The Knesset Reform Committee late on Tuesday approved legislation creating an independent financial service authority, sending the measure to the full Knesset for its second and third reading next week before becoming law.
The Capital Markets, Insurance and Savings Authority, which will be spun off the treasury arm now responsible for the insurance and long-term savings industrial, will have its own budget and a director appointed for a fixed 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 by the 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.
If approved by the Knesset next week, the law would go into effect September 1. Insurance Commissioner Dorit Salinger, who heads the treasury unit, will be the authority’s first chief.
The reform committee approved the legislation but only after amending a seemingly obscure provision in the original law that took the power to approve certain capital increases for insurance companies away from the Knesset Finance Committee and gave it to the new authority.
The issue centered on the European Union’s Solvency II requirements being imposed on insurers starting next year to ensure their financial strength. A key element of the new regulations requires insurance companies to keep minimum levels of core Tier I capital and additional Tier II capital.
The issue is critical to Israel’s biggest insurance companies, which are short of the minimum just months before Solvency II goes into force. Phoenix, for instance, needs to top up its capital base by 500 million shekels, Clal Insurance by 1 billion shekels and Migdal by 4 billion shekels.
Migdal’s massive capital needs aroused speculation on Tuesday that it was behind lobbying efforts to keep the power to approve Tier II capital with the Knesset because lawmakers are more easily pressured than independent regulators will be.
Knesset Finance Committee Chairman Moshe Gafni of United Torah Judaism, who entered 87 reservations to the proposed law, denied he was acting in Migdal’s interest. “I don’t have any connection to any insurance companies. I’m just preserving the honor of the Knesset,” he told the reform committee.
In the end, the powers to approve Tier II capital were left with the committee but subject to a complicated process of consultation with the new authority.
The new authority also lost a key battle over who regulates the holding companies that control the insurance companies and investment houses. The new authority can regulate the insurers themselves but the companies that control them are subject to the supervision of the Israel Securities Authority.
ISA Chairman Shmuel Hauser fought to keep that power and in the end succeeded.
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