Israeli Banking Regulator Proposes New Risk-Based Test for Bitcoin Deposits to End Automatic Rejections
The Israeli banking regulator has released a draft directive aimed at easing the integration of virtual currencies into the banking system, signaling a shift away from automatic rejection of cryptocurrency deposits. The update, open for public comment, revises Section 87a of Directive 411, which governs how banks identify the source of virtual currency funds before accepting deposits. The regulator seeks to implement a risk-based approach requiring banks to assess the client, service provider, cryptocurrency characteristics, transaction volume, and money trail, rather than outright refusing such deposits.
This move follows years of stalled efforts to unlock hundreds of millions of shekels trapped outside the banking system due to banks' fears of heavy fines and criminal investigations related to anti-money laundering laws. Previous mechanisms, including a "bank bypass" route and voluntary disclosure procedures, yielded only limited success. The original Directive 411, issued in late 2022, prohibited blanket refusals but did not fully resolve the issue, leading to legal battles up to Israel's Supreme Court.
Accounting expert Nadav Livneh-Goldberg explained that the new draft eliminates the previous hard threshold of 100,000 shekels per year for deeper scrutiny, replacing it with a more nuanced risk assessment. Transactions through licensed and regulated entities will face less scrutiny than those involving anonymous wallets or high-risk jurisdictions. Banks will be required to establish clear procedures for evaluating cryptocurrency transactions, including when external expert opinions are necessary.
Industry voices welcomed the change as a step toward legitimizing crypto activities and providing clarity for private investors and companies. However, some experts caution that customers may still face extensive documentation requirements to prove the source of funds, raising privacy concerns given blockchain transparency. The draft aims to balance regulatory compliance with facilitating the growth of the crypto sector in Israel.
The banking sector now faces the challenge of developing expertise and internal controls to implement this risk-based approach effectively, moving beyond a default stance of refusal. The draft directive represents a significant regulatory milestone in integrating digital assets into Israel's financial system while managing associated risks.
