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Banking Corporation Required to Enhance Customer Due Diligence and AML/CFT Measures

The Banking Supervision Department of the Bank of Israel has issued a new directive requiring banking corporations to strengthen their customer due diligence procedures and anti-money laundering/counter-terrorism financing (AML/CFT) measures.

Directive Requirements

As part of the directive, banking corporations are required to:

Obtain detailed information about customers, including:
- Identity
- Business activity
- Expected scope of activity at the corporation
Use this information to assess risk associated with each customer and develop a policy and procedure for managing AML/CFT risks
Implement a Know Your Customer (KYC) process
Screen against sanctions lists
Maintain controls and other information required for managing AML/CFT risks, including:
- Verifying the identity of customers
- Monitoring their transactions on an ongoing basis

Additional Requirements

The directive also requires banking corporations to:

Provide full disclosure to regulated financial entities about expected costs of managing an account and performance indicators of activities in the account
Obtain a registration number (GIIN) for foreign or additional tax domicile customers, including compliance with international agreements on exchange of information for tax purposes, such as FATCA

The directive requires banking corporations to screen against lists of designated persons by:

The US Office of Foreign Assets Control (OFAC)
The EU
The UN

Background

This directive is part of a broader effort by the Bank of Israel to strengthen AML/CFT measures in the banking sector. The Prohibition on Money Laundering and Terrorism Financing Orders, which came into effect recently, has introduced new requirements for regulated financial entities, including banks, to manage AML/CFT risks.

Reaction

The directive is seen as a significant step towards enhancing customer due diligence and AML/CFT measures in the Israeli banking sector. Industry experts have praised the move, noting that it will help reduce the risk of money laundering and terrorist financing and enhance the reputation of Israeli banks globally.

However, some industry players have expressed concerns about the complexity and cost implications of implementing the directive’s requirements. The Banking Corporation Association has called for greater guidance and support from regulators to help banks comply with the new requirements.

Next Steps

Banking corporations are required to submit their approved policy and minutes of board discussions within 90 days of receipt of the directive. The Banking Supervision Department will monitor compliance with the directive and provide leniencies for banking corporations that demonstrate good AML/CFT practices.