Israel’s Regulation of Payment Services and Payment Initiation Law, published on 6 June 2023, represents a significant regulatory overhaul of the country’s payment ecosystem. Inspired by the EU’s PSD2 framework, the law introduces new standards to enhance competition, consumer protection, and innovation in the payment services market. The law formally designates the Israel Securities Authority (ISA) as the primary regulator for most non-bank payment service providers, while banks and major institutions remain under the oversight of the Bank of Israel.

This dual-supervisory approach enables regulatory granularity while supporting the effective implementation of FATF-aligned Wire Transfer Regulations across both traditional and fintech-based service models.

Licensing Requirements & Exemptions

The law mandates that foreign payment service providers (PSPs) holding licences from recognised jurisdictions (such as the UK, US, or EU) must formally apply for a local licence by September 2024 to continue operating in Israel. During the licensing process, compliant PSPs may continue to operate, subject to transitional provisions.

The regime defines two main service categories: basic payment services and advanced payment initiation services, with corresponding licensing and compliance thresholds. The inclusion of exemptions for smaller firms enables tiered application of WTR principles based on risk and transaction volume, ensuring proportional regulation.

Integration with Supervised Payment Systems

The law complements Israel’s access framework to supervised payment systems (ZAHAV, MASAV, SHVA), as laid out in the Access Guide to Supervised Payment Systems. Entities operating under this law must satisfy connectivity, identity, cyber-security, and governance requirements aligned with WTR demands for traceability and accountability in value transfers.

By facilitating legal access for both domestic and foreign PSPs, the law ensures that entities involved in executing wire transfers are identifiable, licenced, and subject to regulatory scrutiny. This supports the FATF Travel Rule’s goal of embedding originator and beneficiary data into every cross-border fund transfer.

Consumer Protection & Data Integrity

The law includes robust provisions for safeguarding user funds and enforcing transparency in transaction processing. It encourages interoperability and mandates clear disclosure of rights and obligations to end users. This transparency aligns with WTR objectives, which depend on verifiable and complete data exchange at every step in the transfer chain.

Fintechs and small PSPs are given a structured pathway to integrate into the financial infrastructure without circumventing essential AML/CFT controls. This helps prevent the emergence of unregulated ‘grey zones’ in digital transfers and upholds Israel’s adherence to global WTR standards.

Conclusion: WTR Compliance Integration

The Regulation of Payment Services and Payment Initiation Law, 2023 is a cornerstone development in Israel’s financial regulatory landscape. It ensures that all payment service providers—foreign and domestic—engaged in transferring funds are subject to licence-based oversight and FATF-compatible data transmission rules. Through its provisions on identity verification, system access, and governance, the law embeds the requirements of the Wire Transfer Regulations into Israel’s fast-evolving digital payments sector. It guarantees that wire transfers, including those enabled by fintech innovations, remain transparent, auditable, and secure across borders.