Israel’s chief economist lays out recommendations for crypto regulation

The chief economist said the Supervisor of Financial Service Providers and the Israel Securities Authority should be granted more powers to oversee the industry.

Israel’s chief economist has laid out a list of recommendations as to how policymakers should tackle digital asset laws in the country in order to safely drive up crypto adoption.

In a 109-page report submitted to the Minister of Finance on Nov. 28, Shira Greenberg, chief economist at the Ministry of Finance, called for a more comprehensive regulatory framework that would bring trading platforms and crypto issuers in line and would expand the powers given to its financial regulators. 

Greenberg recommended Israel should improve investor certainty and protection by imposing stricter licensing requirements on trading platforms and issuers of cryptocurrencies, as well as ensuring funds originating from digital assets are more safely managed.

She also recommended the supervisor of financial service providers have broader powers to oversee licensing rules and develop a more comprehensive taxation framework for the buying and selling of digital assets.

Expanded powers for the Israel Securities Authority were also recommended by Greenberg, who stated the powers were needed in order to ascertain whether a digital asset falls within the scope of Israeli securities laws and to monitor the activity of payment service providers in the crypto space.

In regard to legislation, Greenberg made mention of the need to implement specific licensing and supervision rules for stablecoin issuers, along with a proposed establishment of an inter-ministerial committee to examine and regulate blockchain-based decentralized autonomous organizations (DAOs).

She added it was important that policymakers and lawmakers take into account the concept of technological neutrality when implementing digital asset-related rules.

Minister of Finance Avigdor Lieberman praised Greenberg for her work, stating the report “constitutes the most comprehensive and up-to-date report currently available on this issue for government use” in Israel and that he expects the “report will serve as a basis for future decisions and legislation” on digital asset-related matters in the months to come.

Related: Israel’s regulator teases comprehensive crypto framework at ICC

Despite Israel often being referred to as a tech-savvy nation, the country hasn’t shown to be too crypto-obsessed thus far, having ranked 111th out of 146 countries in a recent global crypto adoption index conducted by blockchain data firm Chainalysis. 

Greenberg also referenced data in her report that states that Israeli residents have accounted for 21 million blockchain-based transactions in total, which only equates to 0.04% of all crypto transactions worldwide.

Meanwhile, only 2% of Israelis reported owning or using a crypto wallet.

More adoption appears to be on its way. The Tel Aviv Stock Exchange (TASE) recently announced on Oct. 24 that it intends to create a blockchain-based platform to expand its trading services to cryptocurrencies. In the same month, TASE also kicked off live tests for a pilot project involving the tokenization of digital bonds, which is expected to be completed in Q1 2023.

Government-issued licenses are finally being issued, too, with Israeli-based trading platform Bits of Gold becoming the first firm to receive a license from the Capital Markets Authority in Sep. 2022 to store digital currencies through their own secured custody wallet and provide certain digital asset-related services to banks.