Detailed overview
Israel: Financial Asset Service Provider Licensing for Virtual Currency
Regulators
Israel’s crypto and digital-asset framework is divided among several regulators.
The Capital Market, Insurance and Savings Authority licenses financial asset service providers, including providers that deal in virtual currency. The Israel Money Laundering and Terror Financing Prohibition Authority is relevant for AML and reporting. The Bank of Israel is relevant for banking access, payment rails, legal-tender status and prudential banking policy. The Israel Securities Authority is relevant for securities tokens, investment products and payment-service licensing. The Israel Tax Authority administers tax treatment.
Legal framework
Israel regulates many crypto businesses through the financial asset service provider framework.
Virtual currency is treated as a financial asset. Financial asset service includes exchange, redemption, conversion, sale, transfer, management and safekeeping of a financial asset. A person may not provide a financial asset service unless it holds the corresponding licence.
A crypto exchange, broker, fiat on-ramp, off-ramp, conversion desk, transfer service, hosted wallet, private-key controller, OTC desk or custodian is likely to require a financial asset service licence where it provides those services as a business.
A pure software provider may fall outside the licence perimeter if it does not exchange, transfer, manage, safeguard, custody or control virtual currency for customers. The result depends on the actual function performed, not on the label used.
Licence status
The Capital Market Authority maintains an official list of financial-service providers licensed to provide financial services in virtual currency. This list should be checked before treating any provider as licensed.
A business should not describe itself as licensed, supervised or approved for Israeli virtual-currency services unless it appears on the relevant official list or has written confirmation of the applicable licence or approval.
Licence categories and capital
Israel distinguishes between basic and extended financial asset service licences.
The reviewed consolidation states that minimum equity is NIS 300,000 for a basic financial asset service licence and NIS 1,000,000 for an extended financial asset service licence.
The correct licence type depends on the scale and scope of activity and on the current Capital Market Authority requirements.
Virtual-currency applicants should expect enhanced AML and operational scrutiny. The Capital Market Authority licensing procedure requires virtual-currency applicants to provide information on customer account monitoring, prevention of access by risky parties, occasional-transaction monitoring, tracing customer identity including IP and personal identification, and AML and terrorist-financing mitigation resources.
AML and CFT
Virtual-currency financial asset service providers are subject to Israeli AML and CFT obligations.
The AML Order for financial asset service providers includes virtual-currency wallet-address concepts, virtual-currency-specific occasional service thresholds, customer due diligence duties and reporting obligations.
A service provider must conduct customer due diligence before providing service to a non-occasional customer. CDD includes inquiry into source of funds, occupation, purpose of the service and other risk indicators.
The provider must report specified transactions and suspicious activity to the Israel Money Laundering and Terror Financing Prohibition Authority. For virtual-currency transactions, reports can require the type and amount of virtual currency and wallet address.
Travel rule
Israel has transfer-information requirements for virtual-currency transfers.
The AML Order requires specified originator and beneficiary information for relevant virtual-currency transfers. Required information includes names, identification details, address or date and place of birth, account or wallet information and virtual-currency wallet addresses.
The information must be transferred immediately and securely.
A crypto business should maintain systems for collecting, verifying, transmitting and retaining originator and beneficiary information. It should also monitor missing or inconsistent transfer information and escalate suspicious activity.
Banking access
Israeli banks must manage virtual-currency-related payment services on a risk basis.
Bank of Israel Proper Conduct Banking Directive 411 states that a bank must assess the risks of payment transfers whose source or destination is connected to virtual currencies and must maintain risk-based policies and procedures.
The directive also states that a bank must not refuse payment services related to virtual-currency activity solely because the source of funds is connected to virtual currencies, where the relevant virtual-currency service provider is licensed by the Capital Market Authority to provide financial asset services in Israel involving virtual currency.
Where annual payment services related to virtual currency exceed NIS 100,000, the bank must obtain source-of-funds and virtual-currency pathway information.
A bank may refuse or restrict service where risk is not mitigated, where the pathway information is inadequate or where a foreign VASP violates licensing or registration law in its own jurisdiction.
Legal-tender status
Virtual currencies are not legal tender in Israel.
Bank of Israel materials state that decentralized virtual currencies such as Bitcoin are not issued by a central bank, are not backed by a central bank, are not legal tender in Israel and do not have to be accepted as payment.
Bank of Israel materials also state that Bitcoin and similar virtual currencies are not currency and are not foreign currency.
A business should not market Bitcoin or other private virtual currencies as Israeli legal tender, currency or foreign currency.
Stablecoins
Stablecoin regulation in Israel is developing.
The Bank of Israel published stablecoin principles for public comments in 2023. The Bank expressly stated that the principles were not binding, were not approved in legislation and should not be relied upon for activity.
In 2025, the Capital Market Authority issued a call for input on stablecoin regulation and stated that it was advancing a bill memorandum to establish licensing, supervision and regulation for stablecoin issuance.
In 2026, the Capital Market Authority announced first approval for distribution of a shekel-pegged stable digital currency issued by a licensed financial asset service provider. The approval was described as limited, supervised and subject to strict conditions following a pilot.
A stablecoin issuer, distributor, exchange, custodian or payment provider should obtain specific regulatory analysis before launch. A shekel-pegged, fiat-backed, redeemable or payment-oriented token may require Capital Market Authority approval, Bank of Israel analysis, payment-services analysis and AML controls.
Payment services
Crypto products with payment functionality require separate payment-law analysis.
Israel’s Regulation of Payment Services and Payment Initiation Law enables nonbank entities to obtain payment-service licences and participate in payment systems. Official materials state that the law entered into force in June 2024 and that the first payment-service companies received licences in July 2025.
A product that holds fiat balances, operates payment accounts, initiates payments, settles merchants, manages customer funds or uses stablecoins for payment may need payment-service licensing analysis in addition to financial asset service licensing.
A financial asset service licence is not automatically a payment-service licence. A payment-service licence is not automatically a crypto exchange licence.
Securities tokens
Tokenised securities and investment tokens require Israel Securities Authority analysis.
Official Ministry of Finance materials state that where a digital asset falls under definitions such as security, financial asset or financial instrument in securities law, the relevant services are supervised by the Israel Securities Authority. Activities involving coins that do not fall under those definitions are not under ISA supervision.
A tokenised share, debt token, fund token, derivative token, profit-rights token, pooled-investment token or investment contract-like token should not be treated as ordinary virtual currency without a securities analysis.
Offering, listing, broking, advising, managing, custody or trading of such tokens may require ISA permissions or another securities-law route.
Tax treatment
The Israel Tax Authority treats virtual currency as an asset, not currency.
Tax Circular 5/2018 states that distributed means of payment are not currency or foreign currency for Israeli tax purposes and are treated as assets.
Sale of a distributed means of payment generally produces capital gain. Where the activity rises to the level of a business, the income is business income. Mining is generally treated as business income.
Payment with virtual currency is treated as barter, with fair value measured in Israeli shekels.
VAT treatment depends on the activity. The Tax Authority circular treats distributed means of payment as intangible assets and not as money, securities or negotiable instruments. Business, mining and intermediation activity can have VAT consequences.
Offshore providers
Foreign providers can create Israeli regulatory exposure where they provide services to Israeli customers, market into Israel, use Israeli payment rails or handle Israeli customer funds.
Banking rules distinguish Israeli licensed VASPs, foreign VASPs licensed or registered abroad and foreign VASPs that violate licensing or registration law in their home jurisdiction. Banks may refuse or restrict payment services where the foreign VASP is not lawfully operating.
A foreign exchange, custodian, wallet provider, stablecoin issuer or token platform should not assume that offshore incorporation avoids Israeli regulation.
Regulatory outlook
Israel’s core crypto framework is already active through financial asset service licensing, AML obligations, banking-risk rules and tax guidance. Stablecoin and securities-token regulation is still developing.
New entrants should classify the asset, map the service, check whether a financial asset service licence is required, verify licence status, assess AML and transfer-information obligations, prepare banking source-of-funds and pathway documentation, analyze payment-service licensing, determine whether the asset is a security, and complete tax and VAT analysis before launch.