Promotion of Open Banking and regulation of payment services in Israel in the government’s Economic Plan
21 July 2021
The Israeli Ministry of Finance published a draft of the “Economic Plan for Structural Changes” in Israel’s upcoming budget (also known as the “Arrangements Act”), in which it proposed to approve certain government resolutions designated to promote the competition in the Israeli financial system, in general, and in the payments market, in particular, by regulating financial information services, and the provision of payment services including payment initiation services.
Dear clients and friends,
We would like to draw your attention to the Arrangements Act draft published by the Israeli Ministry of Finance, which deals with structural changes in the economic plan for the upcoming proposed state budget (the “Economic Plan for Structural Changes”), which includes, inter alia, a proposal to approve government resolutions designated to rapidly promote the regulation and supervision of Financial Information Services, Payments Services Providers and Payments Initiation Services (as defined below). These resolutions will be promoted as part of the government’s economic plan legislation related to the Budget Law proposal (also known as the “Arrangements Act”) or within a specified time period set out in the resolution.
The inclusion of such resolutions in the Economic Plan for Structural Changes (to the extent such inclusion, in whole or in part, will be approved by the government), means that its legislation will be given priority by the government, which will increase the chance of a rapid legislation process compared to other legislation initiatives.
The main proposed decisions, are as follows:
1. Open Banking
It is proposed to require the Minister of Finance to prepare draft legislation that, inter alia, regulates the entire activity of providing financial information (“Financial Information Services”).
The proposed regulation will require financial entities that hold clients’ information to enable third parties that are licensed to provide Financial Information Services (or supervised entities that are exempt from such licensing) to receive, upon the client’s consent, online access to the client’s financial information, in order to offer the client various services in relation to the said financial information.
2. Payment Services
It is proposed to require the Minister of Finance to submit for approval within a specific time period to be set out in the resolution, draft legislation regulating the supervision of payment services provided by non- banking entities, based on the principles set forth in the Financial Services Supervision Law Memorandum (Regulated Financial Services) (Amendment No…) (provision of payment services), 2018 (the “Payments Services supervision Law”, the licensees under such Law, the “Payments Services Providers”, and the services under such law, the “Payments Services”) after incorporation of the comments received with respect thereto, and based on the following principles:
a. The Minister of Finance will be authorized to instruct that certain types of entities which provide Payments Services will be required to obtain a license under Chapter 4B of the Banking (Licensing) law, 1981 (this chapter deals with license for acquiring) if required in order to maintain the stability of the financial system.
b. A licensed Payments Services Provider will be allowed to provide credit or exchange currency without requiring a specific license for these services if such services are ancillary to the provision of Payments Services (corresponding with the principles of the PSD2).
c. The regulator will be authorized to determine rules and conditions for the exemption of Foreign Payments Services Providers from the requirements under the Payments Services Supervision Law. For this purpose, a “Foreign Payments Services Provider” is defined as a person or entity who holds a foreign license for the provision of Payments Services, which is subject to regulation and supervision applicable which affords sufficient protection for clients, (as compared to the Payments Services Supervision Law), to the satisfaction of the regulator.
3. Payments Initiation Services
It is proposed to require the Minister of Finance to publish for public comments, within a specific period of time to be determined in the decision, draft legislation that will regulate the provision of Payments Initiation Services (i.e. the initiation of payment orders in a client’s payment account managed by a third party, upon the client’s request) (the “Payments Initiation Services Law”, the licensees under such law, the “Payments Initiation Services Providers”, and the services under such law, the ” Payments Initiation Services”), that will set out the following issues and principles:
a. The required conditions for obtaining a license to provide Payments Initiation Services.
b. The supervision and regulation of the provision of Payments Initiation Services.
c. The regulator will be authorized to set rules and conditions for the exemption of Foreign Payments Initiation Services Providers from the obligations under the Payments Initiation Services Law. For this purpose, a “Foreign Payments Initiation Services Provider” is defined as a person or entity who holds a foreign license for the provision of Payments Initiation Services, which is subject to regulation and supervision which provides sufficient protection for clients, (as compared to the Payments Initiation Services Law), to the satisfaction of the regulator.
d. Under the said regulation, a payment account manager will be prohibited from denying access to the account by a licensed Payments Initiation Services Provider, and a principle of no discrimination between payment orders given by a licensed Payments Initiation Services Provider and payment orders given by the client, will be established.
e. The client will be permitted to approve payments carried out by a licensed Payments Initiation Services Provider and not only with his payment account manager.
f. Relevant consumer protections provisions will be set.
The above mentioned proposals are the product of extensive professional work done in recent years and constitute another milestone in the actions taken in order to reduce centralization and promote competition in the financial system in Israel. Providing access to financial information and facilitation of provision of payment services by Foreign Payments Services Providers and Foreign Payments Initiation Services Providers may remove significant barriers and facilitate the entrance of new players to the payment services market in Israel, and may lead to increased competition in this field.
For the relevant decisions ( in Hebrew) >> click here
Our office has extensive expertise and many years of experience in the field of financial regulation. We monitor and follow all regulatory developments in the fields of Payments Services and in the field of Open Banking, assisting and advising leading entities in Israel and around the world. We will be happy to be at your disposal and assist in any issue relating to these matters, including with respect to the proposed regulation regarding the supervision and licensing of the Payments Services Providers and the Payments Initiation Services Providers, as well as in any question or clarification in this context.
Department of Financial Regulation and Banking Department
Herzog Fox Neeman