Israeli Bar Association Criticizes New Crypto Regulation Bill

The Israel Bar Association's Crypto Committee has submitted a position paper to the Ministry of Finance expressing sharp criticism of a new draft bill intended to regulate stablecoins. The committee argues that the bill inadequately addresses how the public actually uses digital currencies and could impose stricter requirements on Israeli entrepreneurs compared to foreign companies.

A central concern raised is the bill's focus on the coin issuer and the initial sale, overlooking the reality that many users acquire stablecoins through trading platforms, digital wallets, and apps, not directly from the issuer. The Bar Association warns this gap could leave users unprotected against theft, technical failures, or frozen assets.

The paper also highlights potential competitive disadvantages for Israeli firms. It suggests that local entrepreneurs might face substantial resource demands for capital, technology, and corporate governance to obtain a license, while foreign companies could operate with a lighter regulatory touch. This, the committee cautions, could harm the domestic fintech industry and favor international players.

Regarding currency stability, the Bar Association questions whether a 100% backing requirement guarantees that reserve assets can be quickly liquidated during market stress. They propose adding risk management requirements and periodic stress tests. To foster industry growth, the committee suggests establishing a "regulatory sandbox" for entrepreneurs to test new products under supervision for 24 months and granting an 18-month grace period for existing operators to apply for licenses without their current activities being deemed criminal offenses.