Regulatory Requirements for Financial Institutions in Israel Get a Boost

In a significant move to align with global standards, the Israeli Securities Authority (ISA) has been designated as the primary regulator of payment companies’ activities in the country. The Payment Services and Payment Initiation Act of 2023 aims to revolutionize the payment services market by establishing a tailored regulatory regime that fosters competition, sophistication, and technological advancement.

Key Provisions

• The law provides the legal foundation for the ISA to set regulations governing the implementation of the reform.
• Companies providing one or more of the designated “Payment Services” without an exemption will require a Payment Service Provider license from the ISA. These services include:
  • Management of payment accounts
  • Issuance of payment methods
  • Acquiring payment transactions
  • Advanced payment initiation

Scope and Exemptions

• The definition of services requiring licensing is broad, potentially affecting companies that do not consider payment activities as their core business.
• The law grants specific powers to the Finance Minister to determine regulations providing exemptions for entities operating on a limited scale, such as:
  • Those offering payment services for restricted amounts
  • With a small number of clients
• Regulations regarding activity-based exemptions are expected to be published in the coming months.

Coverage and Transition

• The Payment Services and Payment Initiation Act of 2023 does not apply to virtual or cryptocurrency operations, only covering traditional (FIAT) currency payment activities.
• Many entities currently supervised by the Capital Market, Insurance, and Savings Authority (CMISA) will transition to ISA supervision as they provide payment services in addition to other financial services.

Guidelines and Timelines

• The law specifies guidelines and timelines for different types of companies that engage in activities requiring licensing.
• Companies providing payment services whose activity did not require licensing before the reform must submit an initial examination request to the ISA, while those currently licensed by CMISA or holding acquiring licenses from the Bank of Israel have different deadlines.

Licensing Process

• License applications must be submitted by specific dates based on the type of entity providing payment services.
• The ISA has not yet published a specific licensing procedure but will assess applicants’ technological means, expertise, and financial stability during the process.

Expected Impact

The Payment Services and Payment Initiation Act of 2023 is expected to bring significant changes to Israel’s payment services market, enabling a competitive, sophisticated, and advanced industry rooted in technology. The ISA’s supervision will ensure that licensed companies maintain high standards for: + Information security infrastructure + Cyber security + Risk management + Business continuity + Financial means + Equity capital + Insurance coverage + Qualifications of controlling shareholders and officeholders