At the beginning of 2018, a new Chair took over at the Israel Securities Authority (ISA). Anat Guetta took over the executive position from Shmuel Hauser. Recently, Guetta has indicated a more welcoming approach when it comes to initial coin offerings (ICOs) and crypto in general. In a speech at the beginning of the year, Guetta said the biggest risk today is investing in digital currencies but it is perhaps the greatest potential.
David Malits, co-founder of DM Communications a marketing firm that operates in the Fintech space, commented on this shift in approach;
“Israel, which was one of the leading countries in the world in over-regulation, changed direction when its new chairman, Anat Guetta, took office. It seems that this direction is more pragmatic, reminiscent of regulatory models used in Europe and the United States. According to which, companies that deal with finance are given a set of rules which they must follow and are responsible for doing so; if they are found to violate the rules, the enforcement against them is rigid. This is the right way to allow the world of legislation and enforcement to accept new technologies that are progressing at a faster rate and allowing the market the flexibility it needs.”
Malits notes that Guetta promotes a framework that will help companies that raise funds through ICOs. The model: For each issue, it will be decided whether it is a security, and if so, the companies will be required to the same standards as share issues, including a prospectus.
Guetta is also embracing a sandbox approach designed to provide companies a controlled work environment with reduced regulation for a limited period – a hub of sorts, for supervised experimentation with customers.
The ISA has established a committee to examine the regulation of digital currencies and apparently have formulated several possible models for implementation.
The first follows the American model and the laws to which share-issuing companies are subject. Each ICO will be examined and in accordance with the interpretation of the law, it will be determined if it should be treated as a security issue. A security issuance will be subject to all of the same requirements as companies that issue shares on the stock exchange, including the submission of a detailed prospectus.
The second model is more akin to the Swiss approach. This would include defining specific legislation for companies issuing digital currencies, whether the issued currency is defined as a security or not.
Malits says that Guetta supports the first model, which maintains the status quo but grants easements for a limited time. These eased restrictions might include the granting of a permit to market the issue on the Internet, which is currently forbidden common issues, or a submission of a shortened prospectus. An interim report from the ISA is expected soon
There is a team at the ISA that is examining the establishment of a regulatory environment that makes it easier for companies that use new technology to supply financial products and services.
Guetta is adamant that investors must be protected but regulators must keep an open mind to innovation. In recent years, there was an ongoing discussion regarding the decline of initial offerings on the ISA. Last year was different as the ISA attempted to reanimate the moribund public market by making it easier for issuers to list. This is expected to continue during 2018. It will be interesting to see where iCOs fit into the Israeli capital formation mix.