Does the crypto receive ‘approval’ from the supervisor of banks and entry into the banking system? The Bank of Israel acts with caution when, on the one hand, it does not prohibit the banks and banking corporations from operating in the field, but requires them to be more cautious. According to the bank, “new and innovative assets and services are developing at an accelerated pace, provided by a variety of entities and addressed to a wider audience of customers” and that the bank recognizes that even in Israel traditional financial entities are entering the field.
The supervisor requires the banks to contact the supervisor in advance before they enter into activities in the field of cryptography, and that the bank examine that the activity is included in the areas of activity permitted to the bank, and that the bank first of all carry out a risk assessment process, including in relation to consumer protections, and that the bank will be required to demonstrate the ability to manage in a safe manner, and also to report About this to the supervisor of the banks, who can demand the completion of information as well as consequences for the financial stability of that bank.
The Bank of Israel explains that “crypto activity has the potential for innovation. The activity of traditional financial entities in the field, alongside other entities that have been active for many years, will enable the development of new business models” but warns that “for both the financial entities and their customers, the activity embodies stable risks, financial risks , operational risks, including cyber risks, anti-money laundering aspects and consumer aspects” and therefore the banks will have to proceed with caution.
According to the supervision: “These risks and concerns intensify because activities related to crypto are not yet fully recognized and understood, due to the short period of time and the relatively limited experience in the field in addition to their rapid development” and adds “that already at this stage as a result of the realization of risks in the field of crypto as well as documents from regulatory authorities in the world on the subject, Risks related to crypto assets and activities can be identified.”
Yair Avidan, the supervisor of banks: “Crypto activity, under traditional financial entities, is a relatively new activity, and therefore there is uncertainty regarding the development of business models in this area. As a regulator that encourages innovation, the supervision of banks has a dual responsibility. On the one hand, not to inhibit innovation in the crypto activity and the technology that supports it but to enable its development, and on the other hand, to ensure a cautious approach in relation to the risks arising from this activity while ensuring the maximum possible protection for the customer.”
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