The Banking Supervision Department from the Bank of Israel has announced the publication of a draft regulation in the area of AML/CFT risk management. This comes as a result of the increase in customer activity in virtual currencies, and the resulting increase in customer requests to transfer money originating in such activity to payment accounts managed within the banking system.
Activity in virtual currencies has a high potential risk of money laundering and terrorism financing. Such activity enables anonymity that is built into the currency itself or through digital wallets that are opened without the customer being identified at all. In this way, significant amounts may be transferred between countries without any supervision or regulation. With that, activity in virtual currencies also holds the potential for streamlining payments and international transfers.
As of now, the regulation and supervision of virtual currency service providers is still being developed in most countries, as well as in Israel.
In accordance with this draft regulation, banking corporations will be required to:
- Conduct a risk assessment and set out policy and procedures for the transfer of money that originates in or is destined for virtual currencies, taking a risk-based approach and identifying the virtual currency service provider. In cases where the service provider has received a license for providing financial asset services from the Supervisor of the Capital Market, Insurance and Savings Authority, and is subject to the Money Laundering Prohibition Order, the banking corporations will be required to examine each case on its own and will not be allowed to issue a sweeping refusal to the service provider.
- Clarify the source of the money used in the purchase of the virtual currency and the path through which the virtual currency passed from the time of its purchase until its conversion to fiat currency and deposit into an account with the banking corporation.
The proposed draft amendment was distributed today to the Advisory Council on Banking Matters and for public comments. A final guideline will be formulated following discussion of the comments of Advisory Council on Banking Matters and comments from the public.
Supervisor of banks Yair Avidan said, “The Banking Supervision Department is monitoring activity in virtual currencies as well as domestic and international regulation being developed in this field. In view of the increase in customers’ activity volumes in such currencies, and due to the potential for streamlining payments and international transfers, this draft regulation was formulated. Activity in virtual currencies comes with high risk in terms of the money laundering prohibition and the prohibition against the financing of terrorism. As such, this draft regulation sets out a number of principles for managing such risks, which will help banking corporation customers who wish to realise money that originates in virtual currency activity, while managing the risks inherent to the banking system as part of such activity.”