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Retail_Trading_Status

Allowed-Regulated Unknown
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Analysis ID
#255
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Archived
Created
2025-06-26 09:15
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Initial Research

Executive Summary

Retail cryptocurrency trading is legally permitted in Israel under a developing regulatory framework that prioritizes investor protection, AML, and CTF. The Israel Securities Authority (ISA) plays a key role, including licensing crypto trading platforms. AML/CFT regulations are central, with obligations similar to those of traditional financial institutions. Cryptocurrencies are treated as assets for tax purposes.

Key Pillars

The regulatory framework in Israel is built on the following pillars: the Israel Securities Authority (ISA) as the primary regulator overseeing crypto-asset trading platforms and licensing; stringent AML/CFT compliance requirements enforced by the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA), including KYC and transaction monitoring; and licensing requirements for crypto financial service providers.

Landmark Laws

The Money Laundering Prohibition Order (Prohibition on Money Laundering and Terrorism Financing in Financial Assets) - 5778-2018: This order, which came into effect, explicitly includes virtual currencies, subjecting entities dealing with cryptocurrencies to KYC and AML/CFT obligations.

Considerations

Cryptocurrencies are viewed as assets for tax purposes by the Israel Tax Authority (ITA), and profits from their sale are subject to capital gains tax. Banks are generally permitted to provide services to customers dealing with cryptocurrencies, provided that AML/CFT regulations are followed and the source of funds is verified. The regulators are focused on balancing innovation with investor protection and financial stability.

Notes

Historically, Israel initially approached cryptocurrencies with caution. In March 2022, the ISA granted the first license to Bits of Gold, marking a significant step in regulating the sector. The Bank of Israel published draft regulations in January 2022 clarifying conditions for banks accepting cryptocurrency-related deposits. The regulatory landscape is evolving, with expectations of further refinements from the ISA and other bodies.

Detailed Explanation

Retail cryptocurrency trading is legally permitted in Israel, subject to an evolving regulatory framework designed to address investor protection, AML, and CTF concerns. The Israel Securities Authority (ISA) plays a central role in shaping the regulatory environment, particularly in classifying cryptocurrencies as financial assets and licensing trading platforms. In March 2022, the ISA granted the first license to a local company, Bits of Gold, to operate as a crypto financial services provider, allowing it to offer custody and exchange services, marking a key step in legitimizing the retail crypto trading sector. Further licenses have since been issued or are in advanced stages of approval for other entities. AML/CFT regulations are a cornerstone of the Israeli framework, with the Money Laundering Prohibition Order (Prohibition on Money Laundering and Terrorism Financing in Financial Assets) - 5778-2018 explicitly including virtual currencies. This subjects entities dealing with cryptocurrencies to stringent KYC and AML/CFT obligations, similar to traditional financial institutions. These obligations include customer due diligence, transaction monitoring, and reporting suspicious activities to the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA). The Bank of Israel has issued guidelines relevant to the banking sector's interaction with crypto-related activities. While initially hesitant, Israeli banks are now generally permitted to provide services to customers dealing with cryptocurrencies, provided that the crypto service providers adhere to AML/CFT regulations and that the source of funds can be verified. In January 2022, the Bank of Israel published draft regulations clarifying the conditions under which banks could accept deposits originating from cryptocurrency investments, emphasizing compliance with AML/CFT rules. Taxation of cryptocurrencies is also defined, with the Israel Tax Authority (ITA) viewing cryptocurrencies as assets for tax purposes, meaning that profits from selling cryptocurrencies are subject to capital gains tax. The ITA has issued circulars and guidelines clarifying the tax obligations for individuals and businesses involved in cryptocurrency activities. The ISA, Bank of Israel and IMPA have issued guidelines and circulars to better regulate the space. Despite these regulatory advancements, the landscape continues to evolve, with the ISA and other regulatory bodies expected to introduce further refinements and potentially new rules as the market matures and new challenges emerge.

Summary Points

Retail Trading of Cryptocurrencies in Israel: Regulatory Overview (as of 2025-06-26)

Overall Status: Allowed-Regulated

I. Key Regulatory Bodies & Roles:

  • Israel Securities Authority (ISA):
    • Primary regulator for crypto-asset trading platforms.
    • Responsible for licensing crypto financial services providers.
    • Classifies cryptocurrencies as financial assets.
  • Bank of Israel:
    • Issues guidelines for banks interacting with crypto-related activities.
    • Clarifies conditions under which banks can accept deposits from crypto investments.
    • Focuses on AML/CFT compliance within the banking sector.
  • Israel Money Laundering and Terror Financing Prohibition Authority (IMPA):
    • AML/CFT regulator for virtual asset service providers (VASPs).
    • Sets guidelines for VASPs, including KYC and suspicious transaction reporting.
  • Israel Tax Authority (ITA):
    • Treats cryptocurrencies as assets for tax purposes.
    • Profits from selling cryptocurrencies are subject to capital gains tax.
    • Issues guidelines on taxation of digital currencies.

II. Key Legislation & Regulations:

  • Money Laundering Prohibition Order (Prohibition on Money Laundering and Terrorism Financing in Financial Assets) - 5778-2018:
    • Explicitly includes virtual currencies.
    • Subjects entities dealing with cryptocurrencies to stringent KYC and AML/CFT obligations.

III. Requirements for Compliance:

  • AML/CFT Compliance:
    • Mandatory KYC (Know Your Customer) procedures.
    • Transaction monitoring.
    • Reporting suspicious activities to IMPA.
  • Licensing:
    • Crypto-asset trading platforms require licenses from the ISA.
    • Licensed entities must adhere to regulatory requirements.
  • Taxation:
    • Profits from cryptocurrency sales are subject to capital gains tax.
    • Individuals and businesses must comply with ITA guidelines on cryptocurrency taxation.

IV. Notable Restrictions or Limitations:

  • While banks are generally permitted to provide services to crypto businesses, they must ensure:
    • The crypto service providers adhere to AML/CFT regulations.
    • The source of funds can be verified.

V. Recent Developments & Changes:

  • ISA Licensing:
    • ISA granted the first license to a crypto company, Bits of Gold, in March 2022.
    • Further licenses have been issued or are in advanced stages of approval for other entities.
  • Bank of Israel Guidelines:
    • Published draft regulations in January 2022 clarifying conditions for banks accepting deposits from crypto investments.
  • Ongoing Evolution:
    • The regulatory landscape is dynamic and subject to ongoing changes.
    • ISA and other regulatory bodies are expected to introduce further refinements and potentially new rules.

VI. Key Sources:

VII. Important Note:

  • The regulatory landscape for cryptocurrencies is dynamic and subject to ongoing changes. This report reflects the status as of 2025-06-26 based on available information.

Full Analysis Report

Retail Trading Status: Cryptocurrencies in Israel

Report Date: 2025-06-26

Topic: Retail_Trading_Status

Description: An assessment of whether individual citizens and residents in Israel are legally permitted to buy, sell, and hold cryptocurrencies, detailing the regulatory environment surrounding this activity.

Retail_Trading_Status: Israel

Identified Status: Allowed-Regulated

Detailed Narrative Explanation:

Retail cryptocurrency trading is legally permitted in Israel and is subject to a developing but increasingly defined regulatory framework. The Israeli authorities have been actively working to bring cryptocurrency activities, particularly those related to trading and investment, under the purview of financial regulation, primarily focusing on investor protection, Anti-Money Laundering (AML), and Counter-Terrorism Financing (CTF).

Historically, the Israeli approach to cryptocurrencies was cautious, with initial warnings from regulators about the risks involved. However, over time, a more structured regulatory approach has emerged. The Israel Securities Authority (ISA) has been a key player in shaping the regulatory landscape, particularly concerning the classification of cryptocurrencies as financial assets and the licensing of trading platforms.

A significant development was the ISA's move to regulate crypto-asset trading platforms. In March 2022, the ISA granted the first license to a local company, Bits of Gold, to operate as a crypto financial services provider, allowing it to offer custody and exchange services. This marked a crucial step towards legitimizing and regulating the retail crypto trading sector. Further licenses have since been issued or are in advanced stages of approval for other entities.

AML/CFT regulations are a cornerstone of the Israeli framework for crypto assets. The Money Laundering Prohibition Order (Prohibition on Money Laundering and Terrorism Financing in Financial Assets) - 5778-2018, which came into effect, explicitly includes virtual currencies. This means that entities dealing with cryptocurrencies are subject to stringent KYC (Know Your Customer) and AML/CFT obligations, similar to traditional financial institutions. These obligations include customer due diligence, transaction monitoring, and reporting suspicious activities to the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA).

The Bank of Israel has also issued guidelines and directives relevant to the banking sector's interaction with crypto-related activities. While initially hesitant, Israeli banks are now generally permitted to provide services to customers dealing with cryptocurrencies, provided that the crypto service providers adhere to AML/CFT regulations and that the source of funds can be verified. In January 2022, the Bank of Israel published draft regulations clarifying the conditions under which banks could accept deposits originating from cryptocurrency investments, emphasizing compliance with AML/CFT rules.

Taxation of cryptocurrencies is also well-defined. The Israel Tax Authority (ITA) views cryptocurrencies as assets for tax purposes, meaning that profits from selling cryptocurrencies are subject to capital gains tax. The ITA has issued circulars and guidelines clarifying the tax obligations for individuals and businesses involved in cryptocurrency activities.

Despite these regulatory advancements, the landscape continues to evolve. The ISA and other regulatory bodies are expected to introduce further refinements and potentially new rules as the market matures and new challenges emerge. There is an ongoing effort to balance innovation with investor protection and financial stability.

In summary, individuals in Israel can legally buy, sell, and hold cryptocurrencies. The activity is regulated, with a strong emphasis on AML/CFT compliance, licensing for service providers, and clear tax obligations.

Specific, Relevant Text Excerpts:

  • Israel Securities Authority (ISA) on Licensing: While a specific recent quote on the general status is not readily available through a quick search, the actions of the ISA, such as granting licenses, serve as de facto evidence. For instance, reports from 2022 and 2023 confirm the ISA's role in licensing crypto exchanges. "In March 2022, the Israel Securities Authority (ISA) granted the first license to a crypto company, Bits of Gold, to provide custody and exchange services for digital assets." (Source: Multiple financial news outlets reporting on the event at the time, e.g., CoinDesk, Finance Magnates).
  • Bank of Israel on AML/CFT and Banking: "The Bank of Israel has issued guidelines clarifying that banks should not refuse to provide services related to digital assets solely because they are digital assets, provided that the intermediary or platform involved has a license and adheres to AML/CFT regulations." (Paraphrased summary of Bank of Israel communications and reports from sources like KPMG).
  • Money Laundering Prohibition Authority (IMPA) on Virtual Currencies: "The Israeli anti-money laundering (AML) and counter-terrorist financing (CTF) regulator, the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA), has been actively involved in setting guidelines for virtual asset service providers (VASPs). IMPA’s guidelines require VASPs to conduct thorough know-your-customer (KYC) checks and report suspicious transactions." (Source: Summary from analysis by financial crime compliance firms).
  • Israel Tax Authority on Taxation: "The Israel Tax Authority (ITA) considers cryptocurrencies as assets, and therefore, gains from their sale are subject to capital gains tax. The ITA has issued specific guidelines on the taxation of digital currencies." (Source: Information typically found on the ITA website or in publications by Israeli accounting and law firms).

Direct, Accessible URL Links to Sources:

  • KPMG - Crypto assets and decentralized finance - Regulatory developments in Israel (January 2024): https://kpmg.com/il/en/home/insights/2024/01/crypto-assets-and-decentralized-finance---regulatory-developments-in-israel.html
  • Israel Money Laundering and Terror Financing Prohibition Authority (IMPA) - The Supervisor of Financial Service Providers' Circular regarding managing ML/TF risks involving virtual assets and their service providers (August 2022) (Note: Link is to a summary/analysis as direct English translations of all circulars may not always be available on the primary site, but the existence and content of such circulars are widely reported by legal and compliance firms): While a direct link to an official English translation of the specific circular is not immediately available, IMPA's general site can be found, and legal/compliance firms often provide detailed analyses. A relevant search on the IMPA website or through legal updates would yield such documents or summaries. For example, analysis from firms like Herzog Fox & Neeman often cover these topics: https://www.herzoglaw.co.il/ (This is a general link to a law firm that frequently comments on Israeli crypto regulation; specific circulars or their summaries would need to be searched within such resources or IMPA's own site if English versions are provided). A more general resource confirming IMPA's role: https://www.anti-money-laundering.org/middle-east-and-north-africa/israel/
  • Israel Tax Authority - (While a direct link to a specific English page on crypto taxation might require navigating the ITA website, their general stance is well-documented by tax advisory firms. The ITA website is: https://www.gov.il/en/departments/israel-tax-authority**). A relevant guide from a secondary source like PwC: https://www.pwc.com/il/en/knowledge-gateway/newsletters/tax/cryptocurrency-taxation-in-israel.html
  • Israel Securities Authority (ISA) - General Website (for information on licensed entities and regulations): https://www.isa.gov.il/ (English version available). Specific announcements regarding crypto licensing would be found in their publications or news sections.

This report reflects the status as of the indicated date based on the available information. The regulatory landscape for cryptocurrencies is dynamic and subject to ongoing changes.

Sources (Raw Data)

 
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