The Bank of Israel has issued a framework providing international payment service providers (“PSPs“) access to regulated payment systems in Israel.
The framework enables PSPs to prepare the technological connection to the Israeli regulated payments systems, and for some of them, it allows immediate full activity in such systems based on their foreign-issued license.
The framework enables eligible PSPs immediate access to Israel’s main payment systems in order to offer their value proposition to the Israeli public without waiting for the final legislation of the Payment Services Regulation Law which is currently formulated.
Relevant Payment Systems
The framework enables certain eligible international PSPs to connect to the following Payments Systems: Zahav (RTGS) system operated by the BoI; the payment systems operated by the company Shva: the “Payment Card Service” system and the “ATM Switch” system; and payment systems operated by Masav: “Debits, Credits, and Payment Transfers” and the “Immediate payments (online)”.
PSPs Eligibility
The framework formulated by the BoI establishes two tracks, as set forth below, which are based on the temporary exemption from license granted under regulation ,which as of now is valid until January 1st, 2024[1], and is available to PSPs that meet the following conditions (“Exempted PSPs”):
- The PSP has been incorporated in a Recognized Country, i.e., USA, one of the EU countries, or UK;
- PSP holds a license from a supervision authority in a Recognized Country to provide Payment Services, i.e., (a) acquiring of a Payment Transaction; (b) managing a Payment Account for the benefit of a Beneficiary or a Payer; (c) issuance of Means of Payment;
- PSP is supervised in a Recognized Country in respect of its Payment Services;
- The corporation is subject to AML regulation by such Recognized Country, including regarding its activities in Israel.
- The PSP may provide in Israel only such Payment Services that are permitted under the foreign Payment Services license the foreign corporation holds, excluding those involving virtual currency.
Track A: Connection to the Test Environment
This track allows preparation for connection to the Payment Systems, including carrying out trials in the test environment in the systems. As part of the process, the Exempted PSPs will be able to receive complete payment system rules and an identification code.
In order to participate the Exempted PSP is required to provide a comfort letter from its supervisor in its home country that certifies its compliance with the aforementioned eligibility terms for an Exempted PSP.
Track B: Connection to the Production Environment
This track allows PSPs to engage in activities specified in “Track A” and also allows the connection to the production environment of the Payment Systems.
This track is available to any Exempted PSP that meets the following conditions:
- it holds a foreign license to provide Payments Services for at least two years and provides Payment Services to at least 5 million customers;
- it provided a comfort letter from its home country supervisor that certifies the following:
- its compliance with the aforementioned eligibility terms for an Exempted PSP;
- the existence of supervision over risk management, including data security, cyber risks, and business continuity;
- the supervisor is unaware of substantial deficiencies in the PSP’s activity in the past two years.
In both tracks, the PSP will be required, in addition to the above, to certify that it complies with the terms of its home country license.
After complying with the conditions for participation in any of these tracks, the application to connect to the Payment Systems will be submitted to the Governor of the BoI for approval as a final condition before the connection.
[1] For more details regarding the Temporary Exemption and the Supervision of Financial Services Regulations (Regulated Financial Services) (Exemption from Licensing), 2022, please refer to our previous memorandum at: https://www.gkh-law.com/banking-update-the-supervision-of-financial-services-regulations-regulated-financial-services-exemption-from-licensing-2022/.
For additional information please contact Partner Ofer Hanoh, Head of Banking and Finance Department (ofer@gkh-law.com), Partner Ido Amir (idoa@gkh-law.com), or Adv. Shani Galant Frankfurt (shaniga@gkh-law.com).
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This alert is prepared as an informational service to clients and colleagues of Goldfarb Gross Seligman & Co. and the information presented is not intended to provide legal opinions or advice. Readers should seek professional legal advice regarding the matters about which they are particularly concerned.
