New Regulations Exempt Credit and Financial Service Providers from License Requirement

To make it easier for fintech companies to operate in Israel, the Knesset Finance Committee has passed regulations to exempt several types of credit providers and financial service providers from a licensing duty.

The new exemption is similar to the temporary exemption that was effective until December 31, 2021, but it also contains interesting innovations.

The exemption from a licensing duty will be granted, among other things, to companies licensed by the relevant regulator in the United States, the European Union, or the United Kingdom; companies that engage in payment services and the credit related to this activity; corporations that only provide credit to business corporations; and partnerships and special-purpose companies, when the credit transactions are operated by another operator with an extended license to provide credit. From now on, these companies may offer their customers factoring services or payment in installments.

Authorization of the exemption only recently came into effect, after a year in which a regulatory vacuum persisted following legislation delays due to the Knesset’s dispersal. Because of this, the exemption will apply retroactively, from January 1, 2022, when the previous exemption expired. Transitional provisions were set for the entities that operated according to the temporary exemption, to adapt their operations to the new exemption.

In addition, the exemption for foreign fintech companies was set as a temporary provision until January 2024, to bridge the gap until a comprehensive arrangement for payment services is in place.

Note that in contrast to the draft exemption regulations, as published for public commentary on December 31, 2021, qualified investors will not be exempt from the licensing duty.

Further note that according to the bill memorandum for the law on payment services, the regulator likely to regulate this area is the Israel Securities Authority. Hence, companies seeking to operate in the Israeli payment services sector must file an application with the ISA and present documents and confirmation. The ISA will then verify such companies’ compliance with its criteria, which include equity capital and a license from one of the authorized foreign regulators.

These regulations, coupled with the June 2022 law that governs information exchanges between financial entities, are a major boost for both Israeli and international fintech companies and their Israeli operations. Furthermore, they resolve the uncertainty that has plagued the market in the past year.

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