Israeli Financial Regulators Face Bureaucratic Hurdles Despite Reforms

While economic theory suggests individual self-interest leads to overall prosperity, applying this to Israel's three main financial regulators, the Supervisor of Banks, the Capital Markets Authority, and the Israel Securities Authority, reveals a more complex reality. These regulators have been active, implementing several beneficial changes in recent years, including a new banking license for smaller banks, reforms in medium-term savings and investment products, and restructuring trading commissions for securities. However, attempts by these regulators to collaborate and dismantle concentrated power within the banking system have exposed systemic complexities and friction.

Disagreements over regulatory oversight have emerged. For instance, the Bank of Israel and the Capital Markets Authority clashed over who would supervise holding companies for the new small banks. Furthermore, the Capital Markets Authority and the Israel Securities Authority had opposing views on the medium-term savings reform, resulting in a compromise that could potentially confuse the public. In the securities trading commission reform, mutual fund clients remain in a difficult position, with significant changes delayed pending legislation for a "broker-dealer" law that would clarify the Israel Securities Authority's powers over non-bank exchange members.

These challenges highlight a gap between the potential for significant change and the bureaucratic reality. Despite the regulators' proactive efforts and good intentions over the past year, their actions have underscored the inherent difficulties in implementing reforms within the existing complex system. The issues echo concerns raised by the Blincov Committee in 2021-2022, which aimed to address regulatory overlap and inefficiency but did not fully resolve the underlying problems.