The Banking Supervision Department publishes updates to the Proper Conduct of Banking Business Directive dealing with AML/CFT

The Banking Supervision Department today published an update to Proper Conduct of Banking Business Directive no. 411 on "Management of Anti-Money Laundering and Countering Financing of Terrorism Risks".

Supervisor of Banks Mr. Yair Avidan said, "The update to the directive that we published today aligns the regulatory requirements of the banking system regarding anti-money laundering and countering the financing of terrorism with the international standards in this sphere. In addition, the directive was adjusted to changes in the financial activity environment, including changes in technology and in the payments market in Israel, with the goal of establishing, to the extent possible, uniform rules of the game for the supervised entities. Furthermore, the update will make ongoing activity easier for financial asset service providers that have received a license for activity from the Capital Market, Insurance, and Savings Authority."

The main updates to the Directive are:

· Aligning the identification and authentication requirements in providing payment services: In recent years, there has been an accelerated development in Israel's payments market, and the scope of payments carried out via digital means.

In view of this, the Banking Supervision Department aligned the requirements for customer identification and authentication by the banking corporations to the level of risk and to the payment activity characteristics. At a relatively basic activity level, customers will be required to record their identifying details (name, ID number, date of birth, gender, and address), details on the current account and payment card with which the accounting for the payment service will be made, and the goal of the payment services (business or nonbusiness). In some cases, customers will be required to present a copy of a picture-bearing identifying document issued by the State of Israel. In addition, the banking corporations will be required to authenticate the identification details of the customer against the Population Registry or with the banking corporation in which the customer's current account is managed. To the extent that the scope of activity is relatively high and/or the characteristics of the activity are more complicated, additional identification and authentication activities will be required, similar to the requirements when opening a current account at a banking corporation, including the presentation of original identification documents and face to face identification.

· Easings in managing accounts of financial asset service providers: With the goal of easing the ability to manage accounts of financial asset service providers at banks and in view of the establishment of a Prohibition on Money Laundering Order that will apply to such entities and that will go into effect in November 2021, the Banking Supervision Department established easings with regard to the obligation on banks in recording beneficiaries and holders of control in accounts of financial asset service providers. The easings will apply to accounts of entities supervised by the Capital Market, Insurance, and Savings Authority that received from it a license to provide service in a financial asset and for which a Prohibition on Money Laundering Order applies to their activity. With the goal of making the activity of small businesses easier and to encourage competition, and in view of the imposing of a Prohibition on Money Laundering Order on financial asset service providers, the activity framework of a merchant was increased, as part of which it will be possible to receive merchant acquiring services for payment-card payments via an aggregator, without directly contracting with the merchant acquirer. The easings will remove a major barrier that currently makes it difficult for those entities to operate in the Israeli financial system and to compete in the banking system.

· Aligning the Directive with international standards: An examination report compiled by the Financial Action Task Force (FATF) on the State of Israel regarding the issue of AML/CFT that was published in December 2018, indicated that there are certain gaps between the international standards established on the issue and the guidelines existing in Israel. With the goal of complying with the international standard on the issue, several guidelines were added to the Directive, particularly in regard to the obligations imposed on banks when executing international transfers.

· Easings in the identification and authentication requirements when opening a portfolio management account: In order for customers who are managing a current account at a banking corporation to join, remotely, an investment portfolio management service, it will be possible to identify the customer by technological means of identification in lieu of physical identification. Authenticating the identity of the customer will be carried out by at least two authentication factors, as defined in Proper Conduct of Banking Business Directive no. 367, which deals with e-banking, and easings will be granted regarding the obligation for face to face identification and regarding the receipt of a declaration of beneficiaries with an original signature. The easings will be granted subject to the existence of conditions that mitigate the risk, such as complete matching between the beneficiaries in the portfolio management account and the beneficiaries in the existing current account.

Banking Business Directive no. 411 (in Hebrew) ​