Israel’s Central Bank Issues Draft Guidelines for Crypto Deposits

The Bank of Israel has published a draft regulation which could potentially move the country closer to getting a comprehensive framework for digital asset, the central bank said in a press release on 10 March.

The central bank’s draft will require banks to conduct risk assessments and set out policies and procedures for “transfer of money that originates in or is destined for virtual currencies”. It also notes that for licensed crypto firms, banks will be required to examine “each case on its own”, and that “sweeping refusal” for such entities will not be allowed. The Supervisor of Banks, Yair Avidan, said in a statement:

“This draft regulation sets out a number of principles for managing risks, which will help banking corporation customers who wish to realize money that originates in virtual currency activity, while managing the risks inherent to the banking system as part of such activity.”

The proposed regulation also noted there is a “high potential risk” associated with digital asset transactions due to their anonymity, which will require banks to clarify the source of the money used to purchase crypto, as well as track its path “from the time of its purchase until its conversion to fiat”. The draft has been submitted to the public for comments, and a final guideline will be issued following a discussion with the Advisory Council on Banking Matters.

Avidan noted that the proposal was drafted due to customers increased involvement with digital assets, the potential for streamlining payments and international transfers. Another reason was the increase in requests from customers, who wish to have the option to send money that originated from crypto to their bank accounts.

If the proposal is adopted, Israel will move one step closer to having a comprehensive framework for digital asset transactions. The country adopted new crypto anti-money laundering (AML) rules back in November, which required virtual asset service providers (VASPs) in Israel to obtain an operating license from the Israel Securities Authority and the Capital Markets, Insurance and Savings Authority.