Fintech Company? Who granted you a license?

Fintech Company? Who granted you a license?

Adi Marcus, Adv.
October 12, 2022

In September 2022, the Finance Committee of the Knesset approved new regulation that allow companies holding fintech licenses from the United States of America, the European Union, or the United Kingdom to operate in Israel without a local license. This presents a significant avenue for companies, especially in light of the well known delays and procrastination in obtaining licenses to provide financial services in Israel, which has led to companies having to wait years in pending proceedings before the Israeli Insurance and Savings Capital Market Authority in order to obtain such a license.

What is a Financial Services Provider License (or a fintech license)? While fintech licenses have become the hot topic of the hour leading many businesses and companies to seek them out, many businesses do not actually require them for the type of services they wish to provide and are simply dragged into a complicated and expensive procedure following a "hype" and enthusiasm that has no connection with any real need or requirement. In Israel, the Financial Services Supervision Law states that those who provide financial services such as credit services, including issuing credit cards, clearing services, exchanging money or issuing checks, deposit services, trading in virtual currencies, etc., are required to have a license to provide such services, the extent of such is determined based on the scope of their activity. In order to receive the license, the applicant must submit an application to the Authority accompanies by a variety of documents and forms, including those that prove the existence of organized procedures in the company for data security and the prevention of money laundering, as well as to prove financial stability and commit to holding a certain amount of equity to ensure ongoing operations. After submitting all documents, the Authority is required to decide on granting the application within 70 days - however, in practice, such deadlines are far from being met (which led a number of such companies to address the matter to the Israeli High Court of Justice), including by various repeated motions for information and additional documents and new requirements for compliance with additional conditions.

The possibility of obtaining an exemption by presenting a foreign license can be an advantageous option for many local companies. Compared to the procedures in Israel, the procedures for granting licenses abroad are often simpler, faster and have easier requirements. In addition, while as of September 2022, an Israeli financial services license will not necessarily allow a company to operate outside the borders of the State of Israel, a license from the United States of America or from Europe is likely to be accepted in a larger number of territories (sometimes with the need to obtain exemptions or make certain adjustments) and will allow the company to operate in several markets at the same time. It should be remembered, though, that the procedures outside Israel may be more expensive than in Israel and differ from territory to territory, and that the exemption that currently exists in Israel is only valid until 2024, after which it is unclear whether the Authority will continue to allow companies to operate under foreign licenses or require them to obtain a local licenses.

Thus, every company considering obtaining a license for financial services should consult and review carefully whether the type of services it provides requires a license, what is the scope of the required license, whether it is worth applying for a license in Israel or abroad, and if a license abroad is indeed required - which territory will grant it the highest relative advantages. In addition, it is very important to be accompanied by a law firm which specializes not only in Israeli regulation, but a firm that also has European regulation expertise, or similar experience in any other territory where the license is sought.