© All rights reserved to Barnea Jaffa Lande Law offices

Doing Business in Israel: Fintech


International companies and individuals seeking to expand into a new area of business or expand their international business into Israel must understand the relevant legal landscape and how it may shape their operations. In this article, we will focus on international companies in the fintech sector considering offering services in Israel or to Israeli clients.


We will highlight the issues that usually require addressing in preliminary legal advice, and that thereby allow a business to decide if and how to operate in Israel.


Regulatory Requirement; Licensing, Supervision, and Other Requirements


Israel is currently ranked 35th in the ease of doing business index. Part of the basis for this grade is a country’s regulatory regime. In Israel, the regulatory regime is vast and sometimes complex.


Financial services in Israel, like in many countries, are regulated. Fintech solutions often fall within the various regulated categories—banks, lending, insurance, payments, e-money, wallets, and other financial services.


The most comprehensive regulation for non-banking financial services is the Financial Services (Regulated Financial Services) Law, 2016 (the “FSRL“). The FSRL mandates the licensing obligation for several financial services, inter alia, credit granting, services in financial assets (including digital/virtual currency, cryptocurrency, etc.), deposit and credit services, and the operation of a credit brokerage system.


Thus, a company active in payments, remittance, lending, or e-wallets, and that is considering providing services in Israel, must consider the FSRL and the regulations promulgated thereunder, as well as the ability and conditions to be exempt from certain requirements. In this respect, please note that the licensing obligation depends on the services the company provides. For example, providing software and not interfacing with customers or users may fall outside the licensing obligation. An effective legal memo would consider the various scenarios and suggest steps to reduce the regulatory burden where possible.


Therefore, the circumstances under which the activity could be deemed to fall within the licensing obligation, i.e., the exact service provided, the location of the parties to the contract, the location in which the services are to be provided, and the means of outreach to potential customers, must be addressed, since all these, inter alia, may determine if the activity is subject to Israeli law. 


Furthermore, even if exempt from the licensing obligation, essential obligations may still apply. For example, in some circumstances, foreign financial service providers may be exempt from the licensing obligation. However, these providers may be still subject to certain obligations arising from the FSRL, and from other legislation dealing with relevant aspects of their services.


We note that a legal review should not be limited only to the foreign company conducting the business, but should also include the possibility and the pros and cons of conducting business through an SPE or a local sub-contractor.


Anti-Money Laundering, Anti-Bribery, Anti-Corruption, and Sanction Laws


Anti-money laundering and other related regulations are an example of the essential obligations that may still apply, regardless of the licensing obligation. These also require review in a legal memo. This includes certain AML procedures a company or individual may need to follow.


Although the Israeli AML regime is mostly based on common international principles—first and foremost, principles set by the FATF—as a sovereign state, Israel has the authority to make its own adjustments, for example, high-risk and other monitored jurisdictions.


In this context, we note that the AML regime in Israel is regulated pursuant to the Anti-Money Laundering Law, 2000, which provides the legal framework for the different ordinances, each of which applies to different financial service providers. Therefore, each financial activity may be subject to a different ordinance, and thus to different obligations, mainly concerning the threshold for reporting.


In addition, Israel has vast legislation concerning the prohibition on conducting business with enemy states, mainly Iran, but also Syria and Lebanon. With respect to Iran, there is also a prohibition on conducting business with Iranian sanctioned entities, which were declared by the Israeli Ministry of Defense as entities assisting Iran in advancing its nuclear program or in obtaining weapons of mass destruction or means of carrying weapons of mass destruction.


Effective legal counsel would address both the legal obligations and the practical implications of the need to comply with Israeli AML obligations.


Recognition of Choice of Law, Submission to Jurisdiction, and Enforcement of Judgments


While this issue is not unique to the fintech sector, it has particular importance when undertaking cross-border activities.


As many contracts are subject to other jurisdictions, it is important to understand to what extent non-Israeli choice of law and venue are recognized by the Israeli courts. Companies’ ability to target Israeli customers using the internet has led to a number of important rulings by Israeli courts, limiting the ability of such companies to force Israeli users to litigate outside of Israel.


Recent rulings by Israeli courts, dealing with PayPal and Booking.com, specifically referred to the Standard Contracts Law as a means to overcome the applicable law and jurisdiction provisions of PayPal’s terms of service, where such are considered as unjustly limiting access to legal recourse. The courts did distinguish between venue and applicable law, thereby allowing foreign law to govern the relationship.


Contractual Provisions, Consumer Protection


In Israel, under the prevailing “freedom of contract” principle, parties are free to agree on almost any term and condition and to bind themselves to any agreed undertaking and obligation. However, we recommend addressing questions regarding any restrictions or requirements applicable to the nature of the specific contract, as such restrictions or requirements may apply, depending on the nature and purpose of the contract and the parties thereof, as well as discussing any regulation overseeing it.


However, Israel has strong and detailed consumer protection legislation, awarding material protections and rights to consumers, especially when dealing with online transactions. Therefore, effective legal counsel would highlight the implications of these provisions on the business model contemplated, as such may apply even in a cross-border scenario.


Data Protection and Privacy


Data protection and privacy issues are matters that must be addressed while designing your business in Israel, especially considering the fact the legislation of privacy protection laws in Israel has shifted into high gear.


The Israeli privacy regime follows the GDPR but has its own unique features, which would need to be addressed, even if the organization is already GDPR compliant. This applies to international transfers and the use of subcontractors, for example. In addition, having Israeli employees raises privacy questions. Note that Israel has database registration requirements that are triggered easily.


No good legal counsel is complete without looking into the tax implications of the activities. There are a number of new developments associated with the taxation of online activities, and tailor-made legal advice is crucial to guide any business.


Finally, to obtain the full scope of counsel, effective legal advisors will ask if you intend to have employees or engage independent contractors, so there are no surprises.


To sum up, an effective legal memo enabling a company to reach the relevant business decisions would touch upon the following points:


  • What regulatory fields does the business model trigger? In the fintech sector, it is often more than one.
  • Is there a way to minimize regulatory exposure?
  • What does it mean to comply, with AML being the most burdensome compliance issue?
  • Privacy issues. Whatever the model, you will probably need to address Israeli privacy issues.
  • Consumer protection is a big issue for online services and it imposes obligations that affect business models for pure consumer services as well as SMBs in some cases.
  • Tax and employment should not be left out.



Anat Even-Chen leads Barnea’ Jaffa Lande’s regulation practice, providing legal counsel to local and international clients on all regulatory issues.

Our firm’s  regulation and fintech teams are at your service for further blockchain technology and compliance issues.


More on Doing Business in Israel

Doing Business in Israel: How to Take Part in Israeli Innovation

Doing Business in Israel: Forming a Limited Liability Company in Israel

Doing Business in Israel: Infrastructure Projects

Doing Business in Israel: Antitrust and Competition Aspects of M&A Transactions

Doing Business in Israel: Hedge Funds

Doing Business In Israel: Regulation of Carbon Pricing

Doing Business in Israel: Jurisdiction and Arbitration Stipulations

Doing Business in Israel through Agents and Distributors

Doing Business in Israel – Being an Employer