Banking Compliance Checklist in Israel: Understanding the Regulatory Landscape
Israel’s banking system is composed of 16 banks, four foreign banks licensed in the country, and three large and three smaller card companies. The largest Israeli banks are Bank Leumi, Bank Hapoalim, Israel Discount Bank, Bank Mizrahi-Tefahot, and First International Bank (FIBI). These banks have a significant market share, with Bank Leumi and Bank Hapoalim controlling around 60% of the market.
Regulatory Framework
The Bank of Israel, the country’s central bank, is responsible for regulating and supervising the activities of banks through its Banking Supervision Department. The department aims to achieve several objectives, including:
- Protecting and maintaining the stability of banks
- Protecting banking customers
- Promoting competition
Recent Developments
In recent years, the Israeli banking system has undergone significant changes, including:
- Improvements in stability
- Reduced exposure to large financial risks
- Adoption of more competitive and technology-oriented business models
- Banks have also learned from past experiences by reducing exposure to large borrowers and increasing diversification of their credit portfolios
Non-Bank Credit Market
The Supervision of Financial Services Law (Regulated Financial Services) was enacted in 2016, requiring non-bank lenders to obtain a licence to provide credit. The law sets forth certain exemptions from the licensing requirement for foreign corporations that meet specific conditions, including:
- Being incorporated in OECD member countries
- Holding a banking licence from a regulatory authority in such country
- Lenders who lend solely to business borrowers in loan amounts exceeding ILS 3 million
Brokerage Activities in Israel
In 2019, Section 49A of the Israeli Securities Law entered into effect, prohibiting foreign entities from offering trading services in Israel without a permit granted by the Israeli Securities Authority. Foreign entities can provide brokerage services to Israeli customers either by serving only “Qualified Investors” or by applying for a permit to serve non-Qualified Investors.
ISDA Agreements and Digital Banking
Over-the-counter derivative transactions have become common in recent years, with many Israeli banks and institutional investors entering into derivative transactions under the ISDA Master Agreement with international counterparties. The Bank of Israel has also agreed to grant a licence to a new digital bank, which plans to operate without branches or physical establishments.
Compliance Checklist
Understanding the regulatory landscape in Israel is crucial for any entity operating in the country’s financial sector. A comprehensive banking compliance checklist should include the following key areas:
- Licensing and registration requirements
- Supervision and regulation by the Bank of Israel and other authorities
- Compliance with anti-money laundering and know-your-customer regulations
- Disclosure and reporting requirements
- Brokerage activities and securities trading regulations
- Derivatives transactions and ISDA agreements
Conclusion
By staying up-to-date on these regulatory requirements, financial institutions can ensure compliance and maintain a strong reputation in the Israeli market.