Bank of Israel enforces sanctions and public shaming to improve compliance - opinion

The Bank of Israel announced on Tuesday the imposition of financial sanctions on several banks and a credit card company under its supervision.

In the consumer protection field, a financial penalty of NIS 900,000 was imposed on Isracard due to deficiencies found in its reporting to the Enforcement and Collection Authority regarding amounts received for covering customer debts and in relation to debt settlement arrangements.

It was also found that the company did not comply with legal requirements for human responses in its call center, failing to allow customers to receive human assistance regarding the termination of their contracts shortly after the beginning of the call as required by law.

Additionally, sanctions were imposed on several banks for non-compliance with the Money Laundering Prohibition Law and the regulations stemming from it, including failure to report certain money transfers and unusual activities, violations of “Know Your Customer” requirements and inadequate monitoring of customer accounts. 

In the case of Citibank, the violation was even classified as “serious and systemic, occurring over a long period” without the bank being aware of it at all.

The Bank of Israel issued press releases regarding these decisions. Additionally, the bank’s website includes the enforcement decisions, detailing the findings and specifics of the violations.

This is not the first time that bank supervision has acted in this manner. This phenomenon, where the regulator does not merely impose sanctions but also publicly announces them, constitutes a form of regulatory shaming, which has become prevalent in recent years.

Shaming in various sectors 

Regulatory shaming is not unique to the banking sector. For instance, the Environmental Protection Ministry publishes a red list of polluting factories; the Health Ministry compares hospitals in terms of their emergency room treatment and infection rates in departments, thus shaming hospitals that fail to meet the proper standard.

The goal of regulatory shaming is not to humiliate or degrade the supervised entities, but to motivate them to correct their conduct and deter them from future violations, as no one wants to be shamed by the regulator. 

Studies show that regulatory shaming is an effective enforcement tool: It is inexpensive, easy to implement, and often leads to improved behavior not only from the shamed entity but also from other players in the field.

Accordingly, financial regulators worldwide tend to publish their enforcement decisions, which include descriptions of the violations by the supervised entities and the sanctions imposed as a result. 

Some regulators publish full enforcement decisions, while others provide summaries. 

Financial regulators in countries such as the UK and the United States publish enforcement decisions on dedicated pages of their websites, which include extensive information and sophisticated search engines that allow the public to easily find the requested information.

Another technique is publishing justified public complaints against the supervised entities. 

Again, regulators around the world maintain dedicated web pages for this purpose, where the information is presented in a manner that is easy for the general public to understand.

Another approach is publishing comparison tables, surveys, and rankings. 

A bank that receives a low rating compared to others is effectively shamed as a result, and the aim is to incentivize it to improve its conduct.

Regulatory shaming by the Bank of Israel is a step in the right direction. We can only hope it will lead to real improvement in the conduct of the banks.

The writer is head of the Center for Banking Law and Financial Regulation at Netanya Academic College.