The Bank of Israel today published a policy that regulates, clarifies and simplifies the process of establishing a bank, and creates regulatory certainty in the early stages of the licensing process for anyone interested in establishing a bank. The policy was determined while examining models and publications of supervisory authorities around the world, including in the UK and Australia, and making necessary adjustments for the Israeli economy.
The new policy enables a party wishing to establish a bank to obtain a limited bank license—within a relatively short time and before halting the necessary operational, administrative and regulatory preparations—under which it will be possible to manage limited deposit and credit provision activities. This licensing model enables the applicant to complete the complex processes such as raising capital, recruiting workers, investing in infrastructure and computer systems, contracting with various service providers, and closing regulatory gaps once the bank is established and has begun operating under the limited license. The applicant may obtain the limited license within six months of submitting a request to the Bank of Israel.
Within a period after obtaining the limited license, the applicant will be required to complete all of the required processes in accordance with the outline of milestones and timetables set out with the applicant and approved by the Banking Supervision Department. Once the outline is completed as required, the limited license will be replaced with a permanent license.
The policy sets out reduced regulation for new banks that conduct activity that is not complex, such as retail activity, including Proper Conduct of Banking Business directives and Reporting to Banking Supervision directives. As part of this, and as previously announced, a new bank conducting noncomplex activity will be required to have initial capital of just NIS 50 million, and the applicant will be able to raise this amount through a graduated outline during the limited license period. If the bank’s credit risk assets reach NIS 600 million, it will be required to meet a Common Equity Tier 1 capital ratio of 8.0 percent, and a total capital ratio of just 11.5 percent—capital adequacy ratios that are lower than what currently exist for the banks. In order to support the new bank and protect its depositors, infant-industry protections will be set in a structure that will be formulated in cooperation with the Bank of Israel and the Accountant General of the Ministry of Finance.
In order to implement the policy set out, the Banking Supervision Department has established a Licensing and New Banks Unit, which is intended—among its other functions—to guide the applicant through all stages of the licensing process, examine requests for bank licenses and for permits to control a banking corporation, and supervise the new bank after receipt of the license.
This policy replaces the draft outline for establishing a new bank, which was published in 2016, and the Charter for Establishing a Virtual Bank, which was published in 2013.
The Banking Supervision Department invites those interested in establishing a new bank to contact the Licensing and New Banks Unit by email at LicensingApplication@boi.org.il
Supervisor of Banks Dr. Hedva Ber said, “The policy we have published is another step on the way to establishing a new bank in Israel and to increasing competition in the banking industry. There are already people talking with the Banking Supervision Department, and who are in the process of submitting a request for a bank license. This policy joins a series of other actions intended to reduce entry barriers that have been taken by the Banking Supervision Department in order to increase competition. These include the publication of directives supporting the separation of the credit card companies and placing them on firm foundations, leniencies in the area of technology and innovation - that enable the establishment of a digital bank and make it possible to carry out a variety of banking transactions remotely, without the need for branches - supporting the Ministry of Finance in the process of establishing a service bureau to provide technological services to new banks, providing two licenses to new merchant acquirers, promoting the Open API banking system, advancing the project of transferring from one bank to another, and more.”