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Bank of Israel sanctions aim to improve compliance

Posted on by L. Dreeye
Bank of Israel sanctions aim to improve compliance

The Bank of Israel announced Tuesday it would impose financial sanctions on several banks and a credit card company under its control.

In the area of ​​consumer protection, Isracard was imposed a financial fine of NIS 900,000 due to shortcomings found in its reporting to the Debt Enforcement and Collection Authority regarding amounts received to cover customer debts, as well as regarding debt settlement mechanisms .

The company was also found to have failed to comply with legal requirements for human responses in its call center, preventing customers from receiving human assistance regarding the termination of their contracts shortly after the call began, as required by law.

In addition, sanctions were imposed on several banks for failure to comply with the Anti-Money Laundering Act and its provisions, including failure to report certain money transfers and unusual activities, violations of Know Your Customer requirements, and inadequate monitoring of customer accounts. .

In the case of Citibank, the violation was even classified as “serious and systemic, occurring over a long period,” without the bank even suspecting it.

Bank of Israel building in Jerusalem, June 16, 2020. Photo taken June 16, 2020. (Photo: REUTERS/RONEN ZVULUN/FILE PHOTO)

The Bank of Israel issued press releases regarding these decisions. In addition, enforcement decisions with a detailed description of the findings and features of the violations are posted on the bank’s website.

This is not the first time that banking supervision has acted in this way. This phenomenon, in which a regulator not only imposes sanctions but also publicly announces them, is a form of regulatory shaming that has become common in recent years.

Shame in various areas

Regulatory disgrace is not unique to the banking sector. For example, the Ministry of Environmental Protection publishes a red list of polluting factories; The Ministry of Health compares hospitals in terms of emergency care and infection rates in departments, thereby shaming hospitals that do not meet proper standards.

The purpose of regulatory shaming is not to humiliate or humiliate regulated organizations, but to encourage them to correct their behavior and deter them from future violations, since no one wants to be shamed by a regulator.

Research shows that regulatory shaming is an effective enforcement tool: it is inexpensive, easy to implement, and often leads to improved behavior not only of the shamed subject, but also of other players in the field.

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Accordingly, financial regulators around the world typically publish their enforcement decisions, which include a description of violations by regulated entities and the sanctions imposed as a result.

Some regulators publish full enforcement decisions, while others provide summaries of them.

Financial regulators in countries such as the UK and US publish enforcement decisions on dedicated pages on their websites, which include extensive information and sophisticated search engines that allow the public to easily find the information requested.

Another method is the publication of justified public complaints against supervised entities.

Again, regulatory authorities around the world maintain dedicated web pages for this purpose, which present the information in a form that the general public can understand.

Another approach is to publish comparison tables, surveys and rankings.

A bank that receives a low rating relative to others is effectively shamed as a result, and the goal is to encourage it to improve its behavior.

The Bank of Israel’s regulatory disgrace is a step in the right direction. We can only hope that this will lead to real improvements in bank behavior.

The author is the head of the Center for Banking Law and Financial Regulation at the Netanya Academic College.