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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.