The Bank of Israel this week published Guidelines setting out the criteria to be satisfied by potential purchasers of the credit card companies currently owned by Israel’s two major banks, Isracard (controlled by Bank Hapoalim) and Leumi Card (controlled by Bank Leumi).   The background to the sale of the credit card companies is the 2017 Law for Increasing Competition and Reducing Concentration in the Banking Sector in Israel (popularly known as the Strum Law, after the Chairman of the Committee which made the recommendations on which the Law is based), which requires Israel’s major banks to dispose of their credit card companies by the end of 2020 (or 2021, if the banks issue at least 25% of the shares of the relevant credit card company on a Stock Exchange and reduce their own holdings in the credit card company to 40% or less).   The intent of the Law was to increase competition in Israel’s over-concentrated financial sector.  The sale of the credit card companies is in any event subject to the wider provisions of the 2013 Law to Encourage Competition and Reduce Concentration (the “Competition Law”), so that financial institutions that manage more than NIS 100 billion will not be permitted to acquire control of the credit card companies (other than acquiring up to 20% of the shares of the credit card companies alongside other investors).   According to the criteria published by the Bank of Israel, private equity funds will be able to acquire Isracard and Leumi Card, as will Israeli and foreign financial and non-financial entities, provided that they satisfy the requirements of the Competition Law.  Foreign funds will be permitted to acquire control of the Israeli credit card companies provided that they are licensed to operate in an OECD jurisdiction.   The criteria specify that the minimum requirement for a “control block” of shares in one of the credit card companies will now be a minimum of 30%.  Potential purchasers of the credit card companies will be able to obtain bank finance, but not from the bank from which the purchaser is buying the credit card company.  At least 20% of the shares in the credit card company that form part of the control block must remain free from any pledge or security interest.   At the same time, the Bank of Israel has indicated that it will ease certain liquidity requirements for the credit card companies (as well as for banks extending lines of credit to the credit card companies), so as to enable the credit card companies to compete more effectively with the Israeli banks in the credit sector.   The latest announcement from the Bank of Israel follows last month’s decision regarding the rate of Interchange Fee which the “acquirer” pays to the credit card issuer (reducing from 0.7% to 0.5% over the period of 6 years).  Despite the relatively modest reduction in Interchange Fee (disappointing for “merchants” and for cardholders generally especially when compared to rates prevailing in the EU), this decision has removed a major area of uncertainty with regard to the pricing for Isracard and Leumi Card.   On the other hand, the situation has been clouded by the recent proposal of the Antitrust Authority to require daily settlements between an acquirer and the card issuer (as opposed to the current monthly accounting arrangement).  Daily settlement will put an additional liquidity burden on the credit card companies, in order to bridge the gap between daily settlement between issuers and acquirers, and the monthly debit arrangement between issuers and cardholders.  The final decision from the Antitrust Authority on this issue is expected in the weeks to come.   In order to expedite the sale process, the Bank of Israel has undertaken to fast-track the examination of parties requesting a licence to acquire the credit card companies.  The credit card companies, once separated from their parent bank, will be allowed to enter new areas of activity, and will be able to expedite an application for a full banking licence.   In general, the Bank of Israel has indicated that it will (as expected) investigate carefully the financial stability and business integrity of any party wishing to acquire control of one of the credit card companies. The Bank of Israel Guidelines make specific reference to private equity funds, who will no doubt be among the parties most interested in acquiring one of the credit card companies.  In particular, the Bank of Israel will look at the investment history of a fund, its business strategy, and the anticipated lifetime of the investment until exit.  If the limited partners in a fund are numerous and widespread, the Bank of Israel will focus specifically on the general partners alone.  It is clear from the Guidelines (indicating a departure from previous Bank of Israel policy), that the fact that the limited partners and managers of a fund only have a minor investment relative to the overall scale of the fund will not necessarily affect the decision of the Bank of Israel to grant a permit to the fund.