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The chief economist said the Supervisor of Financial Service Providers and the Israel Securities Authority should be granted more powers to oversee the industry.

Israel's chief economist has laid out a list of recommendations as to how policymakers should tackle digital asset laws in the country in order to safely drive up crypto adoption.

In a 109-page report submitted to the Minister of Finance on Nov. 28, Shira Greenberg, Chief Economist at the Ministry of Finance, called for a more comprehensive regulatory framework that would bring trading platforms and crypto issuers in line and would expand the powers given to its financial regulators.

Greenberg recommended Israel should improve investor certainty and protection by imposing stricter licensing requirements on trading platforms and issuers of cryptocurrencies, as well as ensuring funds originating from digital assets are more safely managed.

She also recommended the Supervisor of Financial Service Providers have broader powers to oversee licensing rules and develop a more comprehensive taxation framework for the buying and selling of digital assets.

Expanded powers for the Israel Securities Authority were also recommended by Greenberg, who stated the powers were needed in order to ascertain whether a digital asset falls within the scope of Israeli securities laws and to monitor the activity of payment service providers in the crypto space.

In regards to legislation, Greenberg made mention of the need to implement specific licensing and supervision rules for stablecoin issuers, along with a proposed establishment of an inter-ministerial committee to examine and regulate blockchain-based decentralized autonomous organizations (DAOs).

She added it was important that policymakers and lawmakers take into account the concept of technological neutrality when implementing digital asset-related rules.

Minister of Finance Avigdor Lieberman praised Greenberg for her work, stating the report “constitutes the most comprehensive and up-to-date report currently available on this issue for government use” in Israel and that he expects the “report will serve as a basis for future decisions and legislation” on digital asset-related matters in the months to come.

Despite Israel often being referred to as a tech-savvy nation, the country hasn’t shown to be too crypto-obsessed thus far, having ranked 111th out of 146 countries in a recent global crypto adoption index conducted by blockchain data firm Chainalysis.

Greenberg also referenced data in her report that states that Israeli residents have accounted for 21 million blockchain-based transactions in total, which only equates to 0.04% of all crypto transactions worldwide.

Meanwhile, only 2% of Israelis reported owning or using a crypto wallet.

More adoption appears to be on its way. The Tel Aviv Stock Exchange (TASE) recently announced on Oct. 24 that it intends on creating a blockchain-based platform to expand its trading services to cryptocurrencies. In the same month, TASE also kicked off live tests for a pilot project involving the tokenization of digital bonds, which is expected to be completed in Q1 2023.

Government-issued licenses are finally being issued too, with Israeli-based trading platform Bits of Gold becoming the first firm to receive a license from the Capital Markets Authority in Sep. 2022 to store digital currencies through their own secured custody wallet and provide certain digital asset-related services to banks.

Digital Asset Exchange Platform Granted ‘Crypto Financial Services Provider License’ by Israeli Regulator

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Israeli crypto exchange receives capital markets license in country first

September 23, 2022 Coin Telegraph

AML

Earlier this week, the Israeli crypto exchange became the first crypto firm in the country to receive a license enabling it to work with local banks.

Israeli-based crypto exchange Bits of Gold became the first crypto firm in the country to receive a license from the Capital Markets Authority according to social media posts from the company on Sept. 18.

As a result of attaining the license, Bits of Gold will be able to store digital currencies through secured custody in a “Bits of Gold Wallet” they have been working on for some time. It will also start providing a service that enables banks and other financial institutions to connect to its digital asset services.

In a public statement, Bits of Gold said that the license is the next step in their mission to make the world of digital currencies more accessible to the Isreali public “in a simple and secure manner.”

Authorities in Israel have been putting restrictions on cash payments in the country as it tries to combat illegal activity and drive a transition to digital payments within the country.

Despite that, institutional adoption in the country has been slow with Isreali banks having been very unfriendly towards crypto and blocking services until recently, citing Anti-Money Laundering (AML) issues.

In 2017 the Israeli Supreme court ruled that local bank Leumi was legally allowed to refuse service to Bits of Gold, with the bank claiming that Bitcoin’s nature made it impossible for them to follow ALM requirements.

The Supreme Court’s position had changed by 2019 however, when it ruled that Leumi could not block Bits of Gold’s account based on regulatory concerns, and in doing so set a precedent for other cryptocurrency firms.

The enforcement of new AML regulations by the government in Israel further opened the path to co-operation between banks and the crypto industry. The development also set a requirement that crypto companies must be licensed, although companies that applied for one were given a permit to temporarily continue their operations.

Another barrier to institutional adoption in Israel is its taxation laws. The country was recently ranked as the third worst country for crypto taxation according to a report released by crypto analytics firm Coincub on Sept. 8.

According to Coincub, sales of crypto is generally subject to a capital gains tax of up to 33% in Israel and if the investing activity is deemed to be business related, it is subject to income tax up to 50%.

While the Capital Market, Insurance and Savings Authority had already granted the first Israeli crypto license to infrastructure firm Hybrid Bridge Holdings earlier this month, the license that Bits of Gold received represents the first one given to an active broker.

Bits of Gold

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