Contract provisionsTypes of contract
Describe the various types of private banking and wealth management contracts and their main features.
There is no specific standard contract that relates to private banking and wealth management, but rather each bank or portfolio manager has its own designated contract. The contract is subject to the provisions of the Contracts Law (General Part) 1973 and other legislation concerning contracts. As such, it can be amended by the parties, but this is unusual. The governing law in any banking contract in Israel is Israeli law, as dictated by all banks.
According to the Investment Advice, Investment Marketing and Investment Portfolio Management Law 1995, the agreement must be in writing and include certain mandatory provisions as outlined in the law (see question 39).Liability standard
What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?
In order to hold the bank liable, the court should be convinced that the bank has violated an obligation imposed on it under applicable legislation, such as the Tort Ordinance, case law, directives of the Supervisor of Banks and internal procedures of the bank. Not all lawful causes to file a claim against a bank are provided for in the legislation. Accordingly, a violation of a bank’s duty of care, fiduciary duty or confidentiality duty has been recognised as a lawful cause by the court. In general, the Israeli court takes into consideration the balance of powers between the bank and the client and recognises the importance of banks to the Israeli economy, and therefore tends to impose a higher standard of obligations on the banks.
The liability of the bank is determined in accordance with the applicable legislation and case law. Israeli case law provides that any clause in the banking contract that releases the bank from liability may be considered as a depriving condition in a standard contract under the Standard Form Contracts Law 1982, and can therefore be disregarded.Mandatory legal provisions
Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?
There are no special requirements concerning private banking contracts as opposed to other banking contracts. However, with respect to foreign clients, banks are obliged to comply with the relevant directive as mentioned in question 13. In addition, banks are obliged to obtain certain information under FATCA and CRS regulations and the instructions of the Supervisor of Banks.
In the Investment Advice, Investment Marketing and Investment Portfolio Management Law 1995, there is a requirement to have an agreement in writing and to provide the client with a copy before the service can be provided. The agreement must include all the subjects required for the service to be provided and specifically the following:
- the client’s details and ID number;
- the service must be adjusted to the needs of the client after evaluating his or her financial situation (including his or her securities, financial assets, etc) and his or her investment objects subject to the condition that the client agreed to provide the required information;
- fees and payment of expenses;
- a clause that the client is free to cancel the agreement whenever he or she wishes;
- a clause concerning whether the services may be provided by telephone;
- a clause to ensure that the client has been made aware of the fact that his or her information will be kept confidential, but such confidentiality is subject to the obligation to pass information in accordance with the law; and
- if the licence holder is a public company, a clause that the client has been made aware of the fact that the agreement is subject to the duties of the licence holder according to the Regulations of the Israeli Stock Market and the Securities Law 1968.
In addition, there are certain requirements to be included only if the agreement is with a portfolio manager:
- the scope of discretion and authority granted under the power of attorney, the investment policy and whether the portfolio shall be managed by way of a blind trust;
- whether credit to the client may be granted and under what conditions;
- how the portfolio should be formed (ie, types of securities and financial assets and the value thereof or whether this may be determined according to the portfolio manager’s sole discretion); and
- whether securities, bonds and futures may be purchased at a higher rate than the exchange rate and sold at a lower rate than the exchange rate.
What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?
Under the Statute of Limitation Law 1958, the period within which a claim in respect of which an action has not been brought will be proscribed (hereinafter ‘the period of prescription’) is seven years in the case of a claim relating to a banking contract.
The law also provides that the period of prescription begins on the day on which the cause of action occurred, and case law shows that difficulty in determining that day may result in adverse consequences. For example, the court accepted a bank’s claim against a client whose account was in debt for more than seven years because it considered the day the bank first demanded the repayment of the debt as the day on which the cause of action occurred.