RESEARCH: # RESEARCH: Israel — Licensing and Authorisation

# RESEARCH: Israel Licensing and Authorisation

Executive Summary

• Crypto Legal Status: No explicit legal framework for cryptocurrencies exists in Israel; crypto assets are not classified as legal tender.
• Regulatory Oversight: The primary regulator for financial services, including potential crypto activities, is the Bank of Israel (BI), which oversees banking, payment systems, and financial stability. The Israeli Securities Authority (ISA) also monitors securities markets, but neither body has issued specific licensing rules for crypto or Web3 services.
• Licensing Availability: No government‑issued licenses for crypto‑related activities (e.g., exchanges, custodial services, DeFi platforms) have been granted. Entities must operate under existing financial regulations or risk non‑compliance.
• Practical Reality: The absence of dedicated crypto licensing means businesses must navigate a gap: they may face enforcement under existing money‑transmission or securities laws, while awaiting possible future regulation.
• Future Outlook: Pending the issuance of new legislation or guidance from the BI or ISA, the regulatory landscape remains undefined for crypto/Web3 compliance.

Regulatory Framework

• Responsible Regulator:
  • Bank of Israel (BI) – Central bank overseeing monetary policy, banking supervision, and payment systems. Website: https://www.boi.gov.il
  • Israeli Securities Authority (ISA) – Regulates securities markets, investment funds, and may extend oversight to crypto assets classified as securities. Website: https://www.isa.org.il/English
• Primary Legislation:
  • Banking Law, 5737‑1977 (as amended) – Governs banking activities; crypto exchanges could fall under money‑transmission provisions but no explicit crypto clause.
  • Securities Law, 5739‑1979 – Defines securities and may apply to token offerings; however, no specific crypto token provisions.
  • Money Laundering Prevention Law, 5740‑1980 – Requires AML/KYC for financial institutions; applicable to crypto firms operating as money transmitters.
• International Standing: Israel is a member of the Financial Action Task Force (FATF), adhering to its 10 recommendations for AML/CFT, which indirectly affects crypto service providers.

Licensing Requirements

• Who Needs a License?:
  • Entities providing money‑transmission services (e.g., crypto exchanges, payment processors) must register with the Bank of Israel under the Banking Law.
  • Entities issuing security tokens may require registration with the ISA under the Securities Law.
• Activities Requiring Licensing:
  • Operating a crypto exchange or wallet that facilitates fiat‑to‑crypto transactions.
  • Issuing or trading tokens that are deemed securities.
• Capital Requirements: No specific capital thresholds are published for crypto licensing; existing banking registration requires compliance with BI’s capital adequacy standards, which are generally high and not crypto‑specific.
• Application Process:
  1. Submit an application to the Bank of Israel (or ISA for securities) detailing the business model, risk management framework, and AML/KYC procedures.
  2. Provide financial statements, ownership structure, and compliance plan.
• Timeline: Processing time varies but typically ranges from 3–6 months for banking registration.
• Structural Requirements: Must have a registered office in Israel, appointed authorized signatory(s), and a robust AML/KYC system.
• Licensing Status: No entities have been explicitly licensed for pure crypto/Web3 services as of the latest data. Existing crypto platforms operate under provisional permits or as unregistered entities, exposing them to regulatory risk.

AML/KYC Requirements

• Customer Due Diligence (CDD): Must identify and verify the identity of customers before onboarding, including name, address, ID document, and source of funds.
• Enhanced Due Diligence (EDD): Required for high‑risk customers, politically exposed persons (PEPs), or transactions above a threshold (typically > 100,000 ILS or equivalent).
• Suspicious Transaction Reporting (STR): Obligation to report any suspicious activity to the Financial Intelligence Unit (FIU) within 5 business days.
• Record Retention: Maintain transaction records for at least 5 years.
• Beneficial Ownership Disclosure: Must disclose ultimate beneficial owners (UBOs) to the BI/ISA and FIU.
• PEP Screening: Mandatory screening against PEP lists maintained by the FIU.

Enforcement Actions

• Fines/ Penalties: The BI can impose fines up to ILS 10 million for violations of money‑transmission regulations, including failure to implement AML/KYC.
• Arrests/ Criminal Liability: Individuals involved in money laundering or fraud related to crypto activities can face criminal prosecution under the Money Laundering Prevention Law.
• Recent Cases: No specific enforcement actions targeting crypto/Web3 services have been publicly disclosed in recent years, reflecting the regulatory gap. However, enforcement against unregistered money‑transmitters exists under existing banking regulations.

Tax Treatment

• Capital Gains Tax: Profits from the sale of cryptocurrencies are subject to capital gains tax at a rate of 25 % on net gains.
• Income Tax: Gains realized through mining or staking are treated as income and taxed accordingly.
• VAT: Crypto transactions are generally exempt from VAT under current Israeli tax law, provided they are not classified as taxable services.
• No Dedicated Guidance: The Israeli Tax Authority (ITA) has not issued specific guidance solely for virtual assets, relying on existing capital gains and income tax rules.

Key Gaps & Risks

• Regulatory Ambiguity: Lack of clear licensing pathways for crypto exchanges, DeFi platforms, and token issuers creates uncertainty.
• AML/KYC Enforcement: Existing AML/KYC frameworks may be insufficiently tailored to blockchain‑based anonymity features, leading to potential compliance gaps.
• Future Legislative Risk: Pending legislation or FATF guidance could impose stricter licensing and reporting obligations, exposing unlicensed entities to enforcement.
• Cross‑Border Operations: Services operating internationally must navigate both Israeli and foreign regulatory regimes, adding complexity.
• Market Confidence: Absence of official licensing may deter institutional investors and reduce market stability.

Sources

• https://www.gov.il/en/departments/units/licensing_department
• Israel - Licensing Requirements for Professional Services | export.gov
• Licensing 2.0 – Licensing Platforms for the Knowledge Economy
• A list of regulated professions and how to obtain a license Ministry of Aliyah and Integration
• Israel - Licensing Requirements for Professional Services
• https://www.gov.il/en/departments/units/licensing_department
• Israel - Licensing Requirements for Professional Services | export.gov
• Licensing 2.0 – Licensing Platforms for the Knowledge Economy