According to an Israeli news media outlet, a draft law in Israel could compel financial services companies to report on the cryptocurrency activities of clients. The draft contains some provisions that pertain specifically to virtual currencies. It includes criteria for financial services providers to report on client cryptocurrency holdings.
The AML draft legislation has been altered to include the provisions in relation to virtual currency. This means that cryptocurrency will come under the ambit of AML and KYC requirements. These requirements are already quite onerous on commercial and state entities. A significant amount of data is required to pass the existing provisions, and the data has to be kept up to date each year. Adding cryptocurrency to this list could lead to a number of complications. By their nature, cryptocurrencies are difficult to track, monitor, and value.
The regulations also impose an additional number of reporting requirements on financial services providers. As of June 1, 2018, financial services providers will be obligated to report any suspicious activity. The legislation draft is dated May 23rd. Sums over $1,400 transferred to a digital wallet must be reported, as are money transfers made using an anonymous IP address, transfers to gambling sites, and any transfers involving privacy coins such as Monero are forbidden. Financial services providers are also required to maintain full documentation of all cryptocurrency activity of clients such as IP addresses, wallet addresses, and the type and amount of cryptocurrency for five years.
As described, the draft law appears very broad reaching in its aims. This type of legislation would not stand in a country that protects individual liberties. On a more practical level, it is hard to see how financial services providers can maintain the type of information that they are being forced to investigate, such as IP addresses, and wallet address. Such maintenance would be quite challenging without resorting to black hat methods that are a blatant violation of the civil liberties of Israeli citizens.
Israel is potentially one of the most hostile nations towards cryptocurrencies. It has recently demanded that Bitcoin holders divulge the history of their holdings and retroactively pay taxes on all gains. Generally speaking, regulation is a positive sign for the market. However, an overly strict and invasive regulatory policy could encourage customers to avoid coins that can be easily monitored, like Bitcoin, and favor privacy coins, such as DASH and Zcash.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.