BoI: Banks can refuse service to sanctioned customers

The Bank of Israel Banking Supervision Department, headed by Daniel Hahiashvili, published a draft guideline for the banks today on the personal sanctions regime that the European Union, and possibly other countries in Europe as well, plan to impose on Jews living in Judea and Samaria. The Banking Supervision Department’s draft guidelines instruct the banks on how to behave and how to formulate their policy when they are threatened with sanctions by the EU and by countries hostile to Israel.

Yesterday, Minister of Finance Bezalel Smotrich wrote to Hahiashvili saying that he would not allow a policy of “zero risk” by the banks if they seek to restrict or ban customers for fear of sanctions.

“A responsible risk management policy cannot ignore the high price that compliance with sanctions on law-abiding Israeli citizens exacts,” Smotrich wrote to Hahiashvili, adding, “It’s inconceivable that the banks should choose to act small mindedly and throw their customers by the wayside without lifting a finger.”

The Banking Supervision Department’s draft instructions, which were discussed in the Bank of Israel’s proper banking procedures committee two weeks ago, explain that in recent years the use of various kinds of economic sanctions as tools of legal enforcement has grown. This tool “represents a lever of pressure and deterrence in the international arena.”

The draft states that when an Israeli bank circumvents foreign sanctions regimes, it is exposed to “various risks that it has to manage, among them compliance risks, money laundering and terror financing risks, legal risks, and reputational risks.” The bank’s risk management policy affects its relationship with a customer on whom sanctions have been imposed.

The Banking Supervision Department seeks to ensure that, alongside effective risk management, a bank will still give appropriate banking service to customers affected by the imposition of sanctions. The department says that it has been working for about two years “to ensure that together with suitable risk management in relation to the sanctions regime, risk management will not be carried out through a sweeping refusal in advance to provide services to customers in accordance with the obligations that fall on the banking system.”

The draft guideline calls on the banks to formulate relevant policies and procedures. They should assess the risk of breaching the sanctions or misuse of a banking corporation to circumvent sanctions. While the banks should not deal with the risk posed by sanctions by a blanket refusal to provide service to affected customers, the instructions permit “a reasonable refusal to provide service to a customer.” The Banking Supervision Department thus allows the banks discretion in avoiding providing service to a person on whom sanctions have been imposed.

Published by Globes, Israel business news – en.globes.co.il – on June 5, 2025.