Controlling Shareholder Obligations: A Primer
In an effort to combat money laundering and terrorist financing, the Israeli banking system has implemented various regulations governing the activities of controlling shareholders of accounts. These regulations aim to ensure that financial institutions are equipped with robust risk management frameworks, comprehensive customer due diligence procedures, and effective ongoing monitoring mechanisms.
Key Obligations
Face-to-Face Identification
Controlling shareholders must perform face-to-face identification of account holders and authorized signers using identification documents.
Ongoing Reporting Obligations
Banks are required to submit periodic reports to the Supervisor of Banks detailing their customer base, including information on high-risk customers.
Extraordinary Actions Reporting
Financial institutions must report any extraordinary actions taken by account holders or authorized signers, such as large cash transactions or suspicious activities.
Anti-Money Laundering and Combating Terrorist Financing
To mitigate the risk of money laundering and terrorist financing, banks are obligated to:
- Check identification details against “the List,” a centralized database maintained by the Anti-Money Laundering Authority.
- Formulate policies on know-your-customer (KYC) procedures.
- Conduct ongoing monitoring and reporting obligations.
Regulatory Authorities
In Israel, several regulatory authorities oversee the banking sector:
Supervisor of Banks
Responsible for supervising banks, credit card companies, and entities engaged in clearing debit card transactions.
Bank of Israel
Oversees payment and clearing systems, including the Zahav system.
Capital Market, Insurance and Savings Authority
Regulates non-bank financial institutions, such as non-bank credit providers and financial asset service providers.
Anti-Money Laundering and Terrorism Financing Authority
Responsible for combating money laundering and terrorist financing.
Government Deposit Insurance
Israel’s deposit insurance program provides coverage for deposits up to a certain amount, currently ILS 1 million (approximately USD 280,000). In the event of a bank failure, depositors are protected by the Israeli Deposit Insurance Corporation.
Transactions between Affiliates
When engaging in transactions with affiliates, banks must comply with various regulations, including:
Disclosure Requirements
Banks must disclose all material facts related to affiliate transactions.
Risk Management Frameworks
Financial institutions must establish robust risk management frameworks for affiliate transactions.
Conflict of Interest Policies
Banks must have policies in place to mitigate conflicts of interest between affiliates.
The Israeli banking system has undergone several changes and reforms over the years, including the introduction of new regulations governing transactions between affiliates. These changes aim to ensure greater transparency, accountability, and risk management practices within the sector.