The fintech sector – companies that leverage new technology, either fully or partially, to supply or produce financial products and services – has seen significant growth in the past decade, and Israel’s fintech industry is considered a world leader in the field. According to Bank of Israel data, the 600 fintech companies currently operating in Israel are transforming the global finance industry.
Fintech has the potential to transform Israel’s finance industry, as well – by
fostering innovation in the financial sector, by adapting financial services to clients and improving usability, by streamlining the financial system, and by bolstering competition in Israel’s financial sector. However, only a handful of Israeli fintech companies offer extensive services to the Israeli consumer, unlike other fields, where the Israeli consumer benefits from technological innovations and is viewed as being quick to adopt them.
The challenges facing fintech companies in Israel stem from the fact that they operate within a complex, heavily regulated environment. This reality is not exclusive to Israel – many financial systems around the world face complex regulations; they are aimed at ensuring the stability of financial bodies from market failures and risks that are unique to the financial world, for the benefit of the public. In the absence of a suitable framework, fintech companies face an array of regulatory challenges which pose an obstacle to their launching, their business development, and to their ability to offer products and services in the Israeli market. Consequently, the Israeli market is not meeting the fintech industry’s potential both as a significant growth engine within the high-tech industry, and as a tool for upgrading Israel’s financial system.
The Israeli government would like to expand the activity of fintech companies in Israel, and allow the Israeli consumer to enjoy a wide range of advanced financial products and services. Accordingly, the government has established an intergovernmental team comprised of all financial regulators under the auspices of the Ministry of Finance and the Ministry of Justice. The team will be recommending a regulatory sandbox: a testing environment that facilitates learning through trial and error, in order to address the regulatory challenges that both fintech companies and regulators face. This testing environment will include an adaptive regulatory outline tailored to the companies' activities and features, while taking Israel’s normative framework, consumer welfare, and market characteristics into account. Furthermore, a targeted direction draft will be established to provide regulatory solutions to the unique difficulties encountered by companies that want to operate in Israel but do not need licensure, according to current regulation.
The team’s guidelines will be laid out in legislation that will provide regulators with the authority necessary for the implementation of the program in order to facilitate the safe assimilation of financial technologies in Israel to benefit consumers and the Israeli economy as a whole.