Regulating Israeli Banks’ Provision of Services to Licensed Cryptocurrency Service-Providers | Barnea Jaffa Lande & Co.

The Bank of Israel is proposing to regulate the provision of services to licensed cryptocurrency service providers (i.e., exchange platforms). The purpose of the proposal is to ensure banks are not able to sweepingly refuse to provide service and instead must formulate a risk management policy.

The planned regulation will find application through an amendment to the Proper Conduct of Banking Business Directive “Management of Money Laundering and Terror Financing Risks” against the backdrop of an increase in customers’ volume of activity with cryptocurrencies.

The amendment adds provisions regarding payment services during customers’ cryptocurrency activities, while relying on the existing definitions in the laws relevant to the provisions, inter alia, the Supervision of Financial Services (Regulated Financial Services) Law and the Prohibition of Money Laundering Order.

Following are several guidelines that banks will have to follow:

Risk Assessments and the Setting of Policies and Procedures

In the amendment, the Supervisor of Banks adopted the standard prescribed by the Financial Action Task Force (FATF). This standard states that banking corporations must set risk management policies and procedures reflecting a risk-based approach based on the following parameters: the type of cryptocurrency and the degree of anonymity it provides to its users, the type and volume of activity with the cryptocurrency, and the identity of the cryptocurrency service provider.

The policy and procedures should take into account the following principles:

1. Banks may not refuse to provide payment services during cryptocurrency transactions merely due to the fact that the source or destination of the transaction relates to cryptocurrency, provided that the cryptocurrency service provider holds a license to provide financial asset services in Israel.

2. Banking corporations must determine their mode of activity with cryptocurrency service providers operating in Israel…


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