Bank of Israel proposes guidelines to regulate crypto to prevent AML and CFT

Israel has been on the headlines for its active participation in the crypto industry and the regulations involved with it. The Bank of Israel recently published a drafted regulatory framework on Anti-money laundering (AML) and Terrorism Financing (CFT) risk management for the commercial banks that are involved in crypto-to-fiat transaction offerings.

This hints at the country’s plans on legalizing and regulating the relationship between virtual currency service providers or VASPs and banks. The report also cites the increased involvement of users with crypto assets as the rationale for the new rule:

“In view of the increase in customer activity in digital assets, 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.”

Israel and its active steps

The move comes shortly after Israel seized terrorist organization Hamas linked 30 crypto wallets from 12 exchange accounts that were actively involved in terrorism financing.

Coming to AML, this is not the first time that Israel is making such a law on the risks involved with crypto assets. In November last year, the country passed a new AML law for crypto that mandates VASPs and local fintech companies to apply for the operating license.

Currently, the task of establishing mechanisms of money identification is divided into two major components: 

• Conducting rigorous risk assessments
• Clarifying “the source of the money used in the purchase of the virtual currency and the path through which the virtual currency passed” from purchase to convert into fiat.

According to the press release, banks will only be able to deal with organizations who have been granted a license to provide financial asset services by the Financial Markets, Insurance and Savings Authority’s supervisor.

The proposed revision was sent to the Advisory Council on Banking Matters, which is anticipated to provide additional insight that will be evaluated by the Bank of Israel in the final approval of the standards, along with the public comment.