Developments In Israeli Banking And Crypto

The Israeli banking sector has been very cautious in its approach towards virtual currencies. In light of the Bank of Israel's reluctance to issue meaningful guidelines, banks have consistently viewed activities relating to cryptocurrencies as "high risk." In the absence of institutional leadership, other state institutions have been forced to attempt to create a form of framework for the financial institutions. In an interim decision in 2017, the Tel-Aviv District Court highlighted this issue and accordingly allowed banks to refuse service to accounts connected with the virtual currencies. Since then we have seen a trend of cases backing down from this hardline stance. And now more recently the Attorney General has filed with the Tel-Aviv District Court, the most detailed guidelines yet produced, in its response to a case being heard there.

Background

In a 2017 ruling of the Tel-Aviv District Court Bits of Gold Ltd. v. Bank Leumi LeIsrael Ltd ("Bits of Gold Case"). Bits of Gold Ltd., an Israeli crypto currency exchange platform, filed a motion in June 2015 against Bank Leumi LeIsrael Ltd., following the bank's decision to block all activities in Bits of Gold's bank account linked to the trade of Bitcoin and other virtual currencies, after almost two years of operations. The bank based its decision on a joint press release by the Bank of Israel, the Capital Market, Insurance and Savings Department, the ITA, the ISA, and the Israel Money Laundering and Terror Financing Prohibition Authority regarding the potential risks inherent in virtual currencies. The bank argued that the regulators had not given any guidance on how to mitigate such risks and ensure the banks' compliance with applicable laws, and therefore it was prudent to take a conservative approach by limiting all activities in Bits of Gold's account related to the trade of virtual currencies.

The court ruled that the main question was whether banks are right in refusing to offer banking services to customers involved in the trade of virtual currencies. Before making its decision, the court invited the Supervisor of the Banks to provide its position on the matter. The Supervisor of the Banks informed the court that it considered the transactions related to the trade of virtual currencies as high risk activities both for the banks and the banks' clients alike. However, the fact that these are high risk transactions does not mean they should be prohibited altogether, rather that each...