The Supervisor of Banks Rony Hizkiyahu raised an alarm Wednesday over the lack of supervision in the non-banking credit sector, particularly in the insurance industry, which has been expanding exponentially following the Bachar reforms.
"The banking sector is a regulated field with clear lines, referees and rules while the non-banking sector is like an amateur field played without rules," he said at the "Capital Market 2007" Globes conference organized in cooperation with BDO Ziv Haft. "The Bachar reforms have changed the financial balance in the market and created new risks."
The non-banking sector, he added, has expanded five times in volume over the past four years.
"In as much as the banking sector needs to adopt Basel II rules for quality credit risk management, insurance companies, which have become part of the credit market need to adopt credit risk management systems and be subjected to supervision."
Erez Soffer, deputy to the managing partner at BDO Ziv Haft, said insurance companies will need to prepare and install credit risk systems at an investment of tens of millions of shekels but was not optimistic it would be a quick process.
"It can not be expected that what the banking sector has done over the past 10 to 15 years, the insurance sector will be able to do within a year," said Soffer.
In order to improve the quality of supervision in a diversifying financial market, Hizkiyahu called for the consolidation of supervisory bodies to harmonize oversight across the banking and insurance sectors.
"Regulatory policymakers should cooperate to establish a system of greater uniformity, in order to determine the regulatory limits," said Hizkiyahu. "Today, there is no such balance and we will be doing everything to maximize coordination between the supervisory agencies. In the future, this coordination should lead to the consolidation of the agencies and uniform supervisory rules for the financial system."
Also speaking at the conference, Yadin Antebi, the Finance Ministry's supervisor of insurance and capital markets, agreed with Hizkiyahu that the insurance sector today was facing the management of high risks.
"I very much believe in the importance of the supervision of the insurance market and the establishment of one single financial supervisory authority for the capital market, which would act as an umbrella body under which all capital market players would be supervised like in the UK for example," he said. "The problem at the moment is that the Bank of Israel is not prepared to let the supervision of banks out of their hands."
Discussing the controversial issue of pension advisory services following the Bachar reforms, Antebi reiterated that allowing the large banks to offer pension services, would increase the concentration of power in the banking system.
"We have two large banks that dominate the distribution channels for financial instruments across the country and for this reason we gave preference entry to the small- and medium-sized banks to start to offer pension advice so they have a chance to compete before we allow the large banks to enter this field. The problem of the concentration of banks in Israel remains and this is not a magic solution."