In November 2025, the Israeli Ministry of Finance published the Draft Bill to Promote Competition in the Banking Sector (Legislative Amendments), 5786-2025 (the “Draft Bill“). This is a revolutionary Draft Bill designed to enhance competition in the Israeli banking market. The Draft Bill proposes a new tiered licensing framework that enables the establishment of small and micro banks, while providing significant regulatory relief for various periods. This represents the first historic opportunity in decades for companies seeking to offer banking services to obtain a banking license, with significant relief compared to existing banking regulations.
What’s New? The Draft Bill includes a series of significant legislative amendments:
New Tiered Licensing Framework: The Draft Bill defines a “micro bank” (up to 2.5% of the total asset value of all banks in Israel) and a “small bank” (up to 5% of the total asset value of all banks in Israel). This means that an entity holding 5% or more of the banking system’s asset value will be defined as a “regular bank,” with significant regulatory relief established for the smaller categories.
It is important to note that the change in status from micro bank to small bank to regular bank will only occur after two consecutive years in which the bank’s assets exceed the maximum asset threshold set for the category. However, from the moment the bank’s definition is changed (upward), it cannot revert to a smaller bank definition even if its total assets fall below the established percentages.
Relief During the Adjustment Period for Micro and Small Banks:
Exemption from the obligation to enable online account portability for 3 years;
Flexibility regarding the publication and setting of fee schedules for 5 years;
Exemption from providing access to “financial information” (within the framework of open banking) as an “information source” for 3 years;
Exemption from providing access to a payer account in connection with payment initiation for 3 years;
Exemption from payment cap restrictions for senior bank officers for 10 years;
Additional Changes:
Joint Control Arrangement: The possibility for a micro bank to be controlled by a holding company of an institutional entity, subject to the limitations set forth in the Draft Bill.
Relief regarding holding permit requirements for small banks: A shareholder in a small bank controlled by controlling shareholders (who is not part of the control group) will be required to obtain a holding permit only with respect to holdings exceeding ten percent.
Exemption from the provisions of Section 2 of the Banking Law (Customer Service), 1981: A small bank and a small auxiliary corporation will be exempt from the obligation to provide the following services (meaning without the possibility of “reasonable refusal”): (1) acceptance of deposits in Israeli currency or foreign currency; (2) opening and maintaining a current account in Israeli currency, under the conditions specified in the section; and (3) sale of bank checks in Israeli currency and foreign currency.
In addition, in order to encourage competition, it is proposed to establish a restriction on large banks regarding the issuance of credit cards, whereby a large bank will be required to distribute the operations of its credit card issuance among at least three credit card companies.
Who is Affected? The Draft Bill is relevant to a wide range of entities:
Fintech and payment companies – currently holding payment company licenses or stable payment service provider licenses, which may seek to expand their activities to services currently “reserved” for banks only (primarily providing credit against cash deposits);
Investors – investment funds, portfolio management companies, and private investment entities interested in investing in banking entities;
Foreign Banks – interested in establishing a banking presence in Israel and leveraging the tiered framework;
Institutional Bodies – holding entities in insurance companies and pension funds that may consider “joint control” in a micro bank;
Credit Card Companies and Payment Infrastructure – which will be affected by the requirement to distribute issuance operations, but also possess the infrastructure and reputation required to compete with traditional banks;
Existing Banks – which will face increased competition and new requirements regarding credit card issuance.
Next Steps: We recommend that entities wishing to benefit from the regulatory relief or to expand their activities into those currently reserved for banks take the following actions:
General Monitoring and Consultation – monitor the legislative process in the Knesset, hold legal consultations, and consider representation in the legislative process in the Knesset to influence the final text of the law.
Initial Feasibility Assessment – examine whether the proposed framework enables a viable business model, taking into account licensing restrictions, capital requirements, and the phased application of regulatory obligations.
Identification of Regulatory Gaps – map the differences between the current status (for example, as a payment company) and banking licensing requirements, including capital requirements, corporate governance, risk management, and technological systems.
Formulation of a Strategic Plan – develop an initial strategic plan and examine its compatibility with licensing requirements (funding sources, customer acquisition targets, products and services).
Preliminary Approach to the Bank of Israel – consider submitting a preliminary license application (following the enactment of the law) to the Bank of Israel, in consultation with experienced legal and regulatory advisors, which will enable an assessment of the feasibility of establishing the bank.
To review the Draft Bill for Promoting Competition in the Banking Market (Legislative Amendments), 5786-2025, please click here.
The Financial Regulation team at Gornitzky & Co. accompanies fintech companies, credit card and payment companies, other financial entities, institutional bodies, and technology companies in various areas, including in preparation for entry into the banking market, examining viability and legal and regulatory implications in connection with processes for obtaining banking licenses and launching new banking products.
We would be happy to assist you in analyzing the implications of the Draft Bill on your business activities and development opportunities.
