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The Supervision of Financial Services (Regulated Financial Services) Law, 5776-2016: Draft Legal Position Paper and Draft Regulations Regarding Territorial Application of the Law and Exemption From Licensing Requirement.

7 June 2017

Dear Clients and Friends,

On 28th May 2017, the Capital Market, Insurance and Savings Authority (the “Capital Market Authority”) published a draft legal position paper regarding territorial application of the Supervision of Financial Services (Regulated Financial Services) Law, 5776-2016 (the “Law”), which came into force in respect of the provision of credit on 1st June 2017,  and separate draft regulations regarding exemption from licensing under the Law.

The drafting of the Law is extremely broad, and on its face, the Law covers activities going beyond the initial objective of the Law. The purpose of the draft legal position paper and the draft regulations is to exclude from the application of the Law the types of entities and activities to which the Law should not apply.

Our firm advises a large number of entities operating in the financial sector, and on their behalf we are currently in the process of collating comments to the draft regulations. The Capital Market Authority has requested comments from the public by 28th June 2017.

  1. Draft legal position paper of the Capital Market Authority: Territorial application in respect of the licensing requirement for the provision of credit under the Law, in which the Capital Market Authority expresses its position as follows:
  • The Law has territorial application to Israel only, and is not intended to apply to credit activity conducted outside of Israel, even if the credit is provided to Israeli citizens. This position reflects the objective of the Law to protect borrowers situated in Israel; the Law was not intended to protect borrowers and lenders in foreign countries who may benefit from parallel or similar protection under laws applicable in those countries.
  • The provision of credit by way of business will be considered as performed entirely outside of Israel, and thus not requiring a licence under the Law, subject to the fulfilment of the following cumulative conditions:


  • All of the loan and transaction documents between the lender and borrower (with the exception of collateral) are written in a foreign language, signed outside of Israel and subject to foreign law;


  • The borrower’s account in which the credit is received is located in an institutions outside of Israel;


  • There is no solicitation of new clients in Israel; and


  • No meetings are held within Israel.


The full draft of the legal position paper is available here (in Hebrew only).

  1. Draft Control of Financial Services (Regulated Financial Services) Regulations (Exemption from Licensing) Regulations, 5767 – 2017 propose the following exemptions:


  • Exemption from the licensing requirement with regard to the provision of credit for banking corporations licensed in an OECD-member country with credit rating of A+ and above or other country approved by the Commissionaire of the Capital Market, subject to any conditions specified by the Commissionaire, provided that the activity of the banking corporation is conducted mainly in that foreign country and does not require a licence under Israel’s Banking (Licensing) Law, 5741-1981.


  • Exemption from the licensing requirement regarding the provision of services in financial assets for Israeli licensed insurance brokers, lawyers and accountants, the activities of which are already regulated, including obligations in the context of anti-money laundering and counter-terrorism financing.


  • Temporary Exemption, until 1st December 2017, from the licensing requirement with regard to the provision of credit by investment funds that meet all of the following conditions:


  • They are limited partnerships which were established for a limited period;


  • They are engaged in providing credit solely to corporations, the annual income of which in the year preceding the date of provision of the credit exceeded NIS 100 million; and


  • The total credit provided to each borrower is not less than NIS 10 million.


The full draft of the Regulations is available here (in Hebrew only).

As mentioned above, we are currently collating comments to these drafts for submission to the Capital Market Authority. Please do not hesitate to contact us with any comments or questions, or if you require any clarification regarding any of the matters above.

Herzog Fox & Neeman



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