Last November, the Ministry of Finance of Israel published guidelines for the regulation of cryptos. Last Wednesday, the country’s Central Bank published proposed rules for the regulation of stablecoins. It thus wishes to promote the use of tokens linked to the value of other assets such as the dollar, while supervising them. Discover the clauses of Israel’s new proposed crypto regulations.
Israel plans to ban algorithmic stablecoins
The recommendations of the Central Bank of Israel to supervise stablecoins have a number of objectives. On the one hand, they aim to manage the risk associated with the use of stablecoins in the country. On the other hand, they should make it possible to adapt consumer protection and prudential requirements. This was revealed in the document presenting the new proposed rules.
It appears that the establishment of the new regulations was spurred by the collapse of the algorithmic stablecoin Terra in May. However, the new rules are only focused on stablecoins backed by other assets and collateral. They do not address algorithmic stablecoins which the Central Bank says are less used for payments.
The Central Bank clarified that these stablecoins could be banned if they become more used for payments. She said : “ If this type of currency becomes a common means of payment, issuers will be required to hold full collateral.In fact, the issuance of a currency that uses an algorithmic stabilization mechanism will be prohibited.“.
A 100% reserve requirement for stablecoins
One of the rules proposed by the Central Bank of Israel for stablecoins is the 100% reserve requirement. It recommends that issuers of stablecoins be required to have reserves equivalent to the quantity of tokens in circulation. Their reserves will have to cover 100% of their commitments to stablecoin holders.
This rule is in line with that of several other jurisdictions around the world such as Hong Kong. The latter also plans to adopt regulations for asset-backed stablecoins by June 2023.
According to the new proposed rules, issuers of stablecoins should seek to obtain a license before operating in Israel. Also, those who issue tokens that may have a “systemic importanceshould obtain approval from the banking supervision department. The other issuers will be under the control of the Autorité des Marchés Financiers. The public has until March 15 to make suggestions to the proposed rules.
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