Last Friday, the Bank of Israel published a draft regulation on Anti-Money-Laundering and Combatting the Financing of Terrorism (AML/CFT) risk management for the banks facilitating cryptocurrency-to-fiat transactions. This move is a hint at the Israeli government’s plans to legalize and regulate virtual currency service providers (VASPs) and banks. This new policy is based on customers’ increasing involvement in digital assets.
In light of increasing customer activity in virtual currency and the resulting rise in customer requests for money, the Banking Supervision Department published a draft circular on managing AML/CFT risk derived from payment services provided to customers related to virtual currency activity.
The regulator asserted that digital asset transactions pose a “high potential risk” due to anonymity of digital wallets. The regulator stresses the importance of establishing mechanisms for money identification. This task is split into two main components.
The release clarifies that banks will only be permitted to deal with entities that have a license to offer financial asset services issued to them by the Capital Market, Insurance and Savings Authority.
The draft amendment was submitted to the Advisory Council on Banking Matters. This is expected to provide additional input. Public commentary will also be considered by Bank of Israel as they finalize the guidelines.
VASPs were required to get an operating license from Israel Securities Authority and Capital Markets, Insurance and Savings Authority in November 2021 by the Israeli government. The AML/CFT guidelines for banks are now available and the country is closer to establishing a comprehensive framework for digital assets transactions.