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Israel
Score Rank
Financial Standards Index 50.00 out of 100 37
Business Indicator Index 8.98 out of 12 47

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Overall Standards Summary

Israel achieves medium overall compliance with international standards and codes, with a score of 50.0 out of 100 in our Standards Compliance Index. Israel's compliance in the area of macroeconomic fundamentals is relatively high. Its observance in the area of market infrastructure is not quite at par yet, but in financial supervision, at least the legal framework exists and in banking supervision, evidence suggest the Bank of Israel is largely compliant with the Basel Core Principles. Israel declared its intent to adopt the International Financial Reporting Standards for listed companies, effective in 2008. However, it has yet to incorporate the revised International Standards on Auditing into its auditing requirements. In the area of corporate governance, Israel was moving towards bringing itself into compliance with the requirements of the Organization for Economic Cooperation and Development. In the area of payment systems, its real time gross settlement system started operation in 2007, and all Israeli payment systems were being reformed in-line with the best practices articulated by the Bank for International Settlements.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
CP
Code of Good Practices on Transparency in Monetary Policy
CP
Code of Good Practices on Transparency in Fiscal Policy
EN
Effective Insolvency and Creditor Rights Systems
II
International Financial Reporting Standards
ID
Principles of Corporate Governance
ID
International Standards on Auditing
NC
Anti-Money Laundering/Combating Terrorist Financing Standard
EN
Core Principles for Systemically Important Payment Systems
ID
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
CP
Insurance Core Principles
EN
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

According to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) website, Israel first subscribed to the Standard on April 23, 1996 and met all requirements on June 5, 2000. It is in general observance of SDDS requirements regarding coverage, periodicity, and timeliness, although it does avail itself of the timeliness flexibility option for production index data. It issues advance-release calendars for all required datasets but has trouble with releasing some of its data punctually. Summary methodologies are available for all datasets. There is ready public access to Israel's data and metadata. The SDDS website discloses that the terms and conditions for data compilation and dissemination are publicly available, and provision for confidentiality for most datasets is explicitly set forth in law, except for certain data compiled and disseminated by the Ministry of Finance. The IMF's annual Article IV Consultations for 2006 and 2007 and the IMF's 2006 Report on the Observance of Standards and Codes maintain that Israel's macroeconomic statistics are broadly adequate for surveillance. Israel's macroeconomic statistics are highly regarded in terms of accuracy and reliability. The 2006 IMF Article IV Consultations report, however, did note a need to overcome shortcomings in the reporting of monetary and government finance statistics.

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CPCode of Good Practices on Transparency in Monetary Policy

According to the 2006 Oxford Analytica (OA) report on Israel's monetary policy, the country earned an overall score of "Compliance in Progress." The IMF has essentially concurred with OA's findings in 2001, 2003, and in its 2007 Article IV Consultations report (published in 2008). OA stated that Israel's currently pending reform of the central bank law should markedly enhance Israel's commitment to monetary transparency. The 2007 IMF report noted that the Knesset (parliament) had concluded key discussions on the law and that its passage should be swift. However, as of November 2008, it appears not to have passed.

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ENCode of Good Practices on Transparency in Fiscal Policy

Oxford Analytica's 2006 report on Israel's Fiscal Transparency accorded an overall rating of "Enacted" for this standard. In 2004, the IMF conducted a fiscal Report on the Observance of Standards and Codes (ROSC) with regards to fiscal transparency in Israel, in which it asserted that the country met the requirements of the Code of Good Practices in a number of areas, but still had areas of deficiency. In particular, the process of budget preparation could be improved, as could the presentation of the budget's macroeconomic foundations. One portion of the budget in which greater transparency could be achieved was identified as defense spending. According to OA, progress has been achieved in this area with the inclusion in the 2007 budget of details relating to the non-classified defense budget, access to which was previously limited to only one Knesset committee and a handful of individuals within the Ministry of Finance. Now this data is available to the Knesset as a whole and to the general public. The ROSC also observed that Israel's emphasis on short-run budget issues has contributed to problems when it comes to the development and implementation of appropriate fiscal policy. It suggested that the adoption of a multi-year framework would help address these problems. The IMF's 2007 Article IV Consultation report, however, raised many of the same problems identified in earlier IMF reports as well as those raised by OA, suggesting that continued efforts must be made in the area of fiscal transparency. According to the IMF's Special Data Dissemination Standard website, Israel is a subscriber and fully observed requirements for coverage, periodicity, and timeliness.

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Institutional and Market Infrastructure

IIEffective Insolvency and Creditor Rights Systems

The 2005-2006 "European Restructuring and Insolvency Guide," published by PricewaterhouseCoopers (PwC), states that Israel's insolvency legislation provides three options to companies in financial distress: liquidation, receivership, and voluntary arrangements arrived at between the debtor firm and its creditors. According to PwC, the law is primarily focused on the protection of creditors' interests, prioritizing them over the interests of either the debtor firm or third parties such as employees and customers. PwC notes that there is no comprehensive regulatory framework dealing with recovery, but adds that this sometimes can be advantageous, since it permits the courts to tailor their arrangements to suit the prevailing market conditions and other considerations specific to an individual case. All insolvency procedures are supervised by the court, which prioritizes the optimization of debt repayment. Israel recognizes the binding force of international judgments. It is a member of the International Center for the Settlement of Investment Disputes and the United Nations Commission on International Trade Law (UNCITRAL). It is a signatory of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, the UNCITRAL website does not list Israel as having adopted legislation based on the UNCITRAL Model Law on Cross-Border Insolvency. Beyond this, however, there is insufficient publicly information regarding Israel's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

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IDInternational Financial Reporting Standards

Accounting standards in Israel are set by the Israeli Accounting Standards Board (IsASB). In June 2005, an agreement was reached among the IsASB, the Institute of Certified Public Accountants in Israel, and the Israel Securities Authority to adopt International Financial Reporting Standards (IFRSs) in full, in place of national accounting standards, effective in 2008. However, as the Deloitte IAS Plus website indicates, it was later decided to require IFRSs for listed companies only, and to provide other companies with the option to do so. As far as the accounting requirements for banks are concerned, per a 2008 report by the IMF, the Bank of Israel sets specific requirements for the entities under its jurisdiction. These standards are a mixture of U.S. GAAP and the Israeli accounting standards, a situation which with the adoption of IFRSs for listed companies, the IMF warned in 2006, could cause confusion in the future. Unlisted companies opting not to use IFRSs, will continue using Israeli accounting standards which differ from IFRSs. However, the website of the IsASB states that Israel is committed to adoption of IFRSs on a standard by standard basis, and the IsASB has already approved 10 International Accounting Standards (IASs), with 9 IASs pending and another 8 in the adoption process.

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IDPrinciples of Corporate Governance

In August 2004, the Israel Securities Authority (ISA) appointed a committee (named the Goshen Committee) to examine corporate governance in Israeli public companies. Its final recommendations were submitted in December 2006. According to an ISA February 2007 press release, the Committee placed great importance on setting proper corporate governance standards and rules that align with standards adopted in leading western economies. The Goshen Committee emphasized the imposition of disclosure requirements on public companies and followed an "adopt and disclose" principle instead of the "comply or explain" approach. In February 2007, the ISA approved general guidelines, agreed upon with the Ministry of Justice, which define the level of disclosure and will be obligatory for companies under the Securities Law. The guidelines are based on the Goshen Committee recommendations. As of November 2008, it appears the draft has not been passed into law. In November 2006, the ISA published a report summarizing the state of corporate governance in Israeli corporate and securities law as measured against the Organization for Economic Development and Cooperation's (OECD) Principles of Corporate Governance. The report indicates that Israel is moving towards compliance with the OECD Principles. Also, a 2006 ISA Annual Report notes that Israel is recognized by the World Bank as one of the highest ranked jurisdictions in terms of investor protection. This is confirmed by the latest 2009 World Bank Doing Business report, which rates investor protection in Israel as significantly higher than the average achieved by member states of the OECD.

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NCInternational Standards on Auditing

The Auditing and Assurance Standards Committee of the Institute of Certified Public Accountants in Israel (ICPA) sets the Israeli auditing standards. According to the self-assessment prepared by the ICPA in 2006 as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, auditing standards in Israel are based on the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board of the IFAC. However, most of the Israeli standards are based on the original versions of ISAs, and revisions of ISAs have not been incorporated into the Israeli auditing requirements.

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ENAnti-Money Laundering/Combating Terrorist Financing Standard

In 2008, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) released a report assessing Israel's anti money laundering (AML) and combating the financing of terrorism (CFT) regime against the Financial Action Task Force's (FATF) forty recommendations and nine special recommendations. The report concludes that, overall, the AML/CFT system in the country is functioning. However, the system does exhibit certain shortcomings, most notably the lack of preventive measures within Designated non-Financial Business and Professions (DNFBPs). Of the 40 plus nine recommendations and special recommendations, the 2008 MONEYVAL report finds Israel non compliant with only three, all relating to DNFBPs. Israel's legal framework for criminalizing money laundering, according to the report, largely conforms to international standards, and its CFT regime "adequately" covers terrorist financing as stipulated by the FATF's special recommendation II. Israel's seizure and confiscation regime is "modern and robust" per the MONEYVAL report, and Israel's law enforcement agencies are well equipped with adequate resources. The country's financial intelligence unit is the Israeli Money Laundering Prohibition Authority. In terms of financial institutions and their supervision, Israel is rated as partially compliant with FATF recommendations relating to customer due diligence, record keeping, internal controls, and largely compliant regarding suspicious transaction reporting. The agencies responsible for AML/CFT measures in the country actively cooperate amongst themselves, and according to the MONEYVAL report Israel has a "modern and comprehensive" system for international cooperation.

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IDCore Principles for Systemically Important Payment Systems

Before 2007, three payment and settlement systems were in operation in Israel, the banks' paper-based clearing house (BCH); the automated clearing house (MASAV); and the Tel Aviv Stock Exchange (TASE) clearing house. They were all netting systems. In 2001, the IMF conducted an assessment of these systems against the Committee on Payment and Settlement Systems' Core Principles for Systematically Important Payment Systems (CPSIPS) and found their observance "mixed." In particular, there was no systematic oversight of the systems by the Bank of Israel (BoI), the country's central bank, and credit risk was inherent in their functioning. Nevertheless, a 2003 Update by the IMF noted proposals to reform the national payment systems so as to align them with international standards and to launch a real-time gross settlement (RTGS) system. In this context, the BoI website mentions that the ZAHAV system, a RTGS system, started operation in July 2007and is operated and overseen by the BoI. The existing systems are also being reformed to bring them into line with the CPSIPS. Further, a new Payment Systems Law, has been drafted to provide a legal framework to the new payment system and to define the supervisory responsibilities of the BoI with respect to the ZAHAV system and other payment systems.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

A Financial System Stability Assessment (FSSA) conducted in 2001 for Israel by the IMF assessed the country's compliance with the Basel Core Principles (BCP) for Effective Banking Supervision and concluded that the country's banking supervisor, the Bank of Israel (BoI), at the time of the assessment was fully compliant with 17 BCPs, largely compliant with 6, and materially non-compliant with the remaining two BCPs. The areas where Israel was found materially non-compliant included supervisory information-sharing and anti-money laundering (AML) provisions. However, Israel was taking steps to rectify the shortcomings with proposed changes to the secrecy provisions in the Banking Ordinance allowing information exchange and with the promulgation of a new AML law and implementing regulation. The IMF asserted that the stated measures would address the two main areas of material noncompliance. A 2006 IMF report concurred with the findings of the 2001 FSSA and attested to high-quality supervision of systemically relevant banks by the BoI. Subsequent IMF reports (2007 and 2008) observe further enhancements in banking supervision in the context of overall financial sector reforms. The BoI is adopting risk-based supervision on its way to Basel II implementation, making progress in AML/Combating the Financing of Terrorism regulations, considering a unified regulator for the financial sector, and has signed a memorandum of understanding with other regulators for supervisory cooperation and information exchange. The reports, however, call for further attention to the issues of supervisory independence, capacity, and resources; enhanced risk focus; updating of regulations; strengthened enforcement; and closer supervisory cooperation in crisis management.

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CPObjectives and Principles of Securities Regulation

The 2001 assessment of Israel by the IMF against the Objectives and Principles of Securities Regulation promulgated by the International Organization of Securities Commissions (IOSCO) found most of the principles fully implemented by Israel. The areas of inadequate implementation included supervisory exchange of information (Principles 11 and 12), and prudential requirements and standards for internal organization and operational conduct of market intermediaries (Principles 22 and 23). These two shortcomings have since been partially addressed. The Israel Securities Authority (ISA) signed the IOSCO Multilateral Memorandum of Understanding (MMoU) in 2006, implying that the IOSCO screening committee considers that the ISA has the legal capacity to exchange supervisory information with and extend other forms of cooperation to foreign authorities. As for Principles 22 and 23, the 2003 Update to the 2001 assessment notes that under a 2003 ISA initiative, market monitoring has been strengthened to pay extra attention to the financial stability of the Tel Aviv Stock Exchange members. Further, the Securities Law has been amended to enhance the ISA's enforcement powers. However, derivatives trading has not been brought under prudential regulation. Also, a 2007 IMF report still finds the ISA challenged in terms of its operational independence, resources, and inspection capacity, which adversely affects its supervisory authority in the face of the rapidly developing financial markets.

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ENInsurance Core Principles

In November 2006, as a part of the International Association of Insurance Supervisors' self-assessment program, the Israeli Ministry of Finance (MoF) completed a self-assessment against the new, revised Insurance Core Principles (ICPs) promulgated in 2003. According to the self-assessment, Israel observes 22 ICPs and largely observes 6 ICPs. Nevertheless, the assessment has not been verified by authoritative third-party sources. Areas of less than full observance include supervisory cooperation and information sharing, suitability of persons, corporate governance, internal controls, risk management, and derivatives and similar commitments. The MoF, however, enumerated expected amendments to the insurance legislation and proposed regulations of the Insurance Commissioner (the head of the Capital Markets, Insurance and Savings Division of the MoF that supervises the insurance sector) that would address all the above mentioned areas of less than full compliance. A 2006 IMF report attests that a new insurance regulatory law has been enacted that gives new powers to the Insurance Commissioner. The Commissioner has issued new regulations on higher capital requirements, risk management, corporate governance, and suitability of persons under the authority granted by the new law. Again in 2008, the IMF acknowledged the extensive reforms in insurance regulation brought about by the MoF in the areas of solvency, risk based supervision, internal controls and risk management functions. Nevertheless, the IMF reports in 2006, 2007, and 2008, still call for enhancing the regulatory independence, capacity, and financial resources of the insurance supervisor to ensure effective rule-making and enforcement, on-site inspections, and reinforced risk-based supervision of the insurance sector. Despite the above observations, none of the reports explicitly address Israel's compliance with the ICPs.

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Business Indicators

With an overall score of 8.98/12, Israel is progressing toward standard on the economic, legal, and political indicators that make up our Business Index. Israel is a market-based mixed economy. In the most recent year, Israel's total government expenditures equaled 46.5% of GDP. Israel encourages foreign investment. Few restrictions limit foreign investors outside of the defense industry, and the government provides export and tax incentives for both foreign and domestic investment. However, tax rates are very high. Property rights protection laws are established and enforced. Although Israel maintains a stable domestic environment, political instability arising from the ongoing Palestinian conflict deters foreign investment. Corruption is of no concern to investors, as reflected in Israel's ranking of 33rd out of 180 countries in Transparency International's 2008 Corruption Perceptions Index.

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Global Indices & Quick Facts

Israel is ranked in the 1st or 2nd quintiles in most of the global indices benchmarking political, economic, business, and human capital climates, as shown below. Israel is an electoral democracy, achieving high scores for political and civil rights. However, the Freedom House Index rank and score apply only to Israel proper, not to Palestinian-administered or Israeli-occupied areas. As indicated by the various economic indices, Israel is a well-established market economy. Although the Heritage Foundation gives Israel relatively low marks for freedom from government, this low mark contrasts with the World Bank's high ranking of Israel in its Ease of Doing Business Index. Israel's standard of living is high, as measured by the UNDP, and the level of corruption is perceived to be low, as indicated by the Transparency International Corruption Perceptions Index.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010
Heritage Foundation Economic Freedom Index 2010 44/179 67.7% 2
Economic Freedom of the World Index 2009 78/141 6.69/10 3
World Economic Forum Global Competitiveness Index 2009 27/133 4.80/7 2
Milken Institute Capital Access Index 2009 21/122 6.81/10 1
World Bank Ease of Doing Business Index 2009 29/183 N/A 1
UNDP Human Development Index 2009 27/177 0.94/1 1
Transparency International Corruption Perceptions Index 2009 32/180 6.1/12 1
Freedom House Index 2009 Free 1.5/7

Credit Ratings

A/Stable Fitch

A1/Stable Moody's

A/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 204.1 billion USD (IMF)

2009 GDP (Per Capita): 28081 USD (IMF)

2010 GDP (Growth Forecast): 2.4% (IMF)


2009 Inflation (CPI): 2% (IMF)

2008 Unemployment: 6.1% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 9.6 billion USD (UNCTAD)

FDI (Outward): 7.90 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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