Amendment to the Anti-Money Laundering Order – Application to Financial Asset Service Providers and Updating Credit Service Providers Obligations

Dear clients and colleagues, On March 14, 2021, an amendment to the Israeli anti-money laundering order that applies to credit service providers[1] (was published in Israel’s official Gazette. This amendment mainly imposes obligations under the anti-money laundering and terror financing regime, on financial asset service providers (by expanding the order applicable to credit service providers to cover this sector as well, with appropriate adjustments), and updates certain of the order’s provisions that currently apply to credit service providers. Imposing AML related obligations upon financial asset service providers is a complimentary step to the entry into force of the provisions of the Supervision of Financial Services (Regulated Financial Services) Law, 2016 (RFS Law) on October 1, 2018 (which regulates licensing, regulation, supervision and enforcement provisions relating to financial service providers), and to the addition of “financial service providers” (which includes financial asset service providers) to the list of financial entities listed in the Prohibition on Money Laundering Law-2000 that are subject to designated AML obligations thereunder. The following are a number of key provisions under the amended order:

1. Applicability of the amended order. The amended order only applies to those who are required to obtain a license for the provision of credit services or services in financial assets under the RFS Law, excluding those who engage in ATM services (excluding virtual currency ATMs).

 

2. Key amendments in the amended order. In general, the order includes the same AML obligations currently included in the AML orders that apply to other institutions in the financial sector (e.g. KYC, registering identification details, identification and verification requirements, reporting requirements, record keeping, ongoing control requirements, adopting an AML policy, etc.), while adapting those requirements to meet the nature of financial service added to the order – the provision of financial asset service. Moreover, further additions and adjustments are included concerning specific obligations pertaining to virtual currencies and electronic transfers on the basis of FATF recommendations for these matters.​In this context, the following amendments were made:

• Definition of virtual currencies. The order defines “virtual currency” (a term previously not defined in the Israeli legislation), “virtual currency wallet address” and “transaction amount” for virtual currency.

 

• Replacing the definition of “service recipient in a low amount” with “occasional service recipient.” The order includes certain waivers of requirements in respect of such a service recipient. The definitions include a threshold to be examined over a period of six months. Furthermore, a designated definition for an occasional service recipient for virtual currency services was added, in respect of which a lower threshold is applicable.

 

• A detailed and designated provision was added regarding electronic transfers and transfers of virtual currency. This provision mainly relates to the obligation to register identification details of the transferor and transferee in the transfer documents (noting the amounts set forth in the order), and, in some cases, and obligation to check such information vis a vis identification documents. These provisions distinguish between different situations, including: electronic transfer abroad; transfer of virtual currency; electronic transfers within Israel; electronic transfer received from abroad; receiving transfers of virtual currency; and receiving electronic transfers from abroad that are intended for a service recipient that is a financial institution.

 

• The ongoing reporting requirements to the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA) were broadened, and now also include reference to the provision of financial asset service (including, the reporting requirement for providing service in financial assets for a service recipient in an amount equal to at least NIS 50,000). Additionally, the requirement to report unusual activity was broadened to also apply to financial asset service providers, and the list of activities that may be deemed unusual activity under the order was updated (as set forth in the amended Fourth Supplement to the order). The list now includes (among other items) certain virtual currency-related activities. Moreover, the list of details that must be included in reports to IMPA was updated.

 

• Screening. The amended order includes a broader list of sanctions lists against which screening must take place for service recipients, holders of power of attorney, beneficiaries, controlling persons, and parties to a transaction. As a result, in addition to the lists of terror organizations and operatives, screening must also be carried out against lists of entities designated as aiding the proliferation and financing of weapons of mass destruction under the Prevention of Proliferation and Financing of Weapons of Mass Destruction Law-2018. Additionally, the definition of the term “transaction” for which screening must take place for parties thereto was expanded, and now also includes virtual currency transfers.

 

• Identification requirement. Before the amendment, the order enabled credit service providers to identify service recipients using technological means approved by the Supervisor of Financial Service Providers (the Supervisor) that enables clear visual identification of the service recipient. In December 2020, the Supervisor published instructions related (inter alia) to this identification option (in a circular entitled “Remote Online Engagement with Service Recipients” that applies to credit service providers (and operators of credit brokering systems) that are corporations. For the circular (Hebrew), click here). The amendment to the order refers to the Supervisor’s instructions in this regard (and, therefore, to this circular) regarding the use of such technology. It is noted that during the deliberations of the Constitution, Law and Justice Committee of the Knesset (the Committee) regarding the proposed amendment to the order, the representatives of the Capital Markets, Insurance and Savings Authority noted their intention to apply this circular to financial asset service providers as well.Additionally, at the request of certain participants in the Committee’s deliberations, reference was made in the order to conducting identification using technology allowing for visual identification also for service recipients outside of Israel, in compliance with the Supervisor’s instructions.

 

• Update to the ongoing controls requirement. An obligation was added to obtain additional information and if necessary, to update the KYC, in certain situations where a concern of money laundering or terrorist financing has arisen.

 

• Additional provisions that were updated within the framework of the amendment refer to various matters such as record keeping requirements, exemptions from provision of declarations, etc.

 

3. Entry into force of the amended order. In general, the amended order will enter into force eight months from the date of its publication. It is noted that the amended order (inter alia) establishes a mechanism for voluntary compliance before this date regarding financial asset service providers who wish to do so and notified the Supervisor.

  The amendments and updates emphasized above address only some of the many changes that were made within the framework of the amended order, and we suggest reading the amendment carefully and considering each and every change. For the amendment to the order (Hebrew) >>  Click here Finally, we would note that the application of the Israeli AML regime to financial asset service providers and, as such, making such providers AML-regulated entities, is an important and material step. It is a substantial component of the risk assessment of financial institutions providing services to these entities. For these reasons, there are financial asset service providers who are considering the voluntary adoption of the amended order prior to the date of its entry into force (as stated above). The application of the amended order requires preparation and recognizing the different aspects involved in these changes, and particularly, the specific obligations and details included in the amended order. Our firm advises financial service providers regarding a broad spectrum of issues including regarding the amended order.   We would be happy to assist and advise on these changes. Herzog, Fox & Neeman  

Irit Roth | Partner Banking & Finance​​ [email protected]

Neta Dorfman-Raviv | Partner Capital Markets & Securities [email protected]

Ayelet Regavim Kahanov | Partner Capital Markets & Securities [email protected]

  [1] The Prohibition on Money Laundering Order (Identification, Reporting and Record Keeping Requirements for Credit Service Providers for the Prevention of Money Laundering and Terror Financing)(Amendment)-2021.