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64 The US-Israel Legal Review 2019
ISRAEL: CRYPTOCURRENCIES
1. Israel’s in-depth experience with Fintech,
cyber security, andcryptographyhaspositioned
it as a hub for blockchain innovation, withmany
successful blockchain ventures developed in
Israel, including Colu, Coti, Kin and Adex, among
others. Over the past twelve months Israeli
financial regulators have published a number
of financial rules and regulations to keep pace
with the evolving technology. Can you update us
on the regulatory landscape?
During 2018 Israeli authorities addressed the
emerging blockchain industry in the form of new
legislation, regulatory circulars and study groups,
providing more certainty in some areas, and most
notably, giving formal legitimacy to this industry
by addressing the legal issues it presents.
In October 2018, the new Financial Services
(Regulated Financial Services) Law, 2016 (the
“
RFS Law
”) was enacted. The RFS Law is the first
piece of Israeli legislation explicitly addressing
virtual currencies. The new law classifies virtual
currencies as Financial Assets, and in so doing,
equalises the regime applicable to businesses
dealing in virtual currencies with those dealing
in fiat currency exchange. Under the RFS Law, the
provision of services in virtual currencies by way
of business (including exchange, sale, management
and safekeeping of financial assets) is subject to
licensing by the IFM (Israeli Financial Markets
Authority). This requirement is applicable to all
virtual currencies, irrespective of the classification
of the tokens (as exchange tokens, utility tokens,
securities, etc.). The regulatory framework
includes prudential regulation such as minimum
capital requirements, customer verification, AML
obligations (under the existing AML Order), etc. This
new legislation provides much-needed certainty
to consumers, enabling them to participate in the
crypto market via regulated service providers,
in addition to demonstrating that the regulator
views virtual currencies as a legitimate financial
instrument, which needs to be regulated in line
with other “conventional” financial instruments in
order to be accepted into the mainstream economy.
In order to address the broad AML issues arising
in connection with virtual currencies, in May 2018
the Ministry of Finance published a draft of the new
AML Order, expected to be enacted during 2019.
The AML Order draft provides extensive measures
applicable to licensed providers, adjusted to the
new blockchain environment. The draft includes
two key requirements;
(i) when a transaction involves a virtual currency,
the provider must record the public address
of the digital wallets and login IP addresses
involved in the transaction for future audits;
(ii) the provider is required to report any unusual
transaction involving one of the following –
using a mixer to conceal the coin’s origin, using
anonymous currencies (e.g., Monero, ZCash
The State of Play for
Cryptocurrencies in Israel
As the virtual currencies industry continues to experience
a fast-tracked evolution and maturation both in Israel and
worldwide, the likelihood of a convergence with the traditional
financial sector has also grown.