Bank Of Israel Publishes Draft Guidelines On Crypto AML/CFT

On March 11, the Bank of Israel published an extensive draft regulation on Anti-Money-Laundering and Combating the Financing of Terrorism (AML/CFT) risk management for the banks to facilitate crypto-to-fiat transactions. Based on the draft, private banks may be needed to do risk assessments on a case-by-case basis.

This move points to the Israeli government’s preparations to legalize and regulate the relationship between virtual currency service providers (VASPs) and banks. The document cites the clients’ increased involvement with digital assets as the rationale for the new policy:

“In view of the increase in customer activity in virtual currencies, and the resulting increase in customer requests to transfer money […] the Banking Supervision Department today published a draft circular dealing with managing AML/CFT risks derived from the provision to customers of payment services related to activity originating in virtual currencies.”

The regulator insists that the ‘high potential risk’ of digital asset transactions as a result of the anonymity of digital wallets and insists on the need to create mechanisms of money identification. Today, the Bank of Israel said that the task is divided into two key components: doing rigorous risk assessments and clarifying:

“The source of the money used in the purchase of the virtual currency and the path through which the virtual currency passed” between purchase and conversion into fiat.”

Bank Of Israel Gives Regulatory Direction

As the official press release clarifies, banks would only be authorized to deal with the companies that hold a license to offer financial asset services issued by the supervisor of Insurance, the Capital Market, and Savings Authority.

The draft amendment was sent to the Advisory Council on Banking Matters. It is expected to offer extra input that, together with public commentary, will be considered by the Bank of Israel in the process of patching up the guidelines.

In November last year, the Israeli government obliged VASPs to acquire an operating license from the Capital Markets, the Israel Securities Authority, Insurance and Savings Authority. With the AML/CFT guidelines for the banks now on the table, the country is moving even closer to getting an exhaustive network for digital asset transactions.