The Capital Market, Insurance and Savings Authority published a Regulatory Impact Assessment (RIA) report on two updated circulars that redefine the activity of the central system for transferring information in the pension savings market. The first is the circular “Mandatory Use of a Central Pension Clearing System”, and the second is the circular “Payment for Use of a Central Pension Clearing System”. The move is coordinated with the public tender for operating, maintaining, and developing the clearinghouse, toward the conclusion of the engagement with the current vendor, who was selected in a tender from 2012.
What remains mandatory: Four services only
According to the report, the mandatory use of the clearinghouse will be reduced to four services in which, in the Authority’s view, there is clear justification for a single central entity:
Transfer of information incidental to portability of funds between provident funds
1.Requests for tracing information from all institutional entities for pre-advisory purposes at the ID level, including transfer of a power of attorney from the client.
2.An inquiry by an employer or an operating entity to all institutional entities prior to a first deposit for a new employee.
3.Transfer of information between institutional entities to trace funds of a non-depositing member and transfer them to the pension fund that they joined The central reasoning concerns portability. According to the Authority, portability requires synchronization among many parties: the saver, the license holder, the employer, the transferring fund, and the receiving fund. In a market in which more than one hundred institutional entities operate, without a central conduit each entity would be forced to build a separate infrastructure vis-a-vis all the rest, and costs would be much higher.
The big change: Production is removed from mandatory use
The most significant change concerns “production” requests. These are routine information requests by agents and advisors regarding the pension products of their clients, and they are one of the primary uses of the clearinghouse today. From now on, a license holder will not be required to transmit such requests through the clearinghouse if they have access to a dedicated system of the institutional entity. Client requests to perform an action in a pension product will also be removed from mandatory use. The latter decision was made following public comments, according to which these actions have no business or macroeconomic justification to concentrate them in a single entity. The move comes at a cost in terms of the clearinghouse. The Authority estimates that canceling the mandatory production will lead to a decrease of about 50%, and that the clearinghouse’s revenues will decrease accordingly.
Who pays: The burden shifts to institutional entities
The pricing structure is also changing. Until today, most of the clearinghouse’s revenues came from actions of license holders, employers, and savers. In the selected alternative, the share of institutional entities in revenues will increase, the share of the other users will decrease, and the total revenues of the clearinghouse will drop. Institutional entities will pay higher annual fixed fees, according to tiers of balance of assets under management and linked to the index. Revenues from them are estimated at about 7.5 million Shekels per year. On the other hand, the fixed user fees of 3,000 Shekels per year that they pay today will be canceled, as well as the payment of 0.1 Shekels for responding to a production request. For license holders, employers, and savers, the Authority promises a simpler and cheaper price list, with a uniform price for most services. One of the prominent changes was made following the public hearing: the cost of an information request via API submitted by a license holder will decrease from 1 Shekels to 0.1 Shekels. The reason is that working via API involves many calls and supporting actions, and the costs would accumulate.
The transition to API and new costs
In the background of the changes stands a gradual transition from asynchronous work processes to synchronous work using API technology. Under the new tender, the clearinghouse will serve as a central entity that issues and manages certificates (security certificates) for all players working via API. According to the Authority, this prevents duplications, reduces risks, and improves monitoring capability. This service will not be free of charge. A user that is not an institutional entity, for example an insurance agency, will pay 4,000 Shekels per year plus VAT for receiving a certificate. Use of the safe will cost 3,000 Shekels plus VAT for two years, and the first payment will be collected in May 2027. An identification token will cost up to 350 Shekels for a physical token and up to 250 Shekels for an application token. All tariffs will be updated once a year according to the Consumer Price Index.
The rejected alternatives
The Authority examined two additional alternatives. The first was to maintain the existing situation, and it was rejected due to high costs for users. The second was to maintain the clearinghouse’s revenue volume and shift the primary burden to institutional entities, and perhaps even remove portability from mandatory use. This alternative was rejected out of concern that the cost would be rolled over to savers and that portability without a central entity would harm them. According to the report, the price of the selected alternative is primarily a decrease in the revenues of the vendor who will win the tender.
