A comprehensive regulation of digital assets in Israel is required, in accordance with the developing standards in the western world. This is the main recommendation in the long-awaited report published by the Israeli Ministry of Finance. The report covers digital assets that are not backed by another asset (such as cryptocurrencies such as Bitcoin and Ether), as well as digital assets that are backed by other assets including stable-coins, etc. It recommends a roadmap for the regulation of digital assets.
The report asserts that digital assets pose significant risks such as money laundering, risks to financial and monetary stability, loss of tax revenue and exposure to fraud, breach of user privacy, and more. However, the report also recognizes the advantages inherent to digital assets, such as opportunities for economic growth and optimization of payment systems and financial services.
Among the report’s recommendations –
- Completing the processing of requests for licenses to regulated financial service providers in virtual currency;
- Full implementation of a proper banking procedure published by the Bank of Israel (Israel’s central bank) regarding risk management required in the banking system to allow the deposit of funds originating from investments in digital assets;
- Granting legislative authority to recognize the validity of foreign-issued licenses to service providers of digital assets;
- Clarifying tax aspects, including the classification of the type of property and its location, and instructions for reporting and tax deductions;
- Granting the Israel Securities Authority the power to regulate the offer and sale, joint investment, investment advice, and portfolio management of digital assets;
- Establishment of an inter-ministerial committee to examine the regulation of decentralized autonomous organizations (DAO).
Click here to read the Israeli Ministry of Finance’s report on digital assets (in Hebrew).