·        
The Supervisor of Banks defined the issue of
innovation and the integration of new technologies in banking as a main anchor
of the Banking Supervision Department’s work plan for the coming years, and
presented the supervisory activity promoting the issue in recent months.

·        
The Banking Supervision Department’s goal is
to promote banking that has added value for the customer and is sustainable,
and new technologies make it possible.

·        
These changes, which are being led by the
Banking Supervision Department, will positively impact banking customers, by increasing
competition and markedly increasing efficiency in the banking system in coming
years.

·        
The Supervisor also referred to the banks’
annual financial statements for 2015, which were published in the past week,
and said that the salary norms have a negative effect on the public’s trust in
the banks. As is known, the Banking Supervision Department has acted to deal
with this issue, and already in the coming year a decrease is expected in the
salaries of bank’s board of directors’ chairpersons, due to a directive issued
by the Banking Supervision Department half a year ago. In addition, the
legislature is promoting a bill that reflects its ethical approach to the
appropriate compensation for financial sector executives, and the Bank of
Israel supports it. Obviously, compensation should be linked directly to
business outcomes and to the complexity of the activity.

 

The
Banking Supervision Department held a conference for the banking system today,
on the issue of “Technology is Changing the Face of Banking”. The Conference
dealt with the Banking Supervision Department’s policy to promote technology
and innovation in banking, parallel trends occurring around the world, various
banks’ technological initiatives and the effects on customers, risks and
challenges in technology, and the various dimensions of the change needed at
banks.

 

The
Supervisor of Banks, Dr. Hedva Ber, said, “We expect to see a significant
change in the banking system in the coming years, as a result of the
integration of new technologies in the area of financial services. The
technology will increase the transparency for customers, so that they will know
how much they pay, and for what, and will be able to compare prices between the
banks; it will improve and broaden banking products and services; it will
increase competition, and will allow—essentially, will require—an increase in
efficiency in the banking system, for the customers’ benefit. Despite the risks
involved in incorporating new technologies, the Banking Supervision Department
is committed to allowing, and even providing incentives to, the banking system
to undergo a technological revolution, while requiring the enhanced management
of the risks involved. The Banking Supervision Department’s goal is to promote
banking that is sustainable, which adds value to bank customers, in terms of
service that is good and has added value, lower costs, and transparency.
Incorporating new technologies in the banking system will make this possible.
These technologies will change the face of banking in the coming years.”

 

“In
recent months, we have been working in parallel on several new policy
directives for banks; some have been published and some will be published soon.
These directives will support the changes that the banking system will go
through, and will even lead these changes. The directives relate to the
following issues:

 

1.     
Online banking—a directive that
removes many supervisory restrictions on the direct interface between the bank
and its customers, without the need to go in to the branch. The directive creates
the infrastructure for establishing a new, branchless, digital bank.

2.     
A supervisory requirement of banks to set
policies for providing services to all their customers—even those who do
not feel comfortable with digital applications. The policy is to refer to the
dispersal of branches and of automated machines, assistance in educating customers
on digital items, and more.

3.     
A requirement to establish a significant
multiyear efficiency plan
, through easing the possibility of carrying out
voluntary early retirement at larger scopes, in a manner that will allow
employees to honorably retire from the banking system.

4.      A general license for banks to operate mobile branches and partial
branches
(not on all days of the week), to allow flexibility and access to
customers in areas with small populations. The process will help the small
banks, whose branch deployment is relatively low, to reach more customers.

 

These directives complement each other, and
will allow the banks’ “production function” to change.

 

“What will the banks look like in ten years
from now?” asked the Supervisor. “The banks will look different—more
technological, more competitive, and more efficient. The adoption of technology
and innovation will allow the banks to provide a wider range of services to
customers, at a lower price, and with greater transparency, while customers
will have the ability to obtain some of the services from entities other than
the bank where they maintain their current account. The new technological
infrastructure and tools will lead to a situation in which nonbank entities and
fin-tech companies will operate alongside banks and will specialize in specific
niches in terms of financial products and services. Some of them are expected
to work in collaboration with banks and others will compete with the banks, and
even take away some share of their revenue.”

 

The Supervisor noted, in reference to the
banks’ financial statements for 2015, “although the reports indicated, among
other things, a strategic shift by banks to more credit to households and small
businesses, and thus fee revenues remained nearly unchanged, various data, such
as reports of wages of senior officeholders, demand a response. As is known, the Banking Supervision
Department acted to deal with this issue and already in the coming year a
decrease is expected in the salaries of bank’s board of directors’ chairpersons,
due to a directive that we issued half a year ago. In addition, the legislature
is promoting a bill that reflects its ethical approach to the appropriate
compensation to financial sector executives, and the Bank of Israel supports
it. Obviously, compensation should be linked directly to business results and
to the complexity of the activity.”

 

“The
Banking Supervision Department will support and help to bring about the changes
required in the banking system, in all areas, through adjusting regulation and while
looking out for the good of the customers and the economy.”​