The Hungarian National Bank (MNB) has reported a sharp rise in the number and value of cyber fraud incidents, emphasizing both the benefits and risks associated with digitalization.

MNB Deputy Governor Barnabás Virág indicated that in 2024, an estimated 226,000 incidents involving card fraud and money transfers are expected to occur in Hungary, amounting to approximately 41.9 billion forints.

Of this total, around 31 billion forints is attributed to losses suffered by retail customers.

Although quarterly data from the MNB suggests that the trend of increasing fraud has plateaued at high levels, there remains a concern that significant financial losses continue to burden consumers.

Cyber fraud is escalating globally, but Hungary has experienced an accelerated rate of incidents, leading to a decline in its ranking among countries with the fewest fraud cases.

The current fraudulent activity concerning card transactions represents about 0.03 to 0.04 percent of total card transactions in the country, positioning Hungary in the middle range of European standings.

Over the past decade, the nature of financial cyber fraud has evolved significantly.

Previously prevalent forms included the theft and cloning of physical bank cards.

Today, phishing schemes, psychological manipulation, counterfeit investment offers, and imitation online stores dominate the landscape.

The five most common types of fraud now reported include fake investments, bogus banking or e-commerce websites, postal package scams, the so-called “grandparent scam,” and romance fraud.

Virág noted a concerning trend regarding the allocation of financial losses from fraud: a growing proportion is increasingly being passed on to customers.

Previously, banks bore much of the financial burden, but now over 98 percent of losses from transfer fraud and 72 percent from card fraud are being shouldered by consumers.

This shift is attributed to significant customer negligence, although there is also concern over the responsiveness and sensitivity of banking systems to fraud detection.

In response to the rising incidents and a decline in public trust in the financial system, the MNB has announced a comprehensive initiative referred to as “five strikes,” set to take effect on July 1, 2025. Key to this initiative is the establishment of a Central Fraud Detection System (KVR), operated by Giro Zrt., designed to facilitate real-time processing of data to identify suspicious transactions.

This system is capable of providing feedback to banks within half a second, enabling them to halt questionable financial movements before they are executed.

The KVR's success hinges on adequate data sharing among banks, with the MNB urging them to connect promptly to the system and to develop their own real-time fraud detection mechanisms.

Banks failing to meet the implementation deadline may face sanctions, despite the project having been in development for over a year and a half.

Data protection regulations have delayed the system's initial data upload, necessitating a gradual learning and fine-tuning process.

In the context of Hungary's immediate payment system, which allows transfers to be completed within five seconds, swiftly identifying accounts used by fraudsters remains a challenge.

These accounts are often set up under front names and appear legitimate, allowing criminals to quickly transfer money overseas or withdraw cash.

Presently, banking systems cannot monitor all transfers, but the KVR aims to identify such accounts using network pattern analysis, signaling the sending and receiving banks when multiple significant transfers occur within a narrow timeframe.

The MNB expects banks to fully comply with prior and forthcoming recommendations related to fraud prevention and will monitor adherence closely, imposing penalties on non-compliant institutions.

A legislative amendment will establish stricter liability rules for banks concerning fraud losses.

Under the revised regulations, banks that fail to implement robust customer authentication for suspect transactions will be held liable for the full amount lost.

Additionally, banks will also bear responsibility for losses incurred if fraudsters manipulate customers by pretending to operate under the bank’s name.

This regulatory framework aims to encourage banks to enhance their security measures.

Virág cited a Dutch example where similar regulations resulted in a 69 percent reduction in customer losses within one year of implementation.

However, the MNB has clarified that such liability assignments will apply only to the first loss incurred (first loss principle), thereby limiting the banks' responsibility in cases of repeated fraud involving the same customer.

In Hungary, existing laws previously allowed for the automatic absolution of banks from liability based on customer negligence, as fraud cases typically arise from clients inadvertently providing their data to criminals.

This upcoming change will redefine how responsibility is assigned, necessitating customer recourse through legal channels if banks refuse to reimburse first loss claims.

The MNB aims to foster an effective ecosystem for fraud prevention involving all stakeholders, with a long-term goal of restoring the security of digital finance as these technologies increasingly define daily life.

In recent weeks, controversy surrounded MBH Bank, which faced a wave of attacks utilizing a counterfeit website closely mimicking its own.

This incident has highlighted the need for increased vigilance among banks regarding the emergence of such fraudulent sites.

The first loss principle will also apply to losses incurred through transactions made on these imitation websites.

The MNB has signaled that a broader response is necessary, extending beyond national jurisdiction to include a unified effort at the European level to counteract the systems enabling such fraud.

One potential role in this fight could involve the Cyber Shield initiative, which aims to foster unprecedented collaboration among various agencies and organizations, including the MNB, the Hungarian Banking Association, government ministries, law enforcement, and cybersecurity entities.

Virág underscored the importance of security over convenience in online financial transactions, as heightened awareness and caution from customers will be crucial in mitigating cyber fraud.