The digital asset market has long ceased to be a marginal field on the fringes of the financial system. It is an integral part of that system, both in Israel and globally. What is notable about the wave of developments over the past summer is not merely its volume, but its direction: Israeli regulators are gradually shifting from a focus on digital-asset service providers to a much broader framework that addresses the asset itself, its issuer, and its interface with the banking system.
This memorandum reviews the key regulatory developments in Israel’s digital asset sector published between June and August 2026: binding instructions, draft proposals for public comment, a legislative memorandum, and developments in US regulation. It also examines their expected impact on the local market. At the outset, it is important to note the material difference in the normative status of the documents reviewed: published instructions are binding; drafts and legislative memoranda remain at the public consultation stage and are not legally binding; and case law serves only as an interpretive and guiding source. The article concludes with a practical review of a significant recent US regulatory update: the US Treasury Department’s proposed regulations for implementing Section 3 of the GENIUS Act.
A More Meaningful Safety Buffer: The New Capital Requirements for Virtual-Currency Activities
On July 19, 2026, the Capital Market, Insurance and Savings Authority published own-funds requirements for holders of a financial-asset service license for virtual currencies. The requirements, which will take effect six months after publication, focus on the sector’s distinct risks: custody of customer assets, use of cryptographic keys, cyber risks, operational failures, and reliance on external service providers.
The principal change is a substantial increase in the capital threshold. A license holder that does not offer custody services will be required to maintain total equity of at least NIS 2 million, while a license holder offering custody services will be required to maintain at least NIS 2.5 million. In addition, a license holder holding virtual currencies in custody will be required to hold additional capital equal to 0.25% of the value of customer assets in custody. If the value of those assets changes by more than 50% compared with their value at the end of the previous year, the capital requirement must be adjusted during the year.
The additional capital is intended to serve as a readily available safety buffer for absorbing losses and addressing risk events. It must therefore be held in liquid, low-risk assets, such as cash, bank deposits, or short-term government bonds. At the same time, it is important to remember that equity capital is not a substitute for proper segregation between customer assets and corporate assets, or for clear custody arrangements. From a market perspective, this is a significant regulatory burden, particularly for entities holding customer assets, but it is also a move that strengthens customer protection and public confidence in virtual-currency activity.
The Legislative Memorandum Seeking to Rein in Stablecoins
At the same time, on June 29, 2026, the Financial Services Supervision Law (Issuance of Stable Digital Currencies) Bill, 2026, was published for public comment. Its central innovation is not merely the addition of a licensing layer, but the creation of Israel’s first dedicated framework for stablecoin issuers. The regulation focuses on the currency itself, its peg mechanism, and the issuer’s ability to meet its redemption obligation. The memorandum proposes a licensing requirement, minimum equity of NIS 2 million, reserve assets equal to at least 100% of obligations to holders, segregation of those assets in a dedicated account, and redemption rights for holders. It also proposes corporate-governance, reporting, and disclosure obligations, as well as requirements for risk management, cybersecurity, and business continuity. This remains a legislative memorandum for public comment rather than a binding arrangement, but it signals a significant regulatory shift.
In practical terms, the move requires existing market participants to reassess their operating structures. Issuers will need to prepare for licensing, capital requirements, management of liquid reserves, and a clear separation between those reserves and company assets. Exchanges, wallet providers, and other service providers will need to assess the quality and regulatory status of the currencies they make available. At the same time, the proposed framework may create an opportunity for new entrants: an entity that builds a transparent reserve structure, a reliable redemption mechanism, and appropriate corporate governance from the outset may operate in a market with greater certainty and establish trust with customers, banks, and business partners. The option of licensing foreign issuers, subject to supervision and enforceability, may also broaden competition and the range of products available in Israel.
This distinction has also gained further support in Israeli case law. In State of Israel v. Artem Nadarenko, it was clarified that while decentralized currencies operate without a central party, the reliability of a stablecoin is inextricably linked to the reliability of its issuer. This finding supports the rationale for issuer-focused regulation, not only in terms of the asset’s stability but also in terms of practical enforcement capabilities: the issuer’s centralization makes it possible, in appropriate cases, to cooperate in freezing or seizing assets, a capability that does not exist at all in fully decentralized currencies.
Who Gets on the List? The Draft Circular on Listing Virtual Currencies
On July 28, 2026, the Capital Market Authority published a draft circular on listing a virtual currency for the purpose of providing services. The main innovation is the shift from listing currencies based solely on commercial discretion to a structured, documented, risk-based process. Before a new currency is offered to customers, the license holder must examine the issuer’s identity and applicable oversight, the issuance document, liquidity and tradability, concentration of holdings, cyber risks, money laundering risks, consumer protection, and conflicts of interest.
The draft also establishes clear eligibility criteria for standard currencies, including listing with at least five licensed entities in the European Union or New York, a market capitalization of at least USD 500 million for six months, and inclusion among the 50 leading digital assets during that period. NFTs and currencies featuring enhanced anonymity or privacy features do not meet the criteria. For a stable digital currency issued and supervised in Israel, a proposed exception would allow listing even if it does not meet the general threshold conditions.
Banks Are Also in the Picture: Amendment to Proper Conduct of Banking Business Directive 411 and a Risk-Based Policy
Banks are also part of the picture. On July 14, 2026, the Banking Supervision Department published a draft amendment to Proper Conduct of Banking Business Directive 411, dealing with anti-money laundering and counter-terrorist financing risks in virtual-currency activity. If approved, the draft will enter into force six months after publication.
The key innovation is a clear transition from an automatic-blocking approach to a risk-based approach. A bank may not refuse payment services merely because their source is linked to virtual-currency activity. Instead, it will be required to examine the identity of the service provider, the characteristics of the currency, the customer, and the transaction’s size and complexity. The draft also removes the obligation to examine the source of funds and the currency trail above a fixed threshold of NIS 100,000 per year, and requires the depth of review to be calibrated to the actual risk, including by identifying cases in which no currency-trail review will be required at all.
The Broader Trend: From “Prohibited or Permitted” to a Risk-Based Approach
When viewed together, these developments reveal a broader trend. Israeli regulation is gradually evolving from a framework focused mainly on the licensing and supervision of service providers to one that also addresses the characteristics of the digital asset itself, its issuance, the conditions under which it may be offered to the public, and its interface with the banking system.
At the same time, there is a gradual transition from an “prohibited or permitted” approach to a risk-based framework. A connection to virtual currencies no longer automatically results in activity being rejected. Regulators seek to examine the specific risks, establish appropriate control mechanisms, and ensure that market participants have a genuine ability to address them.
This trend may contribute to the integration of the digital asset market into the broader financial system. At the same time, it is likely to raise the bar for compliance, controls, and governance required of industry participants, to the extent that the drafts and proposals become binding rules. For license holders, issuers, financial institutions, and banks, the practical implication is not only the need to prepare for one specific instruction or another, but also to reassess their overall risk-management, control, disclosure, and compliance frameworks.
A Bonus from Across the Atlantic: The United States Is Trying to Solve the Same Puzzle, and the Window to Influence the Outcome Is Still Open
What is happening across the ocean in the meantime? During the same weeks, a development was launched that demonstrates how global the regulatory puzzle of stablecoins has become. On August 18, 2026, the US Treasury Department published in the Federal Register a Notice of Proposed Rulemaking for the implementation of Section 3 of the GENIUS Act – the Guiding and Establishing National Innovation for U.S. Stablecoins Act. The Act, enacted in July 2025, constitutes the first comprehensive federal framework for payment stablecoins in the United States.
This is currently a draft undergoing a formal public-comment process until October 19, 2026. In other words, anyone with an interest in the field – issuers, exchanges, wallet providers, and even Israeli entities with exposure to the US market – can, and is encouraged to, make their voice heard and influence the final text.
Conceptually, the US draft is aligned with precisely the same trend described above in relation to Israel: the shift from regulation focused on the service provider to regulation focused on the asset and its issuer. Here too, the central questions are who is authorized to issue a stablecoin, when an issuance or sale is deemed to take place in the United States, and how to preserve financial innovation without losing regulatory control. The draft proposes, for example, a dedicated route for qualifying foreign issuers, not only US issuers, and establishes a safe harbor for those that actually implement policies designed to prevent inadvertent issuance to US residents. This is an interesting attempt to balance openness to global markets with consumer protection in the United States. At the same time, the Act has a clear extraterritorial reach and creates real criminal exposure for anyone who knowingly assists with unlawful issuance. This is therefore far more than a statement of intent.
The timing is no coincidence. Just as Israel is currently building its framework for stable digital currencies through the legislative memorandum reviewed above, the United States is also still shaping its rules. This is precisely why both tracks should be followed in parallel. Those who operate, or are considering operating, in both the Israeli and US markets have a rare window of opportunity: both frameworks are still sufficiently flexible to allow stakeholders to influence them.
Conclusion
Israel and the US, each at its own pace and using its own methodology, are moving toward the same fundamental insight: once a digital asset functions as a means of payment, the identity of its issuer, its ability to meet its obligations, and its connection to the regulated financial system become the core questions of regulation. These are no longer merely questions of licensing the service provider that intermediates the asset. For those operating in the field from the Israeli side, the practical implications are twofold: internal preparation for the emerging domestic requirements concerning capital, segregation, and controls, alongside mapping potential exposure to the extraterritorial requirements taking shape abroad.
