The Israel Securities Authority (ISA) has published a proposal that seeks to amend the applicability of the country’s securities laws to crypto and digital assets. The national securities regulator on Wednesday published details of the proposal, noting that public inputs on them are admissible until February 12, 2023.

In the document, ISA proposed amendments to the country’s securities law of 1968, the Law on Joint Investments in Trust of 1994 and the 1995 law that regulates the practice of investment consulting, investment marketing and investment portfolio management.

Israel Proposes Amendment to Securities Laws

In the proposal document, ISA called for the addition of the definition of 'digital assets' into the section of the country's securities law. The regulator explained that while cryptocurrencies serve as a financial investment, they are not included in the law's definition.

On the joint investment law, the Israeli securities supervisor wants clarification that joint investment in digital assets is an investment protected under the Law on Joint Investments in Trust of 1994. Additionally, the regulator is asking for the power to make necessary adjustments to joint investments in digital assets in order to protect the interest of the investing public.

With regards to the consultation law, the authority proposed an amendment to the definition of securities “so that it includes a security offered to the public according to a prospectus even if it is not listed for trading on the stock exchange.” Moreover, the regulator wants a change to the definition of “foreign securities” so that it accounts for securities offered to Israelis from outside the country and based on a public offer document.

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“This is given that securities, in general, and securities that are digital assets, in particular, do not necessarily have to be listed for trading on the stock exchange, while the application of the law in this situation is necessary, even more so,” the proposal document states.

Meanwhile, ISA’s proposal comes two months after Shira Greenberg, the Chief Economist of the Israeli Ministry of Finance recommended adjustments to the country’s securities law in order to address all risks related to digital assets.

Greenberg in a report noted that while many digital asset activities carried out in the country are done as financial investments, which is within the purview of the country's securities regulator, other aspects of regulation relevant to Israeli regulators and state agencies are not covered. The economist, therefore, advocated for a clear regulatory framework that covers all areas.

Israeli Securities Authority Rationalizes the Proposals

According to ISA, while some existing regulations apply to investment in digital assets, there are situations where conditions established in the securities laws for these to be enforced are not met. Also, investment in digital assets can be made in a way that is not supervised at all, the securities authority said.

On top of that, ISA noted that the unique characteristics of cryptocurrencies make it difficult to apply extant regulations. “These difficulties may harm the effectiveness of the protection mechanisms established therein,” the Israeli capital markets watchdog said.

In addition, ISA noted that while it has “extensive enforcement capabilities” to monitor various market activities including in cryptocurrencies, its enforcement ability is limited to offenses included in the securities law.

Israel and Crypto Regulation

In the last five years, Israel has created three committees to look into various areas of crypto regulation and adoption in the country.

The first committee, which was established in August 2017, called for a balance between encouraging technological innovation and preserving the interests of the investing public. This is even as the second committee was tasked with promoting and establishing digital asset markets in Israel.

Furthermore, in May 2021, the Chairman of the ISA established the third committee to assess the regulator's policy with regards to investment products in digital assets.