Israel inherited the obligation to maintain bank secrecy from English banking laws that were imported during the British Mandate with the 1922 King's Order in Council. Under common law, the obligation of bank confidentiality is both a moral and a contractual obligation, with injured parties entitled to compensation if this confidence is breached.

The Israeli government further enforced this policy of contractual secrecy between the bank and the client with the 1981 Privacy Protection Law. This law holds that no one may violate another's privacy without their consent, and applies to companies as well as individual people. Although this law does not directly apply to banks, Israeli court rulings have held that it protects personal accounts but not corporate business accounts, where the only obligation to secrecy is an agreement between the bank and the corporate customer. This law also protects all information about a person held in a company's computer database. For the purpose of this law, "information" is defined as data about a client's personality, personal status, marital status, health, financial situation, professional training, opinions, and religious faith.

Israel's 1992 "Basic Law: Human Dignity and Freedom" elevated the right of privacy to a basic right and a public privilege, which may only be violated in the event of a greater interest, such as if it is essential to resolve a legal dispute between two parties. Even in that situation, the information would not be available to those not involved in the dispute. The Bank of Israel suggested a law in 1993 that would forbid current or former bank employees from disclosing any personal information about their clients except under certain circumstances, such as when the client is involved in a legal proceeding, or when a client has given his or her consent, or when they need to reveal information to other bank employees in order to carry out their duties. The Israeli Supreme Court has ruled that the obligation to bank secrecy extends beyond the account itself and into transactions and collateral related to the account. This obligation does not end when the account is closed, nor does it end with the death of the client, but is passed down to his or her heirs. Some might even claim that the breach of the bank's obligation to privacy would constitute a criminal offense.

Still, the obligation to bank secrecy is not absolute, and there are four cases when this duty would not apply. One is the aforementioned case where there is a legal obligation or court order to disclose such information, as in a lawsuit. Another is when public interest would require this disclosure, such as the fight against international narcotics trafficking. The bank may disclose information when it would be vital to protect its interests, such as when filing a claim against a client for repayment of a debt. Finally, the obligation to secrecy is relieved when a client either explicitly or implicitly consents to the disclosure of personal information, such as when the client requests the bank submit references to another bank.

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