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Israel and Bahrain regulators ink fintech cooperation deal

The Israel Securities Authority and the Central Bank of Bahrain have signed an agreement to collaborate and promote innovation and provide regulatory support to the fintech industry as the two countries seek to boost trade ties.

The fintech cooperation agreement was signed on Monday as part of this week’s visit by Israel’s Foreign Minister Eli Cohen to the Gulf nation to strengthen economic and civil ties between the countries, including finalizing a free trade agreement.

Israel and Bahrain normalized ties in 2020 as part of the US-brokered Abraham Accords, which also established diplomatic relations between the Jewish state and the United Arab Emirates. The accord paved the way for normalization with Morocco months later.

The cooperation agreement was signed by Bahraini Foreign Minister Abdullatif Al Zayani and Ron Klein, deputy director of  International Affairs and Markets Development at the Israel Securities Authority, with Cohen in attendance. As part of the collaboration deal, officials from both countries will work together to provide regulatory guidance and support to fintech entrepreneurs and startups in both countries that are in the development stages or in the initial approval process.

The two financial market regulators agreed to exchange information and share knowledge to promote and foster innovation in the field of financial services, as well as facilitate access to regulation for entrepreneurs looking to expand to new global markets for their financial services.

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The Central Bank of Bahrain is the sole regulator of Bahrain’s financial sector and is responsible for maintaining monetary and financial stability in the kingdom. Bahrain is thought to hold advantages for investment and business collaboration as it offers an access point to the Cooperation Council for the Arab States of the Gulf, also known as the Gulf Cooperation Council, an intergovernmental and economic union also comprising Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Foreign Minister Eli Cohen (C) meets with Bahraini Foreign Minister Abdullatif Al Zayani, September 4, 2023 (Shlomi Amsalem/GPO)

The kingdom has passed supportive legislation and taxation policy in areas including financial services and is investing in technology to build a strong digital economy, making it attractive for Israeli startups to seek business partnerships, according to Start-Up Nation Central, a nonprofit organization that tracks Israel’s tech industry.

“Israel is a financial tech powerhouse and we see great importance in building bridges to support the global activity of Israeli companies in this industry,” said Yosef (Seffy) Zinger, incoming chairman at the Israel Securities Authority. “We continue to advance the open banking reform… and work in cooperation with our counterparts in the world to create an ecosystem for the promotion of digital financial services in Israel.”

The open banking reform, which came into effect in June 2022, is meant to inject competition into Israel’s financial sector and highly concentrated banking system by allowing non-banks to offer services at competitive rates, thus reducing costs for consumers.

As part of the reform, fintech companies will be able to get licenses allowing them to access and work with consumer data held by Israel’s big banks. In addition, under the payment services reform, which is expected to come into effect in 2024, companies receiving a license from the Israel Securities Authority will be able to offer payment services, including through a digital wallet, to consumers and businesses in competition with banks and credit card companies.

“The payments reform will lay the infrastructure for non-bank payment operations in Israel and enable a holistic business model for the fintech industry in Israel,” said Zinger.

Israel’s fintech sector has been booming over the past several years also in the wake of cryptocurrency and blockchain technologies, attracting $7.2 billion in investments in 2021, more than threefold the amount raised in the preceding year. With the downturn in global financial markets and the drop in technology firms’ valuations, capital raising by fintech firms slowed in 2022 to $2.7 billion, according to Israel Securities Authority data.

Israel is home to about 550 fintech companies, which employ about 20,000 workers in the country and 18,000 overseas, and mostly sell their services outside of the country catering to global markets in Europe and the US. There are currently 20 Israel-based fintech unicorns that are valued at over $1 billion, including Papaya Global, a payroll and payments management platform provider; Riskified, a fraud prevention for e-commerce firm; Melio, a developer of a payments platform; Rapyd, which facilitates multi-currency payments; and Tipalti, a developer of a payments and compliance tech platform.

In 2018, Israel Securities Authority created a regulatory innovation hub for entrepreneurs and fintech companies to promote the industry in the country. The initiative is aimed at encouraging fintech companies and entrepreneurs to work with the watchdog to help them understand the regulatory framework and to adjust their activity to meet regulation standards.

In August 2022, the Israel Advanced Technology Industries (IATI), an umbrella organization of high-tech and life sciences firms, partnered with a fintech hub in Bahrain to develop joint initiatives. The partnership with Manama-based Bahrain FinTech Bay seeks to facilitate introductions and communications between startups, companies, and venture capital firms seeking investments and expansion in both countries.