Overview of Israel’s newly-proposed Guidelines for Regulating Digital Assets

Published 5 December 2022

On 28 November 2022 Israel’s Ministry of Finance published a list of recommendations pertaining to the regulation of digital assets, a natural next step in the country’s push to embrace crypto and blockchain-based assets.

The recommendations contain an overview of the digital assets market in Israel and globally, with a focus on cryptocurrency. They further explore the main barriers to the development of this market and how the Ministry plans on tackling them. In summary, the recommendations include:

• Encouraging new crypto investments by easing restrictions under the current regulatory framework and shifting focus to licensing and enforcement actions against unlicensed digital asset services.
• Monitoring and providing adequate banking services and regulatory oversight, particularly around the management of funds originating from digital assets.
• Improving and widening the existing regulatory framework by regulating the powers of the relevant supervisory authority in relation to licences provided in parallel, in other jurisdictions.
• Creating a clear mechanism for taxation of activities relating to digital assets and expanding the remit of regulations issued by the Israel Securities Authority to assets and activities related to digital assets and the application of securities laws.
• Attributing the licensing and supervision powers relating to financial services and payment services in the context of digital assets to one regulatory authority while maintaining the principle of technological neutrality.
• Creating a new regulatory infrastructure which focuses on licensing powers and supervision over the issuance of backed digital assets, including stablecoins, and the provision of financial services through them.
• Passing legislation to transfer supervision over digital assets “which have a significant stability or monetary effect” to the Bank of Israel.
• Allowing the payment of taxes on cryptocurrency held abroad through the Bank of Israel.
• Establishing an inter-ministerial committee to oversee the regulation of decentralized autonomous organizations (DAO).

The full text of the Guidelines including a comprehensive report on the state of the market is available here (in Hebrew). DACB’s Israel Desk will keep a close watch on development in this space.