Israeli Banks Brace for Potential International Sanctions Over Settlements
Israeli banks are preparing for potential UK and international sanctions regarding settlement activities, warning that global financial institutions might tighten compliance checks even before formal legislation is enacted.
The Israeli banking system is preparing for the possibility that measures promoted by the UK and other countries against economic activity in settlements could eventually apply to Israeli banks as well. However, the system estimates that the impact does not necessarily depend on the completion of legislation: soon, financial institutions and international companies might tighten checks on settlement-related transactions due to legal or reputational risks.
Following the announcement by 12 countries last month, discussions were held between the Association of Banks and officials at the Ministry of Foreign Affairs, the Ministry for Strategic Affairs, and the Bank of Israel. The banking system views this as a broad political and macroeconomic issue, requesting that it be handled at the government level rather than through independent bank decisions. Meanwhile, attorneys Dr. Roy Schyndel and Eva Dray from Herzog Fox & Neeman prepared an initial review of the implications for the Association of Banks.
The British Sanctions and Legislative Process
The British move is the most relevant for the banking system. The UK announced its intention to promote a broad sanctions regime enabling measures against companies and individuals providing services related to settlement expansion, including construction, infrastructure, real estate, and financing. However, this move requires legislation, and its completion is expected to take months. Therefore, it is still premature to determine which banking activities might be restricted.
"For now, these are general statements. The range of scenarios and implications is broad and depends on the concretization of these statements," the Bank of Israel stated.
Anticipated Commercial and Compliance Risks
The risk troubling the system is not only the sanctions themselves. The review points out that statements by foreign countries could affect the conduct of business and financial entities even before a legal obligation arises. An international bank, for instance, might deepen investigations into transactions involving Israeli entities to check for settlement ties.
This represents the more immediate risk for the banking system: a gradual process where certain activities become more complicated when dealing with foreign banks, compliance systems, and international financial service providers. The current approach within the banking system is to avoid turning the issue into a public confrontation, while closely monitoring legislative progress abroad.
