2025 Year-End Review: Increasing Competition in the Israeli Banking Market and Tightening Supervision

2025 was replete with changes in the Israeli banking market. The various regulatory authorities, led by the Bank of Israel, the Israel Securities Authority, and the Ministry of Finance, implemented measures to increase competition in banking services and encourage the entry of new players, alongside tighter supervision and enforcement over banks. Some of these measures have not yet been finalized but are expected to be implemented during 2026.

The Israel Competition Authority is also expected to publish its decision regarding the designation of the five largest banks as a concentration group in retail services. In addition, a proceeding is underway before the Antitrust Tribunal in connection with the Competition Authority’s refusal to allow banks to continue controlling MASAV (Bank Clearing Center) on the grounds that this constitutes a restrictive trade arrangement that may harm competition and the public. 

Increasing Competition in the Banking System

Graduated bank licensing framework: The Bank of Israel and the Ministry of Finance are currently promoting legislation to adopt the recommendations of the interministerial team tasked with examining measures to increase competition in the retail banking sector. These recommendations relate to the granting of bank licenses to new players (such as local and international credit card companies and nonbank financial institutions), in order to increase competition in banking services, especially for households and small businesses (Draft Bill to Promote Competition in the Banking Market (Legislative Amendments), 2025).

This draft bill proposes, inter alia, establishing a graduated licensing framework that will apply different provisions to different banks depending upon their size and volume of activity; expanding the list of permitted activities for small banks; allowing cross-ownership of small banks by institutional entities; easing due disclosure rules, commission rules, and account portability obligations; and issuing a ten-year exemption from the law limiting officer remuneration in banks. The draft bill also explicitly proposes adding purchases and sales of digital currencies to the list of permitted banking activities (Section 10 of the Banking (Licensing) Law).

Reform in the securities fee model: To further encourage competition in the Israeli banking market, a joint team from the Bank of Israel, the Ministry of Finance, and the Israel Securities Authority published an interim report proposing a switch from the “covert payment” model to “overt direct payments.” This constitutes a major reform in the way financial institutions (mainly banks, TASE members, and other players) are compensated for securities services and investment advice. The proposed changes include switching from a percentage-based custody fee to a fixed shekel fee, allowing the charging of a direct fee for investment advice (free until now), and canceling distribution fees for mutual funds.

Tightening Supervision and Enforcement

Precedent in Competition Law enforcement: Bank Hapoalim and Israel Discount Bank paid a total of ILS 80 million to the State Treasury under an administrative settlement for their acquisitions of minority stakes in a competitor without obtaining a permit. This case illustrates the Competition Authority’s stringent enforcement policy, under which minority holdings in a competitor, even if less than 25%, may be considered an illegal restrictive arrangement requiring prior approval.

Reducing banks’ involvement in apartment prices: The Bank of Israel published new guidelines prohibiting banks from including stipulations in their project financing agreements that relate to changes in apartment prices. The guidelines stress that banks may still include stipulations relating to the developer’s overall business plan, including project revenues, financial robustness, etc. However, interference at the level of the price of a single apartment is not necessary to protect banks’ interests and may harm competition.

Contending with sanctions regimes: Against the backdrop of the previous US Administration’s imposition of sanctions on Israeli citizens, tensions arose between the Finance Minister’s demand that banks continue providing banking services to sanctioned Israelis and the need to comply with sanctions regimes. At the same time, the Israeli banking system has had to contend with sanctions imposed by the United States and the European Union on Russia due to the war with Ukraine, which affected bank customers’ activities.

The Bank of Israel recently published a new proper conduct of banking business directive regarding the provision of services to customers in the context of international sanctions. Directive 412 instructs banks to establish policies and procedures for implementing sanctions, with the assistance of internal or external experts to assess the risks deriving from the sanctions. Concurrently, the directive explicitly allows banks to fully or partially restrict sanctioned customers’ financial activities, provided they disclose their rationale, without this being deemed “unreasonable refusal to provide service” pursuant to the Banking Law (Service to the Customer).

Recommended Actions and Outlook for 2026

2025 laid the groundwork for structural changes in the banking system that require regulatory and legal expertise. The various legislative and regulatory measures proposed this year are expected to finalize and come into effect during 2026.

We recommend that new players considering applying for a banking license in Israel consult with a professional and prepare to provide services in compliance with the latest regulations.

In addition, entities providing financial and banking services to customers should prepare for the implementation of international sanctions regimes and formulate a clear risk management policy after consulting with relevant experts. 

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Adv. Efrat Cohen is a partner in our firm’s Regulation Department.

Barnea Jaffa Lande’s Regulation Department is among the leading regulatory practices in Israel, providing comprehensive advice across a broad range of regulatory areas that intersect with our clients’ business activities. We guide local and international corporations, investment funds, financial institutions, technology companies, and industrial companies in navigating complex and evolving regulation. Leveraging our in-depth familiarity with regulatory authorities and extensive experience representing clients before them, we provide integrated solutions enabling our clients to operate with confidence in Israel and abroad.