Publication of the Regulation of Payment Services Memorandum of Law, 2022 for public comments
20 January 2022
Dear Colleagues and friends,
We would like to bring to your attention that on the 10th of January, 2022, the Ministry of Finance has published for public review and comments the draft Regulation of Payment Services Law, 2022 (the “Law“). Comments can be submitted until the 31st of January, 2022.
The Law is published as a supplementary step to the legislation of the Payment Services Law, 2019, which was enacted pursuant to the recommendations of the subcommittee of the Committee for Increasing Competition in Common Banking and Financial Services, and regulates the consumer protection aspects applicable to payment service providers. This follows the Government’s decision from the 1st of August 2021 regarding “Promoting the payments market – regulating the practice of payment services” (the “Government decision“) and replaces the draft law regarding the supervision and licensing of payment services providers, which was published in August 2018 and subsequently disregarded.
The Law proposes to regulate the provision of payment services. These services, which will require a license and will usually be supervised by the Israeli Securities Authority (the “ISA“), include payment initiation (writing a payment order, using an interface system for issuing payment instructions in a payment account managed by a payment account manager who does not provide the payment initiation service, at the request of a customer); Issuing a payment order (a payment order issued through an interface system for issuing payment instructions, on behalf of a payer to the payer’s account manager, at the customer’s request); Management of a Payment account (as defined in the Payment Services Law); Acquiring of payment transactions (as defined in the Payment Services Law); Issuance of a means of payment (as defined in the Payment Services Law) and transfer of funds to a beneficiary without managing a payment account for it. As set out below, certain EU regulated licensed non Israeli entities may be exempt from certain requirements under the Law.
Pursuant to the explanatory notes of the Law, the purpose of this legislation is to regulate the traditional electronic payment activities included in PSD2 and it is expected to encourage competition by allowing non-banking entities to engage in such activities and develop alongside the existing banking players in the market, all while protecting customers interests.
It is proposed, that payment companies will be licensed and regulated by the ISA (with the exception of insurers who will be licensed and regulated by the Commissioner of the Capital Market Insurance and Savings and also excluding existing credit card companies and banking auxiliary payment acquiring companies, who will be licensed as a “Systemically Important Payment Company ” under the Banking (Licensing) Law, 1981 (which will replace the existing “Merchant Acquirer” license) and will be supervised by the Bank of Israel ). In addition, the Minister of Finance will be authorized to determine that a certain entity or certain type of entities which provide payment services, will also be required to obtain a “Systemically Important Payment Company ” license under the Banking (Licensing) Law (instead of a license under the proposed law), if, at the discretion of the Minister, this is required in order to maintain the stability of the financial system and its ongoing activity.
Payment initiators will be required to obtain a payment initiation license from the ISA or an approval to initiate payments from their relevant financial regulator, as applicable, and will be supervised in accordance with the provisions of the proposed law.
In order to promote competition in the market, the provision of payment services will enable payment companies engaged in the management of payment accounts, acquiring of payment transactions and issuing means of payment, to participate as direct or indirect participants in Controlled Payment Systems, as defined in the Payment Systems Law, 2008 (e.g., systems operated by MASAV and SHVA).
It should be noted that a payment company (except for a payment company that is an insurer) will generally not be allowed to engage in other activities but it will be allowed to provide credit or currency exchange services without requiring an additional license for these services, provided that such services are ancillary to the provision of Payments Services.
Non Israeli Entities
The Law allows for Non Israeli (foreign) entities to apply for a license (and does not require the establishment of an Israeli subsidiary).
Additionally, the ISA will be authorized to grant exemptions from certain requirements as set out in the Law to foreign entities, provided that they are regulated under a foreign law in an OECD member country which applies AML/CFT provisions in the said country and which implements one of the following EU Directives, as amended from time to time:
(1) Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market; or
(2) Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2015 on the taking up, pursuit and prudential supervision of the business of electronic money institutions.
Such exemptions may include, inter alia, exemption from the conditions for obtaining a license; exemption from obtaining a control permit; permission to engage in additional activities, other than the provision of payment services or payment initiation services; exemption from establishing procedures and appointing certain officers as required in the Law; exemption from submitting certain reports to the ISA; exemption from requirements regarding insurance, minimum equity or other collateral, etc.
The ISA may exempt the foreign applicant from all of the requirements mentioned above or any part thereof, and to condition such exemption on conditions specified in the licensee’s license, as applicable. Such exemptions will be granted if the ISA finds that it is justified due to the application of the relevant foreign law provisions, and while maintaining the interests of customers and considering the public’s best interest.
Commencement day and Transitional provisions:
The commencement of the Law is one year from the date of its publication or on the date of entry into force of regulations and provisions on various matters as specified in the Law, whichever is later (“Commencement Day“).
It is proposed to set a transitional order for entities currently engaged in provision of relevant services, which will allow them to apply for a license within 3 months from the Commencement Day and to continue their activity as long as the ISA’s decision on their application has not been made. such entities which on the eve of the Commencement Day held a Provider of Credit license or a Financial Asset Service Provider license will be allowed to continue their activity for 24 months from the Commencement Day, provided they notify the ISA in the manner and time prescribed by the ISA and submitted an application for a license under the proposed law up to 18 months from the Commencement Day. The continuation of such activity is conditional on receiving the ISA’s approval of the application.
For the draft Law Memorandum (in Hebrew) >> Press here
For previous updates regarding this matter:
ur firm has extensive expertise and many years of experience in the field of payment services 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.