Bank of Israel Releases Draft Guidelines for Cryptocurrency AML/CFT

On March 10, the Bank of Israel published draft regulation on anti-money laundering and anti-terrorist financing (AML/CFT) risk management for the banks facilitating crypto-to-fiat transactions.

The move refers to the Israeli government’s preparations to legalize and regulate the relationship between banks and virtual currency service providers (VASPs). The document cites increased customer engagement with digital assets as the reason for the new policy:

“Given the increase in customer activity in virtual currencies and the consequent increase in customer requests to transfer funds […] the Banking Supervision Department today published a draft circular on the management of AML/CFT risks arising from the provision to customers of payment services related to activities originating from virtual currencies.”

The regulator emphasizes the “high potential risk” of digital asset transactions due to the anonymity of digital wallets and emphasizes the need to put in place money identification mechanisms. For now, this task is divided into two main components: conducting a rigorous risk assessment and clarifying “the source of the money used in purchasing the virtual currency and the path the virtual currency took” between purchase and conversion in fiat.

As the release clarifies, banks should only trade with the entities licensed to provide financial asset services issued by the regulator of the Capital Market, Insurance and Savings Authority.

The draft amendment has been sent to the Banking Advisory Council, which is expected to provide additional input that, along with public comment, will be considered by the Bank of Israel when finalizing the guidelines.

In November 2021, the Israeli government required VASPs to obtain an operating license from the Israel Securities Authority, the Capital Markets, Insurance and Savings Authority. With AML/CFT guidelines for banks on the table, the country is getting even closer to getting a comprehensive framework for digital asset transactions.

Leave a Comment