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AML Supervisory powers proposed to be granted to the Israeli FIU over Financial Service Providers

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AML Supervisory powers proposed to be granted to the Israeli FIU over Financial Service Providers

10 April 2022

Dear Colleagues and friends.

We write to update you that on March 28, 2022 the Ministry of Justice published a memorandum of law proposing to grant the Israel Money Laundering and Terror Financing Prohibition Authority (“IMPA“), which is Israel’s financial intelligence unit (FIU), new supervisory authority over Financial Service Providers regulated under The Supervision of Financial Services (Regulated Financial Services) Law, 2016 (the “RFS Law”), including Financial Asset Service Providers (the “Memorandum“). This is the first time it is proposed to grant IMPA supervisory powers.

In 2001, under the Prohibition on Money Laundering Law, 5760 – 2000 (the “AML Law“), a registration obligation was imposed on some financial service providers. This regulation, however, was very partial, did not encompass all financial service providers and did not address regulatory aspects unrelated to anti-money laundering. Subsequently, in 2016, the RFS Law, was enacted, which established a comprehensive and complete regulation on Financial Service Providers.

As of today, Financial Service Providers (FSP’s) are required to report to IMPA as part of their AML duties, but are regulated and supervised by the Supervisor of Financial Services (which is the Capital Markets, Insurance and Savings  Authority) (“CMISA”), also for the purpose of their duties regarding AML/CFT.
It is proposed that IMPA will also supervise Financial Service Providers, but only with respect to AML/CFT matters, in addition to CMISA. The Memorandum suggests that this would utilize IMPA’s expertise, without derogating from CMISA’s authority over its supervised entities and it is expected that the overall supervision regarding AML/CFT will improve.

Pursuant to the Memorandum, it is suggested that both CMISA (which remains a supervisor of Financial Service Providers, including for the purpose of AML/CFT regulation) and IMPA shall implement procedures coordinating their supervision, taking into account the following principles:

  1. Coordinating an annual audit plan while giving the CMISA the first right to determine the list of Financial Services Providers CMISA will audit in that year;
  2. Coordinating an annual audit plan in a manner that will prevent AML audits of the same Financial Services Provider, by more than one supervisor in that year;
  3. Performing risk-based supervision;
  4. Establishing a uniform policy regarding imposition of financial sanctions.

The said procedures will be published on the websites of both IMPA and CMISA.

In addition, it is also proposed in the Memorandum that an audit department should be established in IMPA, and that the head of IMPA will appoint one of IMPA’s employees to serve as a Commissioner in respect of Financial Service Providers for the said AML supervision purposes (“IMPA’s FSP’s Commissioner“) (in addition to CMISA, as above-mentioned). In general, IMPA’s FSP’s Commissioner will have the same powers currently vested in the supervisor of CMISA under the AML Law, except for the authority to give instructions concerning the methods of application and operation of the AML duties, which will remain with CMISA.

Additionally, to ensure separation between the information that IMPA possesses as an intelligence body and its new supervisory role, it was proposed that there will be full segregation (personally, functionally and operationally) between the said IMPA’s FSP’s supervision department and the IMPA Intelligence Division, and therefore the IMPA’s FSP’s Commissioner and Commissioner’s employees will not have access or authorization to the IMPA’s intelligence database. In this regard, the IMPA’s FSP’s Commissioner shall be authorized to request and receive information from IMPA’s database only for the purpose of supervising and for the purpose of imposing a financial sanction, all in accordance with the AML Law.

As a result of granting supervisory authority also to IMPA, it is also proposed to amend the provisions of the AML Law dealing with financial sanctions so that IMPA also has the authority to initiate sanctions and the composition of the financial sanction committee’s members will be updated.

It was also proposed to allow the sharing of information between the Supervisor of CMISA and the IMPA’s FSP’s Commissioner for the purpose of fulfilling their duties.

The Memorandum is open for public comments until April 18, 2022.

The above summary is not exhaustive. For the Memorandum [Hebrew] – Click here

Our firm has extensive expertise and many years of experience in the field of financial regulation and AML in all its aspects. We monitor and follow all regulatory developments in these areas, assisting and advising leading financial entities in Israel and around the world, whether it is ad hoc or regular advice, providing opinions on complex issues, inquiries to regulators and more.

We will be happy to be at your disposal and assist with any issue in these areas, including in connection with the above publication and the remarks and comments regarding it, as well as any questions or clarifications.

Irit Roth | Partner
Banking and Finance Department
rothi@herzoglaw.co.il

 

Neta Dorfman Raviv | Partner
Banking and Finance Department
dorfmann@herzoglaw.co.il

 

Ayelet Regavim Kahanov | Partner
Banking and Finance Department
regavima@herzoglaw.co.il

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