Published: Proposed regulatory instructions regarding equity, insurance, or other collateral security
16 January 2024
Dear clients and friends,
We would like to bring to your attention that the Israeli Securities Authority published proposed regulatory instructions regulating capital requirements for the activities of payment companies and holders of a basic Initiation license, in accordance with the Regulation of Payment Services and Payment Initiation Law, 2023 (“Regulation of Payment Services Law“) as well as insurance and deposit requirements for companies engaging or seeking to engage in basic initiation services, advanced initiation services, or financial information services, aligning such requirements with the European regulation applicable to similar entities operating in Europe.
The proposed instructions suggest establishing an own funds model consisting of two main components:
- The first component is the initial capital requirements for applicants for a payment services license or a basic initiation license/approval as well as the ongoing capital requirements for license/approval holder, for the purpose of measuring risks and translating them into financial terms. This component obligates a company seeking to engage in payment services or basic initiation services to hold, at the time of submitting the license or approval application, the following minimum initial capital¹:
- For a company providing only payments remittance services: not less than NIS 80,000;
- For a company seeking to engage in basic initiation or advanced initiation services: not less than NIS 200,000;
- For a company seeking to engage in the issuance of payment instruments and payment transaction clearing services, excluding payments remittance services: not less than NIS 500,000;
- For a company seeking to engage in payment account management: not less than NIS1,400,000.
It should be noted that a payment company without a credit license, seeking to engage in credit provision in connection with payment activities, should maintain an additional minimum initial capital amount based on its accumulate credit classification, as detailed in Appendix 1 to the proposed instructions.
- The second component is the own funds requirement that a license holder must maintain against the sum of the capital requirements outlined in the first component. This component obligates the maintenance of own funds that do not fall below the higher of the following amounts:
- The initial capital amount specified in section (a) above.
- For companies engaged in issuance, clearing, and payment remittance services but not in payment account management: the own funds amount should not fall below the sum of the activity volume ratio detailed in Section 8 of the proposed instructions.
- For companies engaged in payment account management: the own funds amount should not fall below the sum of the following amounts:
- The initial capital amount specified in item 2 above.
- 2% of the activity volume with respect to payment account management services of a payment company.
Consistent with the European regulations, different capital requirements are proposed for different services. For example, companies providing only basic or advanced initiation services will be required to maintain only initial capital. Such companies will be required to maintain professional liability insurance or a deposit as a supplementary measure to the initial capital.
Similar to advanced stability models, it is proposed that the Authority may instruct a specific company to maintain additional own funds up to 20% of the capital requirements under this instruction if it finds that the company lacks adequate capital.
The proposed instructions’ appendices detail the requirements for the composition of own funds, as well as the required insurance and deposit amounts.
The draft is open for public comments until January 28, 2024.
To view the proposed instructions (HE) >> Click here
¹ A company seeking to engage in more than one service, at the time of submitting the application, shall maintain an amount not less than the higher of the relevant initial capital amounts, according to the types of services that the company intends to provide to its clients.
Our office has extensive expertise and years of experience in the financial services sector in all its aspects. We closely monitor and advise on all regulatory developments in this field, assisting and advising leading financial entities in Israel and globally.
We are available to assist with any inquiries or clarification regarding this publication or any other matter in these areas.
Herzog Fox & Neeman