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After a draft letter and draft update to Proper Conduct of Banking Business Directive no. 310 on “Risk Management” were sent for comments by the public and the Advisory Committee for Banking Affairs on November 7, 2022 (press release), and after the Governor’s approval of the Directive, the Banking Supervision Department has published an update to Proper Conduct of Banking Business Directive no. 310.


In recent years, we have seen an increase in activity in the area of financial cryptographic assets in Israel and worldwide. Among other things, new and innovative assets and services are developing at an accelerated pace, are provided by a range of entities, and are geared to a wider community of customers. Events of the past year in the cryptographic assets market, including failure events of several entities worldwide that deal in this area, which led to, among other things, a considerable increase in volatility in this market, and a sharp decline in the value of cryptographic assets, emphasized the range of risks in this activity.


The Banking Supervision Department is of the view that crypto activity and technology supporting such activity has potential for innovation in the financial worlds. However, this is new activity, both for the financial entities and for their customers, which incorporates many risks, some of which materialized in the past year, including prudential risks, financial risks, operational risks including cyber risks, AML aspects, and consumer aspects. Therefore, it is important for there to be cautious management of these risks by the financial entities that choose to be active in the area, so that using these new financial tools and technologies will be for the benefit of the customers and in line with what is permitted for banks by law.


Accordingly, the Banking Supervision Department published an update to Proper Conduct of Banking Business Directive no. 310 on the issue of Risk Management, which calls attention to the risks derived in this area, including consumer requirements stemming from the activity. In addition, every banking corporation is required to contact the Supervisor in advance, before entering activity in the crypto area. In parallel, and particularly in view of the failure events of various entities in the world in the crypto area in the past year, the Supervisor of Banks sent a letter to the CEOs of the banking corporations and credit card companies detailing the main risks deriving from crypto area activity. The letter, as well as the requirement for advance notice before carrying out activity in the crypto area, are also in line with steps taken by regulatory authorities around the world in the area (attached is the link to the Directive and the Letter).


Supervisor of Banks Yair Avidan said, “Activity in cryptographic assets, under traditional financial entities, is relatively new activity, and as such there is uncertainty regarding the development of the business models in this area. As a regulator that encourages innovation, the Banking Supervision Department has a dual responsibility—not to halt the innovation that crypto activity and the technology that supports it, but to allow its development, while at the same time, to ensure cautious access relative to the risks deriving from such activity though ensuring the maximum protection for the customer.”