Israel's Banking Supervisor Silently Exempts Big Banks' Dealing Desks from New Forex Regulation

The major banks in Israel were able to manipulate the regulator into curbing their competition by hurting retail forex brokers

BANK-OF-ISRAEL-LOGOThe Banking Supervisor of the Bank of Israel has refused to release a report on the forex operations of banks despite using it as a justification to exempt the country’s major banks’ FX trading desks from new regulations.

The Israeli parliament has recently passed a new legislation that is expected to severely hurt the bottom line of retail forex and CFD brokers in Israel, raising the question of why the banks’ FX trading desks will remain unregulated and unsupervised.

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High capital requirements, numerous mandatory reports, capped leverage, risk warnings and other draconian measures were adopted against retail FX brokers, however, the banks were not included as the legislator has invented a new class of companies called “trading arenas,” which refer to retail brokers and also avoid dealing with banks with broad forex trading legislation.

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According to reports today in the Israeli financial press, the Banking Supervisor is withholding the report and refuses to release it despite the country’s freedom of information law. An appeal was filed to the Jerusalem District Court to compel the release of the report.

As an explanation as to why the banks should not be included under the new forex regulations. the representative of the Bank of Israel claimed “trading forex with the banks’ dealing rooms is limited to very specific clients and not to everyone.” It was additionally made known that the banks offer very low leverage.

Among the excuses used by the Banking Supervisor not to comply with the freedom of information law, included a duty of secrecy, a danger that exposing the information will risk his ability to carry on with his work and cause real harm to the banks’ commercial and business interests.

Banks of course have the power to affect legislation in many Western countries, but it is interesting that despite reports in the Israeli media about what goes on at the FX trading desks of the banks (high pressure tactics, conflicts of interests and manipulation of price quotes) they were still able to manipulate the regulator into curbing their competition by hurting the retail brokers, protecting them from regulations and keeping their operations secret.

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