Israel Interim Report on Cryptocurrency: Not Considered to be Securities

The Israel Securities Authority (ISA) has published their interim report on cryptocurrencies. The document was present to Chairman of the ISA, Anat Gueta, yesterday. The document is a product of an inter-departmental Committee that was established last August to research cryptocurrencies. The report includes a series of recommendations aimed at providing legal certainty and balance between technological innovation and investor protection. According to the report, the Committee stated;

“The question of whether a [crypto]currency will be considered a security will be decided according to the totality of the circumstances and characteristics of each case against the background of the purposes of the law. Cryptographic currencies that embody a right to a product or service and are acquired solely for the purpose of consumption and use shall not be considered a security, but only if the purpose of the acquisition was not for investment. “

The Committee was led by Dr. Gitit Gur-Gershgoren, Chief Economist of the Israel Securities Authority, and Adv. Moti Yamin, director of the retired corporations department. The mission was to examine the applicability of existing securities law to offerings to the Israeli from blockchain based offerings. The committee was asked to study and characterize these digital currency projects and prepare a comparative review of the law in various countries around the world. The Committee was also tasked with recommending a regulatory policy related to securities law. The ISA is currently accepting comments and feedback on the report until April 20, 2018.

The Committee was represented by a diverse group of individuals including Israeli regulators, key industry figures, developers and entrepreneurs who are working on issuing cryptographic currency. The Committee also interacted with international regulators to better understand the emerging marketplace.

Guetta thanked the members of the committee for their comprehensive work. She stated;

“the relevance of a regulator lies in its ability to bridge and balance technological developments promoted by it to fulfill the mandate for which it was established.”

Guetta has previously voiced her support for innovation in financial services and a willingness to be open to support digital currency developments.

Guetta said distributed ledger technology (DLT or Blockchain) has the potential to change and improve the efficiency of the financial world as we know it. Unique characteristics of the Israeli and global standing in this industry, can contribute to the growth of the Israeli economy.

The ISA will continue to study and monitor developments to the innovotive and dynamic sector of finance while being sensitive to the need for investor protection.

Ophir Gertner, a Blockchain entrepreneur based in Israel and founder of Smartologic Technologies, commented  on the ISA cryptocurrency report;

“We see the new approach of the Israeli Regulator as a very positive one for the development and growth of Blockchain and crypto startups in Israel. It shows that the Regulator understands the potential of this sector and follows other leading countries such as Switzerland and Germany that took a similar approach. The idea of having a sandbox sponsored or backed by the Regulator, similar to what the UK did, is a significant improvement and will drive more entrepreneurs to initiate their business from Israel. Such decisions will allow Israel to keep being in the front of new technologies.”

The Committee aims to increase certainty regarding the applicability of securities laws to the field, based on the understanding that this certainty is essential both for the development of industry in Israel and for maintaining investor confidence in the capital market. The Committee will examine whether there is a need to formulate future recommendations regarding the application of securities laws pertaining to cryptocurrency. The Committee recognizes this new area may need to adapt existing rules to accommodate cryptocurrency innovation.

The Committee’s conclusions incorporate a number of recommendations, including:

  • A cryptographic currency shall be considered a security according to the entirety of the circumstances and characteristics of each case on its merits against the background of the purposes of the law.
  • Cryptographic currencies which grant rights similar to those of traditional securities such as shares, bonds or participation units shall be deemed to be securities.
  • In general, cryptographic currencies intended to be used as payment, clearing or exchange only, other than in a specific enterprise, which do not confer additional rights and are not controlled by a central entity, shall not be considered securities.
  • In general, cryptographic currencies that embody a right to a product or service and are acquired for consumption and use only shall not be considered securities. In this context, the relevant examination is that of the purpose of the actual purchase, so that the inability to use the token at the stage of the issue or the possibility of trading it on a secondary market may indicate that its acquisition is not for a consumer purpose but for investment purposes.
  • Consideration should be given to the use and expansion of existing and future designated recruitment tracks for Initial Coin Offerings (ICOs), including:
    • Regulation facilitates the public offering of limited-size cryptographic currencies;
    • The possibility of mobilizing by means of cryptographic coins on mass financing platforms;
    • Establishing a temporary framework for the purpose of experimenting with the issue of cryptographic currencies and accompanying entrepreneurs in this context, in the form of a sandbox;
    • And the examination of the possibility of relying on foreign regulation began with the issue of cryptographic coins.
  • If ICOs are to be in accordance with a prospectus, the disclosure requirements of the Securities Law will be required to conform to the unique characteristics of this area, as was done with respect to other areas of activity (real estate, gas and oil, biomed, etc.).
  • Examining whether the issue of cryptographic currencies constituting securities is considered a public offering in Israel will be carried out according to the characteristics of the offer. A proposal will not be considered an offer to the Israeli public if its characteristics clearly indicate that it is not intended for the Israeli public (for example, by the language of the offer, lack of marketing, advertising and public appeal to investors in Israel). The Committee raises the question of whether there is a need to adapt the existing proposal tests to the decentralized and extraterritorial nature of cryptographic currency issues.

In light of the innovation, complexity and dynamism of the field, the Committee expects things to change over time and will adapt as necessary.


The Report in Hebrew is available here.


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