Client Update: Digital Assets – From Market Risk to an Opportunity for Regulation in Israel

Financial Regulation Department, Shibolet & Co. | November 2026

The reported breach of Binance in October 2026, in which digital assets valued at approximately USD 6.3 billion were reportedly stolen, raises a question that extends beyond the incident itself: how can activity in digital assets be advanced while protecting customers and investors? Clear and proportionate regulation does not eliminate risk, but it may strengthen market confidence, encourage supervised activity and support financial innovation.

How was the breach carried out? According to Binance’s preliminary findings, the attack may have begun with the compromise of an engineer’s computer, which allegedly enabled the attacker to access the system and submit unauthorized withdrawal instructions. It is reported that the platform suspended withdrawals and announced that it would bear the losses. At this stage, no final conclusion has been reached as to the cause of the breach.

The incident does not stand alone. It is reported that breaches also occurred at Bitget and Liquid Network in September 2026, and that a breach at Mercado Bitcoin was reported on November 2, 2026. Although the circumstances differ, these events illustrate the range of risks in the sector, and the questions that arise with respect to the custody of assets, liability towards customers, and the ability to trace stolen assets.

Israel: The Existing Framework and Proposed Developments

Israel has an existing framework for the licensing and supervision of the provision of services in financial assets, including virtual currencies, depending on the type and circumstances of the activity. As discussed in a previous update issued by our firm, various regulatory initiatives addressed to virtual currency service providers have been published over the past year, including a draft bill concerning the issuance of stablecoins, and drafts addressing the registration of virtual currencies and the interface with the banking system.

In addition to these measures, on November 2, 2026, a draft bill to amend the application of securities laws with respect to digital assets (including the Securities Law, 5728-1968) (the “Memorandum”) was published. It proposes to expand and adapt the regulation falling within the remit of the Israel Securities Authority (the “Authority”). The Memorandum seeks to address the risks inherent in investing in such assets, while preserving their potential advantages. The Memorandum is a proposal that has not yet been enacted and may be subject to change. Its principal provisions are as follows:

• Public Offering, Disclosure and Reporting: With respect to securities that are digital assets, it is proposed to empower the Authority to prescribe tailored rules and directives in defined matters, including the contents of the prospectus, the manner of public offering, and reporting obligations.
• Classification of Assets: It is proposed to define a “digital investment asset” as a digital asset intended for financial investment purposes, even if it serves additional purposes, and to include it within the definition of a “financial instrument”. The Memorandum does not render every digital asset a security. Among the assets proposed to be excluded from the definition of a digital investment asset are certain currencies designed to maintain a stable value and used for payment. This exclusion applies to this definition only.
• Tailored Provisions and Exemptions: It is proposed to empower the Authority to prescribe dedicated provisions for exchanges and clearing houses operating in digital investment assets, including provisions concerning services provided directly to customers. In addition, it is proposed to enable the Chairperson of the Authority to grant certain exemptions from the provisions applicable to such entities, subject to the limitations and conditions set out in the Memorandum.
• Trading, Clearing and Custody: It is proposed to apply the Authority’s licensing and supervisory regime to exchanges for trading in digital investment assets, even where such assets are not securities. With respect to clearing and custody systems, a narrower framework is proposed, which depends on the type of activity and assets and on the identity of the service recipient. This does not mean that every custody service provider will be required to obtain a clearing house license.
• Joint Investments: It is proposed to clarify the application of the Joint Investment Trusts Law, 5754-1994, to joint investment arrangements that include digital investment assets.
• Investment Advice, Marketing and Portfolio Management: It is proposed to extend the application of the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Investment Advice Law”), to digital investment assets that are not securities, and to treat a transaction in a digital investment asset as a transaction involving special risk. According to the explanatory notes, a licensee will be required to notify the client of the risk, and a portfolio manager will also be required to obtain the client’s prior written approval for the transaction, or for transactions presenting the same type of risk. It is further proposed to enable the Authority to prescribe tailored provisions, inter alia with respect to the execution of transactions and the entities with which such assets may be managed.
• Anti-Money Laundering and Transition to the New Regime: It is proposed to apply the supervisory arrangements under the Prohibition on Money Laundering Law, 5760-2000, to an exchange that provides services to customers in digital investment assets other than through an exchange member. It is further proposed that the law enter into force one year after its publication, and that transitional provisions be prescribed for existing entities, subject to conditions and timelines that vary according to the type of activity.

What Should Be Examined Now?

• These developments may be relevant to a variety of entities: operators of trading and clearing systems, custody service providers and providers of services in financial assets, issuers, investment advisors and marketers, portfolio managers and funds, as well as banks and other financial institutions operating in the sector. Foreign entities offering services in Israel or to Israeli customers may likewise be required to examine the implications of the regulation for their activity. Each entity is advised to review the types of assets and services involved in its activity, the licensing and compliance obligations currently applicable to it, and the changes that may apply to it.

The Memorandum is open for public comment until November 22, 2026.

The Financial Regulation Department of Shibolet & Co. is available to assist you in examining licensing and compliance obligations, in advising on the adaptation of business models and contractual arrangements to the requirements of the regulation, and in formulating responses to regulatory developments. This update contains general information only and does not constitute legal advice for any specific case.