Last week it was announced that the cryptocurrency lender Celsius Network Ltd. filed for bankruptcy in the U.S. This announcement has increased the concerns around the cryptocurrency market (which already existed following the market crash in recent weeks) regarding the longevity of cryptocurrency.
Amongst others, this lack of stability is affecting banks. In accordance with the Bank of Israel’s Proper Conduct of Banking Business Directive no. 411. (Prevention of Money Laundering and Financing of Terror, and Customer Identification) Israeli banks are required to establish their policy and procedures in respect of providing payment services in virtual currencies up until November 9, 2022. The latest events will evidently have certain implications on the level of risk the banks will be willing to take with regard to virtual currencies.
It should be noted that the Directive regulates and refers only to the case of funds transferred from the Service Provider in virtual currency to the bank account of the client.
In light of these cases, some companies and individuals recently approached us regarding the licensing requirements and regulatory situation of crypto in Israel and mainly about the possibility to cash out their virtual currency and ultimately transfer it to a bank account (and vice versa).
We have decided to make it simple and here are the main factors you need to consider when it comes to virtual currencies in Israel (part of them as of November 2022):
- To engage in virtual currencies activity, one should hold a license as a Financial Service in Virtual Currency.
- So far, the relevant authority that is competent to grant the license has not granted such licenses.
- If you hold such a license the banks are not allowed to refuse to perform funds transfers from your account (as a Service Provider in Virtual Currency) to the client’s bank account. If you don’t hold such a license – the banks are allowed to refuse for such funds transfer, depends on their policy.
- In case the funds transfers of the client from wallet to their bank account exceeds 100,000 NIS (roughly 24,000£/28,800$) the bank is obligated to investigate the virtual currency source of funds and the “money path”.
- As part of these investigations, the banks are required to ask for a reference from: (a) the Service Provider in Virtual Currency (this Provider must hold a license); (b) a client declaration; (c) reference from an expert.
- If the virtual currencies are from mining activity or were purchased and sold from or to the same wallet, for the same client, the “money path” may be deemed less risky, therefore the bank may take this into account when considering the approval of the funds transfer.
- In case the Service Provider in Virtual Currency breaches the licensing or registration laws that apply on it, the bank is allowed to refuse to perform the funds transfer from this Provider to the bank account of the client.
For more information please contact your Gross & Co. attorney or Adv. Shani Galant Frankfurt (shaniga@gkh-law.com).
Gross & Co. Law Firm is one of the leading law firms in Israel, with over 220 attorneys. Gross & Co. specializes, both in Israel and abroad, in various fields of law including Mergers and Acquisitions, Capital Markets, Technology, Healthcare and Life Science, Banking, Real Estate, Project Finance, Litigation, Antitrust, Energy and Infrastructure, Environmental Law, Intellectual Property, Labor Law and Tax.
This alert is prepared as an informational service to clients and colleagues of Gross & Co. and the information presented is not intended to provide legal opinions or advice. Readers should seek professional legal advice regarding the matters about which they are particularly concerned.
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