Legislation to Create New Financial Watchdog in Israel Faces Hostile Knesset

Government bill faces 6,000 reservations as it goes to lawmakers, with insurance lobby hard at work.

Finance Minister Moshe Kahlon, March 30, 2016.
Ofer Vaknin

Finance Minister Moshe Kahlon’s plan to create an independent financial services authority is expected to be met with strong resistance across party lines as it is introduced in the Knesset on Monday.

Lawmakers have said they plan to torpedo the legislation by introducing thousands of reservations to the wording of the law, which officially creates the new Capital Markets, Insurance and Savings Authority.

One, for instance, would require the new authority to get approval from the finance minister and the Knesset before it can issue new directives to the insurance industry, while others would make it subject to the finance minister in general, undermining the purpose of the law to begin with.

The authority, which was approved by the cabinet in March, would spin off the treasury arm now responsible for the insurance and long-term savings industry into a unit with its own budget and a director appointed for a five-year term.

The terms are designed to make the body free of political interference and bring Israel into line with standards set by the International Monetary Fund and Organization for Economic Cooperation and Development. Supervising the 1.5 trillion shekels ($390 billion) Israelis have saved with insurance companies and pension funds, it would become a powerful body in its own right.

Knesset sources said the opposition is in part due to complaints over the nursing insurance policies being pursued by Dorit Salinger, the current commissioner of capital markets, insurance, and savings, who is expected to become the head of the new authority after it is created.

However, they say insurance industry lobbyists are fighting the law as well.

The Knesset Reform Committee is due to review the legislation today before it goes to the final votes in the plenum before becoming law. Right now, however, it is not clear when the committee plans to complete its work.

MK Itzik Shmuli (Zionist Union) has organized the 6,000 reservations on the law, the main one requiring the new authority to get the Knesset Finance Committee’s approval for changes in regulations on nursing insurance. Sources said it was likely his amendment would be put into the final bill.

MK Shmuli said he is concerned that the authority will be too independent under the law as it is currently worded.

Others MKs opposing the law in its current form include Eitan Cabel (Zionist Union), chairman of the economics committee, and Moshe Gafni (United Torah Judaism), chairman of the Knesset Finance Committee.

Gafni, who alone has issued 87 reservations to the law, said he opposes it on the grounds that it would weaken the power of his committee because the new authority would need fewer approvals from it for new directives.

“The proposed authority will be a megalomaniac that can ignore the wishes of the Knesset and finance minister,” he said.

Yoav Kish (Likud), chairman of the house committee, said he would also oppose the legislation in its current form.

“The wording the law the committee has been given creates needless bureaucratic problems for the capital market and undermines the authority of the [finance] minister and Knesset to make policy,” said Kish. “We are creating here a situation of excess regulation, one will causes businesses and entrepreneurs to flee and that we have to change.”

If the treasury fails to reach a compromise with lawmakers, approval of the law could be delayed for quite some time.

Lobbyists for the insurance industry are also pressuring lawmakers to undermine the new authority’s independence by seeking changes to key clauses.

“The legislation creating the authority grants more powers to the commissioner, but doesn’t create any controls,” said Yaron Alias, a lobbyist for the Association of Insurance Companies.

One of their main grievances is that the new authority will not only have power of insurers themselves but over the holding companies that control them. As a result, Shmuel Hauser, chairman of the Israel Securities Authority, opposes that part of the law as well. Right now, the ISA has regulatory power over insurance holding companies.