The Supervisor of Banks has circulated a draft amendment to Proper Conduct of Banking Business Directive 411, proposing measures that would ease the transfer of crypto-derived funds into Israeli banking corporations.
In 2022, the Supervisor of Banks issued an update to Proper Conduct of Banking Business Directive 411, adding Section 87A, which sets out the principles governing payment services provided in connection with customers’ virtual currency activity. Several days ago, the Supervisor published a further draft amendment to this section, intended to refine the principles for managing the risks associated with virtual currency activity, with an emphasis on a risk-based approach, and to support the development of activity in the cryptoasset sector. At this stage, the amendment is a draft published for public comment and is not a final directive.
Narrowing the Definition of the “Virtual Currency Path”
The definition of the “virtual currency path” determines the checks that a banking corporation may require regarding the path of the coins before they were converted into fiat currency and the resulting funds were sought to be deposited into a bank account. Under the previous wording, the definition was relatively broad and also applied to the receipt of funds that did not originate from a virtual currency service provider but were transferred through banking entities. The new draft deletes this element, narrowing the definition to movements carried out in virtual currencies or through virtual currency wallet addresses, with particular emphasis on the identity of the transferors and transferees and on the currency conversion path.
Elimination of the Mandatory Source-of-Funds Review for Transactions Exceeding NIS 100,000 in Annual Activity
The previous wording provided that, where the volume of payment services connected with virtual currency activity exceeded NIS 100,000 per year, the banking corporation was required to ascertain from the customer the source of the funds used to purchase the virtual currency or finance its mining, as well as the currency path. This requirement has been removed. According to the explanatory notes, the decision whether to examine the currency path and source of funds will now be made solely on a risk-based basis, in accordance with the general principles set out in the directive and without a fixed quantitative threshold.
Reduced Prescriptive Requirements for Policies Concerning Virtual Currency Service Providers and Currency Paths
Several procedural requirements included in the previous wording have been removed. These include the requirement that a banking corporation establish a dedicated policy governing its dealings with virtual currency service providers operating in Israel under a continued-operation permit and with service providers incorporated outside Israel, together with a prescribed list of considerations, such as the country of incorporation, anti-money laundering requirements, and the service provider’s policies and procedures; the requirement that a banking corporation predefine the virtual currency paths for which it would provide payment services, taking its risk assessment into account; and the requirement to verify the currency path by means of specific documentation from a licensed Israeli service provider, a customer declaration, or documentation from an expert third party.
At the same time, the detailed list of parameters that a banking corporation’s policy was required to address—including the type of virtual currency and the degree of anonymity it permits, the type of currency and the volume of activity in it, the identity of the service provider, and the characteristics of the customer’s activity—has been replaced by a more general, risk-based set of principles. These require an assessment of the transaction’s risk profile, taking into account the identity of the service provider, the characteristics of the virtual currency, the customer’s characteristics, and the scope and complexity of the transaction. In addition, the provision requiring a banking corporation to establish a policy for providing payment services to customers in connection with transactions conducted through a P2P platform, which previously appeared as an item in the list of risk factors, has been moved to the updated list of policy and procedure topics as a separate, slightly abbreviated item. Overall, the amendment shifts from a detailed list of procedural obligations to a more flexible, risk-based framework.
Updated Customer Disclosure Requirement
Amended Section 87A(e) expressly requires that disclosure to customers regarding the banking corporation’s policy be “effective, clear and accessible,” so that customers can generally understand the conditions under which virtual currency services will be provided. In addition, the wording “seeks to transfer” has been replaced with “transfers,” and the sentence requiring the disclosure to address the conditions for transferring funds from the customer’s account with the service provider to the customer’s account with the banking corporation has been deleted. The requirements that disclosure be provided “upon the customer’s first request” and “where possible, before the transaction is carried out” have also been removed. The remaining requirement is that disclosure be provided around the time of the first transfer of funds from the customer’s account with the banking corporation to the customer’s account with the virtual currency service provider.
The draft amendment reflects a trend toward easing requirements, primarily for customers seeking to deposit crypto-derived funds with a banking corporation, provided that the cryptoassets were purchased and/or sold through licensed financial service providers. The draft reinforces the Supervisor’s approach of managing risk on a case-by-case basis rather than applying the original tendency toward blanket prohibitions. Despite the proposed easing, we do not expect a dramatic change for customers seeking to deposit funds originating from trading platforms that are not licensed financial service providers, or where the funds were converted from types of currency that banking corporations identify as risk factors—for example, trading platforms not regarded as maintaining appropriate compliance standards, or privacy coins.
If you believe this update may be relevant to you, including where you operate in adjacent areas that may be affected, you are invited to contact us. The deadline for submitting comments on the draft is August 4, 2026, and we would be pleased to assist in assessing its potential implications for your operations and in considering an appropriate response.
The above content is a summary provided for informational purposes only and does not constitute legal advice. It should not be relied upon without obtaining further professional legal counsel.
