expanding the cybersecurity risk parameter of the sector ­– in 2022, 78% of Europe’s largest financial institutions experienced a third-party breach. In fact, around the world, the financial sector experienced the second-highest volume of data breaches last year.

In response to the rising cybersecurity challenges, the European Commission adopted the Digital Finance Package that aims to facilitate the delivery of digital innovation to European consumers while effectively managing the risks of the evolving digital ecosystem. The DORA is one of the main legislative frameworks of the package.

With only a year left to ensure compliance with the DORA, it is imperative that financial service providers make digital resilience and ICT governance a priority.

Several R&D investments planned for Hungary have been reported recently. The Hungarian Minister of Foreign Affairs and Trade recently announced that Samsung SDI would bring electric car development to Hungary, in what would be the largest R&D investment ever. At the same time, Stellantis is investing HUF 20 billion in aiMotive, which is developing self-driving technology.

Hungary remains a popular R&D destination for international corporations. According to the latest data currently available, the amount spent on R&D at the level of the national economy exceeded HUF 900 billion in 2021, representing 1.64 percent of gross domestic product, and has been growing steadily over the past ten years. The government has set a strategic goal for Hungary to become one of Europe’s top 10 innovators by 2030, which requires the country to spend 3 percent of GDP on R&D by 2030.

Last autumn, Continental opened its new Application Development Centre in Budapest, further expanding its autonomous mobility activities in Hungary. The centre currently employs 200 software engineers and plans to recruit hundreds more in the coming years. The specialists will focus on the development of long-range radars, radars that detect the vehicle’s immediate environment and various camera systems. I     n addition to its      Budapest headquarters, the company has also started recruiting specialists in Debrecen and Szeged, who will also work on autonomous driving support systems.

Stellantis, one of the world’s largest automotive groups, has also chosen Hungary as its hub for self-driving technology and electrification. The automotive company bought Hungarian software developer aiMotive for a record sum last year, investing HUF 20 billion in the company, which plans to further expand its knowledge centre and world-class development team built up over the years. One of the goals is to have the Hungarian startup’s developments utilised in the vehicles of 14 Stellantis brands by 2026.

The Hungarian Minister of Foreign Affairs and Trade heralded as a giant investment the other major recent project of Samsung SDI, which would be the largest R&D investment ever in Hungary. The South Korean company’s HUF 22.5 billion activity aims to increase the capacity and safety of electric batteries and improve the economics of production. The Hungarian state is supporting the project with HUF 5.5 billion, which it hopes will help create dozens of high value-added jobs. Samsung SDI will also further strengthen its cooperation with Hungarian universities, which already offer automotive and electric battery training.

In October, the list of Nobel Prize winners of Hungarian origin was extended to 18. Katalin Karikó was awarded the Nobel Prize for the development of mRNA-based vaccines in the medical-scientific category, while Ferenc Krausz was awarded the Nobel Prize in Physics for experimental methods for generating attosecond light pulses.

Since the Nobel Prize was first awarded in 1901, the United States has been the clear leader in terms of the number of prizes received by each nation in the 122 years that followed. However, if the ranking is based on population, that is, by how many Nobel Prizes are awarded per person in each country, the results are quite different.      According to this calculus     , the United States comes in at 15th place, while Hungary, with 9.5 million people, jumps to 11th place.

This year, Hungary      has      improved its      position on the population-proportionate                Nobel list in two ways, thereby making 2023 an outstanding year for Hungarian science.      Firstly, it is an historic moment in that two Hungarian scientists won the Nobel Prize in the same year for the first time. Secondly, it will also go down in the history books as the first year that a Hungarian woman was recognised for her scientific achievements with the prestigious honour.      Katalin Karikó was awarded the Nobel Prize in the medical-scientific category for the development of mRNA-based vaccines. This      new technology has paved the way for other developments in medicine and pharmaceuticals, with trials showing promising results in the treatment of several types of cancer, including colon cancer.

Born and educated in Hungary, Ferenc Krausz is a physicist who now lives and works in Germany. He and his fellow researchers were the first scientists to produce and measure attosecond pulses of light, thus establishing the science of attophysics. This technique is projected to open the door to significant advances in drug development, including the creation of new medical imaging techniques. These results achieved by Krausz and his team were awarded the Nobel Prize in Physics by the Royal Swedish Academy of Sciences.

Although it may seem obvious how many Nobel Prizes a country has, in reality it is difficult to establish a real ranking among      countries for a number of reasons. In the case of Hungary, a     t the beginning of the 20th century, the country      was still an integral part of the Austro-Hungarian Empire;      Bratislava was part of Hungary and a Hungarian city, while Vienna was Austrian. The fact that Austria and Hungary were parts of the same      empire means that while Hungary’s      first Nobel Prize winner, the Bratislava-born physicist Philip Lénárd, is listed as a Hungarian, the second Hungarian laureate, Róbert Bárány, a doctor, is a prize-winner that both Austria and Hungary are proud of. If we also take into account who was born abroad or emigrated, where their work was carried out and who was a Hungarian citizen, we get an even more nuanced picture. Of the 18 Nobel Prize winners with Hungarian roots, only twelve were born within the borders of historic or present-day Hungary, and four were Hungarian citizens.

It is also interesting to note that the most Hungarian Nobel Prize winners in each category were in the fields of chemistry and medicine: five were awarded the Nobel Prize in Chemistry and five in Medicine. Four were awarded in physics and two in economics. Elie Wiesel, from a Hungarian Jewish family in Transylvania, was awarded the Nobel Peace Prize in 1986. Imre Kertész was awarded a literary prize for his novel Sorstalanság by the Royal Swedish Academy of Sciences in 2002. He is the only Hungarian laureate to have been born and died in Budapest, in what is now Hungary, and to have written and worked there.

 

 

What are the implications of the newly adopted Guest Workers Act, and is the country ready? We discuss the regulatory, infrastructural, and societal challenges the upcoming influx of guest workers poses to the country.

On June 13, 2023, the Hungarian Parliament adopted an act that introduces a set of new simplified rules for the employment of third-country nationals (referred to with the umbrella term of “guest workers”). The law is supposed to go into effect on November 1, 2023.

Let’s first review what changes the law introduces and who stands to benefit from it before diving into its implications.

A brief summary of the new law

The 2023 Act on the Employment of Guest Workers in Hungary removes some of the red tape currently applied to employers seeking to hire workers from outside the European Economic Area. For example, it eliminates the need for an expert opinion from the labor authority on the application.

The simplified procedure comes with a set of limitations:

• Guest workers will receive their combined residence and work permit for two years – the same as those with a regular permit. However, they can only extend it once for one additional year, while those with a regular work permit can renew it periodically, each time for a period of two years.
• They will not be able to use their status to apply for family unification and bring their family members.
• Their residency will not count toward permanent residency – a route that’s available to regular permit holders.
• In order to apply for Hungarian residency for a different purpose, guest workers will have to travel and start the process from their home country.

Employers will be liable if a guest worker fails to leave the country upon the expiration of their permit. “The employer must do everything possible to ensure that the guest worker can leave the territory of the member states of the European Union no later than the last day of validity of their residence permit” and must “reimburse the cost of expulsion, deportation, and immigration detention,” the act stipulates.

Who stands to benefit from the act on guest workers

Two types of companies will be able to take advantage of the new law on guest workers:

1. Qualified temporary-work agencies
2. Special status (or privileged) employers – these are companies that have a strategic partnership with the Government, those that implement priority investments of national economic importance, and employers who have agreements under the Key Exporter Partnership Program.

Is Hungary ready for the influx of guest workers?

In his address at the year-opening event of the Hungarian Chamber of Commerce (MKIK) back in March, Prime Minister Viktor Orbán announced that Hungary will need 500,000 new workers in the next 1-2 years in order to meet the growing labor demand. Experts argue that based on the potential labor reserve available domestically, it will require 200,000-300,000 additional guest workers to meet the targeted number that the Prime Minister has set.

Already, 25 rental companies received their certification allowing them to bring guest workers using the simplified procedure of the new law, according to Zoltán Karácsony, HR Portal’s job market expert. These companies are heavily recruiting workers from countries like the Philippines, Vietnam, Indonesia, Mongolia, and Kyrgyzstan.

However, is the country ready for such an influx of guest workers?

Probably not.

While the Government argues that the recruitment of guest workers can commence only when a company exhausts its search for labor on the domestic market, there will not be enough enforcement mechanisms to ensure that businesses recruit accordingly.

The ability to recruit from developing countries provides employers with an opportunity to cut costs by offering guest workers lower salaries than they otherwise would’ve to the Hungarian workers – a strong incentive for companies to sidestep the domestic market and go straight to the recruitment of foreign workers.

Zoltán László, the vice president of the Vasas Trade Unions Association, explains another incentive for employers to go directly the guest workers route. “There are automotive plants where a staffing freeze has been announced and new Hungarian workers are no longer being hired, while it is known that hundreds of guest workers will soon arrive at the factory.” According to him, that’s mainly due to the large turnover rate among the Hungarian workers who have more flexibility to change jobs than guest workers.

And what about infrastructure? The upcoming arrival of hundreds of thousands of guest workers poses numerous challenges – accommodation, for one. Already, various local governments oppose the idea of the construction of worker hostels. For example, the mayor of Hajdúszoboszló – a town of about 24,000 people – wrote: “We will take all measures that can prevent the establishment of a workers’ hostel in our city. If it becomes justified, I will make public the names of the individuals who keep foreign guest workers in Hajdúszoboszló.”

Accommodation is just a small part of the infrastructural challenge of receiving such an influx of workers. What about the pressure this will put on the already understaffed offices of the immigration authorities? What about the healthcare system and the ability of hospitals and clinics in smaller towns to cater to the needs of a drastically increased population?

There are a lot of infrastructure-related questions that have yet to be addressed by the Government.

Finally, after all the anti-immigration rhetoric and billions spent on anti-immigration campaigns over the years (e.g., Fidesz spent HUF 1.4 billion on billboard ads alone in the last election cycle), is Hungarian society ready to accept such a large volume of guest workers? A survey by Pulzus revealed that 53% of men and 69% of women in Hungary are against hiring foreign workers. There have already been reports of local populations voicing concern and anger over the unfolding situation and the arrival of guest workers in the local communities.

A policy flip-flop or course correction?

Viktor Orbán made his strong anti-immigration stance abundantly clear – both domestically and on the international arena. For example, he called himself an “anti-immigration” politician at a meeting last year with Austrian Chancellor Karl Nehammer. He regularly pushes back against Brussels and EU’s policies on migration.

“We have never invited anyone here as a guest worker or for any other reason to live with us,” said the Prime Minister in an interview with Kossuth Radio in 2017.

In his statement following a summit on migration with the Chancellor of Austria and the President of Serbia in July this year, the Prime Minister said: “We shall not accept the mandatory quota. Nor shall we accept the obligation to build migrant ghettos and camps. We shall find a legal and political way to ensure that Hungary does not implement the latest decision from Brussels.”

There are countless examples of similar rhetoric from the Prime Minister – it has been one of the main pillars of the political campaign of his party in recent years.

Yet, to appease foreign investors and reassure them that the country has the manpower to meet the labor demands, Viktor Orbán has passed the Guest Workers Act, which opens doors to hundreds of thousands of labor immigrants over the next couple of years.

And, while he and his allies can draw a distinction between illegal immigrants and guest workers who are brought in the country legally and for economic purposes, the fact remains: a large portion of foreigners will be settled in the very towns where people have been overwhelmingly supporting Viktor Orbán’s Fidesz party – in part, because of his vehement anti-immigration stance.

In Debrecen alone, several large-scale investments have already been announced, which include the construction of a BMW factory and battery factories for CATL and Eve Power – both Chinese businesses. Given the scale of these projects, they will require a significant number of guest workers to accommodate the labor needs.

At the moment, it doesn’t seem like the Government is going to backtrack on the Guest Workers Act. Therefore, it remains to be seen how the country will respond in the next 12-24 months when the number of guest workers increases exponentially.

Hungarian industry research[1] shows that there is significant demand abroad for the products and services of Hungarian IT companies. The sector could be a breakout point for the Hungarian economy, despite the ongoing challenge for companies to find suitably skilled workers.

The coronavirus epidemic has accelerated the demand for digitalisation while Hungarian IT firms could also benefit from this trend with their products and services in high demand internationally. Fifty-two percent of the companies surveyed in the industry research export abroad, mainly to European target markets such as Germany, the UK and Romania. The customer base of Hungarian tech firms is mainly from the competitive market, typically non-state-owned SMEs and large corporations, but they also serve the digitalisation needs of almost all sectors of the economy.

One emerging tech company is Seon, a fraud prevention system developer, which could be one of the new stars of the Hungarian IT sector after Prezi, Ustream or LogMeIn, and which was named one of the world’s 200 best fintech companies by CNBC this year. Gloster is another representative of successful Hungarian tech companies looking to break into the global market. In 20 years, it has grown into one of the most promising exporting IT large companies on the Budapest Stock Exchange. Its turnover is now several billion forints, it employs hundreds of people and its customers include Audi and BMW. It is aiming for global success by merging small Hungarian IT companies and has already established itself as a software development specialist in Germany.

The IT sector makes a major contribution to Hungary’s added value production. It employs around 85,000 people in nearly 42,000 companies. Of the companies surveyed, 69% are engaged in solution and software development, 44% in hardware sales, but there is also a significant proportion of companies that offer their customers completely customized, in-house developments.

The abovementioned industry survey shows that nearly a third of tech companies have a presence in other countries, which mostly involves sales activities, a foreign development base, the use of a foreign distributor and maintaining an office. Furthermore, Hungarian firms in the sector are typically competing against each other, with only 33% of respondents having a foreign competitor.

Apart from the success, the tech firms surveyed mainly report difficulties in the labour market. They identify the integration of recent graduates into the market as a challenge and are increasingly developing their employees through internal training, as the IT sector is the fastest changing technology sector. Despite this, experts say that the Hungarian IT sector remains on solid ground and tech firms focusing on their own exportable developments could be an important breakout point for the Hungarian economy in the future.

[1] Industry research of Makronóm Institute, 2023: https://index.hu/gazdasag/2023/02/06/kulfold-export-technologia-ceg-vallalat-magyar/