Israel’s Financial Sector: Regulatory Requirements in 2022 and Beyond
In 2022, Israel’s financial institutions faced a year of regulatory creation, with several circulars and directives published by authorities. Despite these developments, payment services remain unregulated, awaiting new legislation expected to come into effect in 2023.
Regulatory Requirements for Financial Service Providers
The Capital Market, Insurance and Savings Authority (CMISA) was at the forefront of regulation, publishing a series of circulars emphasizing corporate governance in financial service providers. These directives require directors to consider various aspects of company activities, formulate policies, allocate budgets, and appoint responsible officers.
Key Circulars Published by CMISA
- Cyber Risk Management: specifies the manner in which financial service providers must manage cyber risks.
- Risk Management: defines obligatory risk management processes, addressing various business and operational risks.
- Handling Public Complaints: focuses on complaint handling procedures for financial service providers.
- Reporting Requirements for Credit Portfolios: requires licensed credit providers to prepare reports on their credit activities.
Additionally, CMISA published two draft circulars addressing the obligations of financial service providers protecting clients’ financial assets. These directives will require companies to assume responsibility for all links in the transaction chain and limit liability for failures.
ISA Supervisory Regime for Public Companies Operating in Non-Bank Credit Sector
The Israel Securities Authority (ISA) intensified regulation of non-bank credit sector companies, publishing a staff position regarding disclosures required from reporting companies. The position paper specifies risks and risk management methodologies, as well as disclosure requirements for reporting companies.
Open Banking – Financial Information Service Law
The Financial Information Service Law came into effect in June 2022, defining the ISA as the supervisory body responsible for implementing provisions. The law regulates obligatory licensing of entities providing financial information, obligations to information sources, and financial information service providers collecting data.
Payment Services
Despite regulatory developments expected in payment services, no directives have been issued yet. Two memoranda of law were published to regulate this sector, including a memorandum on engagement in payment services and the Payment Services Law.
What to Expect in 2023
The new government and Knesset are expected to promote laws regulating payment services. The new Finance Minister will appoint a new CMISA commissioner and ISA head, which can affect regulatory priorities. Additionally, the Fundamentals of Regulation Law will establish a professional and independent authority for regulations.
Recommendations for Operative Measures in Preparation for 2023
Financial service providers are advised to engage seriously with compliance issues, studying regulatory directives and their implementation impact on operations. Building compliance infrastructure is essential for assessing regulatory requirements and preparing for future directives.
According to Adv. Anat Even-Chen, partner at Barnea Jaffa Lande and leader of the firm’s Regulation practice, companies should take proactive steps to prepare for regulatory changes in 2023. With increased supervisory activities expected from CMISA and ISA, companies must ensure they are compliant with existing regulations and ready for new directives.
By taking these measures, financial service providers can stay ahead of the regulatory curve and maintain their competitiveness in Israel’s rapidly evolving financial sector.