Capital Markets Authority Tightens Oversight of Gemach Institutions
The Capital Markets Authority has published a draft regulation imposing anti-money laundering and counter-terror financing requirements on Gemach institutions, aligning them with international FATF standards.
The Capital Markets Authority published a comprehensive draft regulation imposing anti-money laundering and counter-terror financing risk management requirements on providers of deposit and interest-free credit services. The instructions are intended to apply to Gemach institutions (financial Gemachs) adapted standards of monitoring, risk management, and reporting, in accordance with the standards set by the FATF.
"Financial Gemach institutions constitute a unique social and economic pillar," said the Commissioner of Capital Markets, Amit Gal. "The oversight measures are intended to ensure their compliance with a professional and transparent management standard, which is essential for maintaining their financial robustness and protecting the funds of depositors and donors over time."
The instructions are set to take effect a year and a half from the date of their final publication, with the public and entities operating in the sector able to submit their comments on the draft until the end of August. The new framework complements the 2019 law, which for the first time subjected community financial institutions to the Supervisor of Financial Services at the Capital Markets Authority.
Financial Gemachs operate on a non-profit basis, primarily for the Haredi society. The central factor leading to the tightening of the regulation is the concern that poor risk management or the provision of credit in growing volumes without a real ability to repay could lead to the collapse of institutions and endanger the deposits of thousands of savers and donors.
According to the draft, each Gemach will be required to formulate a written risk management policy. In institutions incorporated as an association or public benefit company, the board of directors will be required to tighten oversight of its implementation.
One of the key changes is the obligation to appoint a "compliance officer" who will enjoy functional independence and unlimited access to financial information. The circular also imposes an enhanced "know your customer" procedure for high-risk service recipients, including foreign residents and public figures.
Alongside identification procedures, a strict automated reporting mechanism has been established directly to the Capital Markets Authority and the Anti-Money Laundering and Terror Financing Authority at the Ministry of Justice. Gemachs will be required to submit annual detailed reports based on a protected template, and provide a professional opinion from an external expert to examine the feasibility and stability of their economic model.
