The Israeli Supervisor of Banks issues a draft directive on cryptographic financial assets, in which the Supervisor warns that the involvement of banking corporations in activities related to crypto assets may affect the stability and reliability of the financial environment and raises concerns about consumer protection matters.

The draft directive states that a banking corporation must take the utmost caution when considering activities in the crypto field. Among other things, the bank must examine whether it is allowed to do so under law, perform a risk assessment to prove its ability to safely manage the activity, and notify the Supervisor of Banks of its intention to engage in this field.

The Supervisor of Banks lists the various risks entailed in crypt-related activities, including the fundamental difficulty in verifying and proving ownership of the assets, increased concern about the involvement of crypto assets in money laundering and terrorist financing activities, and liquidity risks arising from crypto assets with very volatile values.

The Supervisor warns that crypto-related activities risk the financial system, because disruption or fraud may prompt a “run” to financial assets that back the crypto-related assets and activity. As in other “run” phenomena, this may create a vicious circle of pressurized redemption of financial assets, which in turn can critically disrupt the financial markets. Finally, the supervisor warns against consumer risks arising from the public’s insufficient understanding of the speculative nature of certain crypto-assets and the bank’s role concerning them.

Click here to read the draft directive (in Hebrew).