The Bank of Israel reportedly put up a draft regulation related to  Anti-Money-Laundering and Combatting the Financing of Terrorism (AML/CFT) risk management, for banks supporting crypto-to-fiat transactions.

Specifically, the development reportedly hints at the preparation works from the authority of Israel, regarding the legalization and regulation of the relationship between banks and virtual currency service providers (VASPs).

The documents reportedly mentioned the growing involvement of clients with digital assets as the rationale for the new policy. 

“In view of the increase in customer activity in virtual currencies, and the resulting increase in customer requests to transfer money […] the Banking Supervision Department today published a draft circular dealing with managing AML/CFT risks derived from the provision to customers of payment services related to activity originating in virtual currencies.”

The regulator reportedly highlighted the “high potential risk” of digital asset transactions, because of the anonymous nature of digital wallets, as well as highlighted the necessity of coming up with mechanisms of money identification.

At the moment, this assignment reportedly consists of two primary components – carrying out risk assessments, offering clarifications “the source of the money used in the purchase of the virtual currency and the path through which the virtual currency passed” between purchase and conversion into fiat.

As the release clarifies, banks would only receive the regulatory green light to interact with the entities carrying a license to offer financial asset services, issued by the supervisor of the Capital Market, Insurance and Savings Authority.

The draft amendment was reportedly moved to the Advisory Council on Banking Matters, which is expected to offer further remarks, together with feedback from the general audience, which will be under consideration from the Bank of Israel in the process of finalizing the guidelines.