Directive for Payment Companies Regarding the Implementation of Anti-Money Laundering Obligations Using Online Identification Technology

Following the publication of the Prohibition of Money Laundering (Identification, Reporting and Recordkeeping Duties of a Payment Company for the Prevention of Money Laundering and Terror Financing) Order, 2024 (“the AML Order”), on February 13, 2025, the Israel Securities Authority (“the ISA”) published a directive for payment companies regarding the implementation of anti-money laundering obligations using online identification technology (“the Directive”). The Directive is intended to enable payment companies to identify and authenticate a client online, without the need for a physical meeting with the client, while ensuring the reliability of the identification and reducing the risks of money laundering and terrorist financing associated with the use of alternative digital means. Please note that the publication of the Directive affects the commencement date of the AML Order, as it has been determined in the AML Order that the AML Order will come into effect six months from the date of the Directive’s publication.   The Directive specifies the ways in which payment companies are required to implement their obligations under the AML Order when identifying and authenticating the identity of clients using online identification technology. Generally, the Directive allows for identification and authentication procedures using one of the following Online Identification Technologies:

• Video Conference Technology – Technology that enables communication between two or more centers, where video and audio are transmitted in real-time, provided that it is secure and encrypted, in order to prevent data leakage, and to maintain the confidentiality and reliability of the information.
• Visual Identification Technology – Technology for identification based on video communication between the service provider and the service recipient. Such communication can be through real-time visual interaction or non-real-time video photography; provided that it is secure and encrypted to prevent data leakage, and to maintain the confidentiality and reliability of the information.

Different conditions and requirements have been set for the use of each of the technologies. Additionally, the Directive defines “Online Authentication Technology”, which includes: Open Banking, a symbolic bank transfer, or an alternative means of authentication that the Commissioner (the chairman of the ISA) may approve in consultation with the Competent Authority. Please note that the possibility of identifying and authenticating a service recipient refers to a service recipient who is one of the following: an individual who is a Resident; an individual who is a Foreign Resident; a Corporation registered in Israel; and a Recognized Entity (as these terms are defined under the AML Order).   The Directive also includes:

• Preconditions and principles for using Online Identification Technology, including: the requirement to conduct a risk assessment on the subject; the obligation to establish a policy for the use of Online Identification Technology; imposing an obligation on an applicant who wishes to use Visual Identification Technology to submit an independent external expert opinion regarding such technology to the ISA, and obtain the approval of the Chairman of the ISA to use Visual Identification Technology;
• Provisions regarding the responsibility of the service provider’s board of directors – among other things, the board of directors is required: to discuss and approve in advance the possibility of using online identification and the technology that will be used for this purpose; to discuss and approve the policy for the use of such technology; to take control and supervision measures, and more;
• Obligation to appoint an officer for online identification, and related provisions regarding the officer’s status, responsibilities and functions;
• Requirements regarding internal audit;
• Provisions regarding the online identification procedures as well as details of the requirements regarding the use of Video Conference Technology or Visual Identification Technology;
• Provisions regarding the process of registering the identification details of a Casual Service Recipient (as this term is defined under the AML Order) using Online Identification Technology or Online Authentication Technology;
• Provisions regarding the identification process of a service recipient who is a Recognized Entity (as this term is defined under the AML Order), as well as provisions regarding a service recipient who is a Corporation;
• Provisions regarding the possibility of receiving a declaration of a beneficiary and controlling person online;
• Provisions regarding the possibility of online identification through a third party (outsourcing);
• Provisions regarding the possibility of conducting the “Know Your Client” process using technological means;
• Retaining requirements, data security, and information backup requirements;
• Requirements regarding risk management, monitoring and control measures;
• Obligation for a service provider who wishes to implement Visual Identification Technology for providing services to service recipients, to obtain an approval from the Chairman of the ISA. The Directive specifies what information and documents must be provided to the ISA in order to obtain such approval. Additionally, note that according to the Directive, any material change in the technology or the service provided by the service provider using the technology will also require the approval of the Chairman of the ISA prior to its implementation.

  The above highlights are general and are provided for assistance only. They are not exhaustive nor a summary of the provisions of the Directive, and we recommend reading the Directive thoroughly. To read the Directive (in Hebrew), Click here. Alongside the publication of the Directive, the ISA also published a regulatory impact assessment (RIA) report on the subject. To read the regulatory impact assessment (RIA) report on the Directive (in Hebrew), Click here. Our office advises financial entities in the field of payment services as well as in anti-money laundering and terror financing. We have also actively participated in the discussions held regarding the drafting of the AML Order. We would be happy to assist with any questions in this regard and examine the implications of the above to your activities. Banking and Finance Department Herzog Fox & Neeman