Last week, a committee at the Israel Securities Authority (ISA) investigating the applicability of regulation pertaining to initial coin offerings (ICOs) and digital assets submitted their final report.
The Committee was first established in August of 2017 during the height of the ICO boom. The goal was to balance the demand to support Fintech innovation while safeguarding investors. The committee was headed by the Chief Economist of the Authority, Dr. Gitit Gur-Gershgoren , and the Director of the Department of Corporations in the Authority, Adv. Moti Yamin (former).
In March of 2018, the ISA Committee submitted an interim report on crypto. Since its publication, the committee has held a series of meetings with industry and academic leaders to clarify the issues that became readily apparent. In brief, the crypto ecosystem has changed dramatically since 2017. Today, most of the discussion surrounds the issuance of regulated security tokens.
The Committee recommended, among other things, to impose disclosure requirements under the Securities Law on the issue of digital assets that constitute securities. Additionally, the Committee recommended to consider creating an infrastructure for the establishment of a platform for trading crypto and to consider applying a model with similar to the crowdfunding model for the issuance of digital assets
While thanking the members of the Committee, the Chairman of the ISA, Anat Gueta, stated that the world of cryptographic assets proved in the last year that a “rigorous and continuous examination of a dynamic and innovative field” enables the ISA to make decisions that maintain the balance between the need to promote innovation along with the obligation to protect the interest of the investing public.
Gueta commented that while the excitement has cooled the technology is here to stay:
“One of the cornerstones of the strategy I set for the coming years is assimilation and promotion of technological innovation in the capital market. Technological innovation has the potential to streamline, improve and increase competition in the capital market and the economy as a whole, but it must be sure that it does serve the interests of investors. I call upon companies and industry entities to continue to maintain a direct, continuous and ongoing relationship with us in order to facilitate the development of this field.”
Dr. Gitit Gur-Gershgoren said the trends reinforce the perception that success depends on regulation.
“… that supervision of the field is not contrary to the field, but can contribute to its advancement .”
The Committee also recognized the importance of having a direct relationship between the ISA and the crypto industry in order to continue the professionalization of the sector along with the creation of an appropriate regulatory solution.
The Committee’s main recommendations are as follows :
- Specific Disclosure Regime – The Committee recommends applying the Securities Law to the issuance of cryptographic assets, while examining the suitability of the disclosure requirements to the unique characteristics of the activities of these companies, inter alia in accordance with the experience that will arise with the application of projects to the Authority for the purpose of issuing cryptographic assets or on the basis of the experience of Regulators in other countries.
- Facilitation and creation of conditions within the framework of the Regulatory Sandbox – The Authority is a partner in an inter-ministerial team that recently recommended the establishment of a regulatory environment that facilitates and adapts to companies that use new technology to supply financial products and services. The committee recommends that the use of this framework be enabled when it is established, in order to experience the issuance of cryptographic assets and to accompany entrepreneurs in this format.
- A platform for the trading of cryptographic assets – the committee recommends examining the possibility of making adjustments in the existing regulation in order to create a more suitable regulatory framework for this trading activity, which will best deal with the risks inherent in this activity.
A model for mass financing for projects for cryptographic assets – the committee recommends examining the application of a model with characteristics similar to the Crowd Funding model for cryptographic asset projects that are securities.
The Committee recognized the great importance of the direct relationship between the Authority and the industry in order to continue the professionalization of its employees, the recognition of the field by it, the study of its unique characteristics, and the provision of an appropriate regulatory solution.