Three years after the publication of the joint announcement by the Bank of Israel, the Israel Tax Authority, the Israel Securities Authority and the Israel Money Laundering and Terror Financing Prohibition Authority regarding the risks inherent in virtual currencies, Bank Leumi refused to provide service to a company engaging in “bitcoin” digital currency trading.

Bits of Gold Ltd. (the “Company”) has a digital wallet in which it holds bitcoins. In 2013, in order to deposit money from its customers who buy or sell bitcoins in the Company’s digital wallet, the Company opened a bank account through which it performed cash transactions (not in digital currency of course).

In May 2015, in light of various incidents of criminals hacking into various bank accounts in Israel and abroad and exploiting bitcoins, Bank Leumi notified the Company that it must discontinue any activity relating to trading in virtual currencies; otherwise, the bank will refuse to approve the performance of operations in the account.

Pursuant to the Banking Law, in order for a banking corporation to be able to refuse to perform operations in a bank account, the refusal must be a “reasonable refusal,” and the bank must be able to point to concrete acts and operations that substantiate a real concern about the commission of a crime.

The Supervisor of Banks, whose position was referred to in the judgment, stated that transfers during trading in virtual currency are extremely risky, but added that this does not necessary imply that these operations must be discontinued, and therefore, the bank must manage the risk itself and according to its judgment.

The Court ruled that, in light of the fact that the Bank of Israel did not set limits with regard to bank customers that engage in trading in virtual currencies, the judgment of whether an operation is highly risky is that of the relevant bank, and therefore, the court ruled that any decision by a bank, to approve or to refuse, shall be according to the “scale of reasonability,” and the bank shall be able to act accordingly.

At issue is a judicial precedent in the fields of banking and virtual currencies, which addresses the implications of technological innovations on the traditional monetary systems that have not yet caught up with technology.