As Israel’s parliament- the Knesset- decided to postpone the law regulating cryptocurrency exchanges by four months on May 31st, there has been an uproar in the country. The original law regulating cryptocurrency exchanges was to take effect on 1 June and the decision meant financial services providers and Israeli companies are without any regulation for these exchanges.
Regulators creating a confusing environment
After the postponement of regulation, Moshe Pearl, the chairman of the Association of Banks in Israel, sent a letter to Dr Hedva Bar, the supervisor of banks. Pearl writes that “the binding position” of the Banking Supervision Department has “not yet been clearly expressed” and “the banking system is exposed on several fronts, and this is not a situation that can and should be accepted”.
In the last week of May Moshe Kahlon, Israel’s finance minister had published a draft on the prohibition on money laundering that would apply to financial services providers that operate in digital currencies. This law was considered by many as a dawn for digital currency regulation and was assumed as an entry point for institutional banks to enter the of cryptocurrency. But now the delay in the cryptocurrency regulation, that was to come in effect from June 1, has left the industry hanging in between.
In a non-related development, the Tel Aviv Stock Exchange (TASE), Accenture and innovation centre The Floor announced in early may that, they planned to unveil a new blockchain securities lending platform powered by Intel.
This clearly shows a gap between the regulators as each one, the Ministry of Finance, The Banking Association and Tel Aviv Stock Exchange, are moving in their own direction.
Industry furious over the delay
Israel has recently seen a significant increase in activity in the crypto industry. All this has been without a regulatory arrangement being set by the Bank of Israel, and without a precise instruction to the banking system regarding how it should handle cryptocurrency customers. Since there are no clear rules for that kind of action, each bank has set its own policy, usually a strict policy that makes it difficult for any activity in this field.
These companies carrying out business related to cryptocurrency are concerned as the message of uncertainty sent by this postponement of regulation could lead to sluggishness in the existing Israeli fintech industry and would prevent the launch of new start-up companies introducing advanced financial solutions. Most of these startups are or have planned to raise money from investors. If this continues, the investors might pull out of funds which would dampen investor sentiment with this delay.
To quote a couple of industry voices, Jacob Enoch, head of M&A at M. Firon & Co. and co-chair of the Israel Bar Association’s committee on blockchain and cryptocurrency, was quoted saying:
“The last-minute decision to postpone the entry into force of the new legislation is nothing short of dramatic. There is no doubt that this decision plays into the hands of the large financial institutions, who, understandably, fear the competition that is certain to be generated by the entry into the sector of regulated fintech companies.”
Jeremy Dahan, CEO at Hello Diamonds Blockchain, adds:
“We feel that there is deep disdain for the industry and its people. Close to 50 Israeli start-ups have already begun their preparations, and some have raised huge sums of money to do so. In our view, postponement is a sign of the unwillingness to make a decision. Israel is a nation of innovation, and amazing financial solutions that are under development can get stuck. The ball is in the hands of the Capital Market Authority, which needs to install an appropriate money laundering prohibition order, which can shorten the duration of the delay.”
With so much confusion, the industry players are furious and rightly so. It is pretty sure that in the coming days the government, banks, industry and the exchanges will have to come on a common platform and get this confusion cleared. If this doesn’t happen the impact of this confusion would have a devastating effect on future of blockchain and cryptocurrency business in the country
Are Israeli regulators confused about their stance on cryptocurrencies? Will this hinder the startups from operating around blockchain? DO let us know your views on the same