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concentrated banking sector. In light of this situation, the following regulatory steps
have been taken during the past two years:
The Proposed Law for Promotion of Competition and Reduction of
Concentration in the Banking Sector
In mid-2015, the Minister of Finance and the Governor of the Central Bank of Israel
appointed a committee to examine ways to enhance competition in the banking
and financial sector. The committee focused on the steps required to minimize the
concentration in the consumer and SME's credit sector and to develop non-bank
platforms that will enhance competition. As a result, a law is now in the process of
enactment, with proposed steps including:
• Separation of the credit card companies from the banks: currently, all three credit card
companies operating in Israel are controlled by the banks. Under the proposed law,
the two largest banks will have to sell their credit card companies and not participate
in the operation and issuance of credit cards.
• Regulatory exemptions for new participants in the banking sector: the establishment of
newbankswill facedramatically lowerentrybarriers,includingminimal capital requirements
and no capital adequacy requirement until reaching a certain capital threshold.
• Minimizing the regulatory limitations applicable to the holding of equity stakes in
consumer and SME's credit providers by institutional investors' groups. Such credit
providers will be regulated by the Ministry of Finance and will be permitted to raise
funds in the capital market by debt issuances.
Supervision of Financial Services (Regulated Financial Services) Law
and Supervision of Financial Services (Credit Services and Deposits)
Draft Law
In addition to steps to boost competition in the consumer and SME’s credit sector, the
regulators made efforts to regulate the non-bank credit market, given that such a credit
market cannot functionas aneffectivealternative to thebanks unless aneffective regulatory
regime is established to protect borrowers. This was the basis for two new laws:
• The Supervision of Financial Services (Regulated Financial Services) Law (entering into
effect in June 2017) regulates the activities of financial service providers that are not
banks or institutional investors, such as currency exchange service providers and credit
providers. The law sets license requirements relating to such services, and appoints the
Commissioner of Capital Markets, Insurance and Savings Department as the regulator
in charge of such services. The law already raises questions, including with respect
to international credit providers acting in the large businesses credit sector, requiring
clarifications that will probably be provided as implementation of the law commences.
• The Supervision of Financial Services (Credit Services and Deposits) draft law -
intends to regulate the micro banking sector, mainly credit unions and charity credit
providers operating principally in the orthodox communities. Such service providers
cannot operate under the existing banking laws since generally only licensed banks
can provide credit and receive deposits at once, and the regulation of their activity will
allow further credit alternative to consumers.
Therearealsoother typesoffinancial servicesproviders thatareexpectedtobesubjected
to certain regulatory frameworks as part of the steps take to enhance competition. Such
services include, for example, P2P finance platforms and other crowdfunding platforms.