The Banking Supervision Department is requiring the banks to establish a Board of Directors committee for technology and innovation

The Banking Supervision Department is publishing a draft revision to the Proper Conduct of Banking Business Directive on “Board of Directors”, which includes a number of significant changes to strengthen corporate governance in the banking system and improve the effectiveness of the Board of Directors work.  These changes include a requirement that the Board of Directors must establish a dedicated committee for information technology and technological innovation within the Board, and limit the term of the chairmen of Board of Directors committees.

 

Innovation and technological development are changing and will continue to change the face of banking, both in terms of opportunities and in terms of risks.  The products and services provided to customers, the internal processes at the banking corporations, and the risks are all changing.  Various traditional banking processes such as customer service, remote customer identification, risk monitoring, business continuity, and operations are undergoing widespread changes that are being enabled by technological advancement, but that also involve new risks that must be managed.

 

Accordingly, the Banking Supervision Department attributes great importance to accelerating the adaptation of the existing banking corporations to the new world in areas of business innovation based on technology, infrastructure, and the management and use of information, while adjusting risk management.  The Banking Supervision Department is encouraging cooperation between the banking corporations and fintech companies to enable the banking corporations to innovate more easily and efficiently, with the aim of increasing value to the customer through better products and services.

 

To achieve these goals, the Banking Supervision Department is acting on a number of levels, including the removal of regulatory impediments and leading broad infrastructure projects.  In parallel, the banking corporation’s Board of Directors must become more involved in areas of technology.  A dedicated Board of Governors committee for technology and technological innovation will answer this need.


The Directive defines the functions and composition of the committee, as well as its work methods, as follows:

 

The committee will deal with a variety of topics connected with the area of information technology at banking corporation: the banking corporation’s information technology strategy and management policy, technological innovation, appropriate resource allocation for realizing work plans in the areas of technology, preparedness for disaster recovery after incidents such as cyber attacks as part of managing the technological risks faced by the banking corporation, and more.

 

In addition, the committee will emphasize areas of technological innovation, readiness for the bank of the future, competition created vis-à-vis new technology-based financial actors, and the new risks faced by the bank due to new activity it intends to undertake and the technologies it intends to adopt.  Special emphasis will be placed on innovation risks in the adoption of new technologies.

 

In addition, the Directive includes a requirement to limit the term of the chairman of a Board of Directors committee, in order to ensure periodic rotation and renewal that will keep things challenging.  The policy that will be set needs to balance the need for continuity and achievement of long-term goals in the bank’s changing operational environment with the need for fresh thinking and the promotion of new points of view, in view of the importance of the role of Board of Directors committee chairman as a leading function that influences the bank’s policy and behavior.

 

Supervisor of Banks Dr. Hedva Ber said, “The technological changes in the banks’ operating environment require the banks to adapt themselves on many complex levels, in terms of offering innovative value to customers, operational aspects within the organization, and in terms of managing new and growing risks.  The new requirement that we have added to the supervisory directive, that the Board of Directors will be required to establish a dedicated committee for technology and innovation, is intended to ensure that a proper amount of time will be allocated to this important issue, and that the Board of Directors will lead the required preparations at the banks with a long-term vision.  This process is another step in strengthening the effectiveness of the Board  of Directors.”​