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Israel BANKING & FINANCE COUNTRY COMPARATIVE GUIDES 2021 The Legal 500 Country Comparative Guides Israel BANKING & FINANCE Contributing firm Gross Law Gross Law Firm – GKH Firm – GKH Adv. Ofer Hanoh Partner, Head of Banking | [email protected] Adv. Yigal Binyamini Partner | [email protected] Adv. Ran Ben-Ari Partner, Head of Antitrust | [email protected] Adv. Dikla Peleg Partner | [email protected] Adv. Roy Reiss Partner | [email protected] Ido Amir Partner | [email protected] This country-specific Q&A provides an overview of banking & finance laws and regulations applicable in Israel. For a full list of jurisdictional Q&As visit legal500.com/guides Banking & Finance: Israel ISRAEL BANKING & FINANCE 1. What are the national authorities for credit (subject to certain exceptions). banking regulation, supervision and resolution in your jurisdiction? 3. Does your regulatory regime know different licenses for different banking The main national authority for banking regulation and services? supervision in Israel is the Bank of Israel (the “BOI”), which regulates and supervises the licensing applicable While there are certain activities that may only be to banking entities in Israel, subject to the Israeli carried out by a Banking Corporation (as detailed Banking Law (License), 1981 (“The Banking Law”). Other above), certain banking services can be carried out laws which regulate the activity of banks in Israel are: under different licenses. The BOI can grant, besides a The Banking Ordinance, 1941 (“The Banking Ordinance”) Bank license, a Mortgage Bank license, a Foreign Bank and The Banking Law (Service to Customer), 1981 (“The license and a Financial Institution license. Banking Law (Service to Customer)”). Foreign Bank License In addition, there are other banking activities in Israel which are regulated and supervised by two other Non-Israeli banks can operate in Israel in two basic authorities: Investment Advice Investment Marketing forms: (1) obtaining a foreign banking license (2) and Portfolio Management activities are regulated by the establishing a representative office (see answer 6 Israeli Securities Authority (the “ISA”); while some below). A non-Israeli corporation which is a licensed bank Financial Assets Services and the non – banking Credit in a foreign country, can receive from the Governor, a Extension are regulated by the Israeli Capital Market, foreign banking license (“Foreign Bank”). Under the Insurance and Savings Authority (the “CMISA”). Banking Law a Foreign Bank shall engage only in the activities which are permitted to Banking Corporations in During the last year new proposals have been proposed Israel. to change the authorities who regulates the Israeli growing fintech industry. Note that the BOI is also authorized to grant a clearing activity license for credit card companies and to monitor their activities. 2. Which type of activities trigger the requirement of a banking licence? 4. Does a banking license automatically Under the Banking Law, the following activities may only permit certain other activities, e.g., broker be carried out by a banking corporation licensed under dealer activities, payment services, the Banking Law (a “Banking Corporation”), thus trigger issuance of e-money? the requirement of a banking license: The Banking Law sets out the activities a Banking 1. Accepting deposits, subject to withdrawal by Corporation may carry on in Israel. This is a closed list cheque upon demand, in current accounts; that defines what a bank is entitled to engage in. The list 2. Both the acceptance of money deposits from includes, inter alia: thirty persons or more at one time and the grant of credit (subject to certain exceptions); The acceptance of money deposits in current accounts, and subject to withdrawal by check upon demand; the 3. Both the issuance of securities requiring a acceptance of other money deposits; the issue of prospectus under Israeli law, and the grant of securities; maintenance of a system of payments; PDF Generated: 1-10-2021 2/12 © 2021 Legalease Ltd Banking & Finance: Israel purchase and sale of foreign currency; the granting of determining a permit regime for entities seeking to credit; investments in securities; the safekeeping and engage in the aforesaid activities. Following this administration, as an agent, bailee, dealer or trustee, amendment, the ISA published the conditions for and excluding the granting of underwriting obligation, receiving a general permit for foreign stock exchanges the management of a provident fund, the management and for other entities, including Israeli Banking of a mutual joint investment fund, and management of Corporations. portfolios management ;the purchase and sale of securities as a dealer or agent; broking in financial and Regarding custody services, there are recommendations economic transactions in the sphere of its business; of an inter-ministerial committee for “Custodian Services pension Advice and also the performance of a in the Israeli Capital Market” that were published on transaction for a client, as these terms are defined in the 2011 and were adopted by the BOI in 2013. The main Pension Advice and Marketing Law; Investment advice purpose of these recommendations is the protection of and Investment Marketing according to the Investment client assets, inter alia, in cases of insolvency of the Advice Law. custody agent. A Banking license automatically permits a Banking Corporation to engage in the activities detailed in the list 5. Is there a “sandbox” or “license light” above. Investment Advice services are included in the for specific activities? list above, but are also regulated under the Investment Advice Law. Generally, under the Investment Advice Israeli companies play significant role in fintech, and Law, a bank, and any other Banking Corporation which is Israeli regulators acknowledge the importance of Fintech authorized to do so pursuant to the Banking Law may and innovation for the banking and finance industry. engage in Investment Advice without obtaining a license; Being a fintech supporter, the Israeli Government however, those engaging in Investment Advice on behalf adopted a resolution in January 2018 regarding the of the bank must be employees of the bank or Banking establishment of an experimental environment for Corporation, who are either licensed advisers or fintech companies. In accordance with the resolution an authorized to engage in Investment Advice without a inter-ministerial team was established for the license pursuant to the Investment Advice Law. Note, examination of a regulatory adjusted environment for that the Investment Advice Law prohibits banks fintech companies with respect to the rendering of themselves from engaging in Portfolio Management various financial services, e.g. credit extension, activities (however they may control a separate portfolio payments, settlement, discretionary investments, management company). Recently the Ministry of Finance banking (banktech) and insurance (insurtech). published the Securities Law Memorandum (Broker Dealer Activity Regulation) with an aim the regulate the Following the work of the inter-ministerial team, the Broker-Dealers activities in Israel and to subject the government submitted a bill to encourage the persons and entities engaging in such activities to the development of financial technology in Israel (the “Bill”). supervision of the ISA. The Memorandum also stipulates The Bill intents to establish a regulatory sandbox, which that, among others, a Banking corporation, an Auxiliary will enable fintechs to explore their business model and Banking Corporation, and any other corporation products in the Israeli ecosystem. In accordance with the supervised by the BOI in connection with its activities of Bill, a designated committee will operate programs to Broker-Dealers shall be exempted from the obligation to encourage financial technology. Each program will take obtain a license from the ISA. Furthermore, it is proposed 2 – 4 years, and operate under one of the following to exempt foreign Broker-Dealer licensees which engage program types: in the offering and rendering of brokerage services to qualified clients that meet the conditions specified under Licensing Program Type – designated for the First Supplement to the Israeli Securities Law, 1968 fintechs which business is subject to a (“The Securities Law”) from the license obligation, licensing requirement. Under this program subject to registration in the foreign Broker-Dealers type, the fintech may be granted with Registry. regulatory leniencies for a limited time. Accompanying Program Type – designated for Also, a recent amendment to the Securities Law, added a fintechs which business is not subject to a prohibition on offering securities trading services licensing requirement but experience through a securities trading system that is not managed regulatory difficulties. by a stock exchange licensed in Israel (and therefore applies to brokerage services for the purchase of A regulatory authority will monitor each fintech which securities on stock exchanges outside of Israel) by participate in a program. In addition, such fintech may PDF Generated: 1-10-2021 3/12 © 2021 Legalease Ltd Banking & Finance: Israel be subject to designated AML rules, to address the explicitly include “Virtual Currency” as a Financial Asset, difficulties such fintech experience with banks. and generally imposes license requirement on a business of exchange, sale, transmission, management, Adopting the notion that Fintech brings competition to and custody of such Financial
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