Banks Face-To-Face Identification Requirements Strengthened

In an effort to combat money laundering and terrorist financing, the Israeli government has strengthened regulations governing the financial sector. As part of this initiative, banking corporations are now required to perform face-to-face identification of account holders and authorized signers.

Enhanced Reporting Obligations

Banking corporations must perform ongoing reporting obligations and report any “extraordinary” actions. They must also check identification details against a centralized list of declared terrorist organizations and individuals designated as terrorist operatives by the Anti-Money Laundering Authority.

These regulations are in accordance with the provisions outlined in legislation, the Anti-Money Laundering Order, and Proper Banking Management Directive No. 411, published by the Supervisor of Banks.

Regulatory Authorities

The Bank of Israel’s Supervisor of Banks is responsible for overseeing banks and other financial institutions operating in Israel. Non-bank financial entities require a license from the Capital Market, Insurance and Savings Authority, which is overseen by the Supervisor of Financial Services.

In January 2022, a memorandum was published outlining plans to subject payment services providers to a different authority. As part of this plan, certain financial asset service providers will be transferred from the supervision of the Capital Market, Insurance and Savings Authority to the Securities Authority.

Government Deposit Insurance

Israel’s government provides deposit insurance, ensuring that deposits up to a certain amount are protected in the event of a bank failure. The extent of this coverage is not specified.

As for the government’s ownership interest in the banking sector, there has been no indication of plans to increase or decrease its stake.

Zahav System

Israel’s financial infrastructure includes interbank payment and clearing systems used to transfer and clear payments. The Zahav system, implemented in 2007, is a real-time credit and transfer system that meets international standards and has significantly reduced risks inherent in payment systems.

The system eliminates credit and liquidity risks by ensuring that payments are final and irrevocable upon completion of the transaction. It also provides banks with greater control over their liquidity, allowing them to manage it more effectively.

Transactions Between Affiliates

Transactions between a bank and its affiliates are subject to various legal and regulatory limitations. An “affiliate” is defined as an entity that has a significant influence or control over the bank’s operations.

The Supervisor of Banks has published a Proper Banking Management Directive outlining permissible and prohibited activities for financial institutions, including restrictions on transactions with affiliates.

These regulations aim to prevent money laundering and terrorist financing while ensuring the stability and integrity of Israel’s financial system.