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In recent years we have seen increased activity in the area of cryptographic financial assets (hereinafter, “crypto”). These are, among other things, innovative assets and services developed at an accelerated pace, provided by a range of entities, and aimed at a broader customer base. The past year has seen, in Israel and worldwide, the entry of traditional financial entities, including banks, into this area.
The Banking Supervision Department is of the view that crypto activity and the technology supporting such activity has the potential for innovation in financial fields. The activity of traditional financial entities in this field, alongside other entities that have been active for many years, will make it possible for new business models to develop.
As this is new activity, both for the financial entities and their customers, that incorporates risks to stability, financial risks, operating risks, including cyber risks, anti-money laundering aspects, and consumer aspects, it is important for the financial entities that choose to be active in this field to manage these risks cautiously, so that among other things the use of new financial tools and technologies will be for the benefit of the customers and in line with what is permitted for banks under the law.
Accordingly, the Banking Supervision Department today gave the Advisory Committee for Banking Business Affairs a draft letter and draft revision of Proper Conduct of Banking Business Directive no. 310, on Risk Management, which call to their attention the main risks derived in this area, including the consumer-related requirements stemming from the activity, and require every banking corporation to contact the Supervisor of Banks in advance before entering crypto activity.
Supervisor of Banks Yair Avidan said, “Crypto activity, under traditional financial entities, is relatively new activity, and thus there is uncertainty regarding the development of the business models in this area. The Banking Supervision Department, as a regulator that encourages innovation, has a dual responsibility. One is not to halt the innovation that crypto and technology support, but rather to allow its development. At the same time, the second is to ensure a cautious approach with regard to the risks deriving from such activity under the assurance of maximum possible protection of the customer.”