Israel’s new anti-money laundering (AML) and anti-terrorist financing rules for crypto asset service providers take effect this week, clearing the way for local banks to more easily accept clients from the crypto sector.

Local banks have so far taken an ad hoc approach to accepting deposits tied to crypto investments. Crypto advocates in Israel see the new AML regulations, which came into effect on Sunday, as a first step in setting up comprehensive guidelines at the national level for banks.

“We hope that this order will significantly reduce transfer blocks and the denial of banking services experienced by crypto users and investors, and create a better atmosphere for investors, users and companies in the field,” said Youval Rouach, CEO of Israeli crypto exchange Bits of Gold, in a written statement.

Israel has been making a number of policy moves to rein in the local crypto market this year, from proposing strict reporting requirements on crypto transactions for tax purposes to ordering insurance and investment houses in the country to justify any investments linked to bitcoin.

The much-awaited AML regulations were a joint effort by the country’s Capital Market, Insurance and Savings Authority and the Ministry of Justice, and follow guidelines set for crypto assets by the Financial Action Task Force (FATF).

“It is a milestone in transforming crypto into a solid-steel financial tool that can be used by citizens and businesses of all types. Once digital currencies become regulated, the opportunities will be endless,” said Eli Bejerano, CEO and cofounder of Israeli cryptocurrency exchange Bit2C, referring to the AML enforcement order.

The new AML rules cover identification and verification of crypto recipients, reporting requirements for crypto firms, and lay out a risk-based approach to dealing with money laundering. Earlier this month, Israel’s Capital Market Authority published a draft circular about how all financial service providers including banks should go about enforcing the AML rules.

“This provision, which complements the provisions of the [AML order], is intended to guide the supervised bodies in the implementation of a risk-based approach to dealing with money laundering risks and terrorist financing,” according to Sunday’s statement by Israel’s Ministry of Justice.

How Israeli banks deal with crypto

On Sunday, one local media outlet reported that the new AML rules will allow Israeli banks to accept deposits or profits from crypto trading without “falling [afoul] of anti-money laundering legislation.”

But according to Ilan Sterk, chief executive officer of Altshuler Shaham Horizon, the digital asset arm of one of Israel’s largest investment houses, the new AML regulations that came into effect on Nov. 14 only apply to crypto service providers.

“On the other hand, the banks are subject to supervision by the bank overseer in the Bank of Israel and so the new regulations do not automatically apply to them,” Sterk said in a written statement.

Rouach clarified that crypto holders are already able to deposit money originating from digital currency transactions in Israeli banks.

“The problem was that different users were blocked due to arbitrary reasons, whether it was a specific branch, or a particular banking group,” Rouach said.

Bejerano confirmed this, saying Israeli banks enforce their own policies, which may “differ from branch to branch or from client to client.”

Sterk added that currently many investors can’t even buy cryptocurrencies because some banks block bank transfers to digital asset service providers.

Ben Samocha, founder of Israeli crypto media platform CryptoJungle, went so far as to say that the local banking system has become an “enormous liability” for the growing Israeli crypto market.

“The banks’ policies have essentially made every crypto holder a suspect of wrongdoing, despite almost all of them being honest taxpayers with clean records,” Samocha said.

Samocha, who also manages CryptoTalks, an Israeli crypto Facebook group that amassed nearly 30,000 followers in the last year, said he knows of situations in which people chose not to buy cryptocurrencies solely because they didn’t want trouble with the banks.

“That is no less than outrageous in my view,” Samocha said. “I personally know honest people who cannot sell cryptocurrencies back to Israeli shekels because the banks wouldn’t accept it – even if it’s to pay taxes.”

But Samocha, Bejerano, Sterk and Rouach all confirmed that the Bank of Israel has said by the end of the year it will be publishing guidelines for banks on how they should deal with cryptocurrencies.

“As such, crypto players will need to wait a little longer in order to understand how they can deposit profits from their investments in local Israeli banks,” Sterk said.