Publication of Draft Provision of Financial Information Services Law, 2020

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Publication of Draft Provision of Financial Information Services Law, 2020

9 July 2020

Dear Clients and colleagues,

In recent years, the Israeli government and the Bank of Israel have removed certain barriers to competition in  the financial market, and specifically in the banking system, in an effort to facilitate the entry of new participants. The changes include reducing the level of capital requirements required from banks, deposit unions and credit unions, and selection of service provider for the establishment of an office for central computerized banking services. In addition, the government is expected to complete the banking mobility reform during 2021, which will simplify the transition of customers between banks. Such steps have increased, and will continue to increase, the number of participants in the market and will benefit customers. However, it is still necessary to address the regulation of financial information services, in order to provide customers with sufficient information to make an informed decision whether to change providers.

In an effort to address this matter, the draft Financial Information Services Law, 2020, (“Draft Law”) was published on June 24, 2020. This Draft Law was drafted in collaboration between the Ministry of Justice, the Bank of Israel, the Ministry of Finance, the Capital Markets, Insurance and Savings Authority, the Competition Authority, the Privacy Authority and the Securities Authority. The draft is currently open to comments from the public until July 15, 2020.

The purpose of the Draft Law is to replace certain provisions of the Supervision of Financial Services (Regulated Financial Services) Law, 2016 (“RFS Law”) relating to comparison of financial services. The Draft Law aims to regulate all activity relating to provision of financial information services, both in relation the service providers and to financial institutions where customer financial information is stored. It is proposed that the Israel Securities Authority be the regulator responsible for financial information services. In addition, it is proposed to establish a licensing requirement in order to provide financial information services, subject to specific exemptions for certain licensed financial entities, as well as various provisions that will apply to all financial information service providers.

“Financial information services” includes, inter alia, services for storage of financial information from different sources; comparison of prices, costs and yields; transfer of information to financial entities listed therein in order to receive competitive quotations for the services which customers require, or in order to assist customers in contracting with such financial entities, as well as advice regarding management of finances. Furthermore, the Draft Law seeks to regulate obligations to be imposed on financial entities regarding their role as information sources that hold financial information with respect to their customers, on which the financial information services providers rely on when providing financial information services in accordance with the Draft Law.

Subject to receipt of permission from the customers, the proposed regulation will allow the financial information service providers to receive online access to financial information relating to the customers from financial information sources. Similarly, information sources will be required to grant financial information services providers access to online financial information of a customer, subject to receiving such customer’s consent. On the basis of this information, such providers shall offer, online financial information services as well as additional services. The use of the customers’ financial information will be for benefit of such customer, and solely for the purposes of  assisting its financial management. The proposed regulation will allow technological flexibility, and address different issues regarding customer privacy and data protection. It should be noted that, in order to avoid conflicts of interest between service provider and the customer, it is proposed to limit activities of a service provider when providing services that raise a conflict of interest.

In the first phase, similar to the principles of the second European Directive on Payment Services (PSD2), the obligation to allow the providers of financial information services with online access to financial information will be imposed on banks, credit card companies in relation to their activities as issuers and on deposit and credit associations. At a later stage, the possibility of applying the aforementioned obligations to other financial service providers, such as provident funds management and insurance companies, entities providing securities trading services and other entities regulated by the Law, will be reviewed in order for the customer to be able to obtain its financial information in an efficient, accessible and convenient way.

In conclusion, and following the proposed regulation, financial information services will enable customers to diversify financial services and products among various providers, instead of concentrating their financial portfolio in one place, and will enhance their ability to compare between products and services offered by different financial providers. The financial providers will improve their ability to offer personalized solutions to customers’ specific needs and increase their competitiveness. Regulating financial information is a significant step in promoting competition in the financial market. It is essential in order to supplement the other measures taken by the Israeli Government and the Bank of Israel in recent years, and to realize the competitive element included therein.

For the official publication of the Draft Law (in Hebrew) >> click here

Please do not hesitate to contact us with any questions or if you require any clarification regarding any of the matters above.

Herzog Fox & Neeman

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