Exclusive: ISA Considering Regulating ICOs - Complete Ban an Option

Are we approaching the end of the era of ICOs in Israel? The Israeli Security Authority (ISA) is contemplating the future of the cryptocurrency industry and all options are on the table. According to sources in the industry, the ISA is considering regulating initial coin offerings.

Among the considered possibilities is a full ban on ICO activity within the jurisdiction. Such a move would be extremely noteworthy given that it would place Israel on a very short list of countries that have done this - China being one other. While extreme, the move would certainly go a long way towards sharpening the ISA's regulatory teeth.

On a slight lighter note, ISA is also looking into ways of preserving the innovative practice while enforcing strict regulations on the process, with special emphasis on KYC rules and marketing restrictions.

Another plan considered by the Israeli watchdog is to define all Cryptocurrencies (including tokens issued by initial coin offerings) as a form of security, thus forcing all involved - traders, exchanges, etc. - to comply with the rules and regulations set by the authority with respect to securities.

The sources claim that this initiative was raised during a set of meetings held by the ISA over the last two weeks, in which key figures in the industry, along with prominent Israeli CPAs and lawyers specializing in the field of securities and cryptocurrencies, were invited to express their thoughts on regulatory initiatives.

One of those industry players is the crypto-entrepreneur Moshe Hogeg, who recently met with Israeli Finance Minister Moshe Kahlon to discuss the government's attitude towards cryptocurrencies. Mr. Hogeg is no stranger to cryptocurrencies or token sales, having established himself as one of the most prominent investors behind Israeli ICOs. He has consistently invested in startups including Kik, Mobli, Sirin, and others.

Another governmental body involved in these discussions is the Israel Tax Authority, which is looking to tax this prosperous new practice.

The meetings were conducted by a special ISA committee that was established last August with the intention of defining the nature of ICOs and whether they should be regulated as a form of security. The committee is expected to publish its decisions during December 2017, raising the tension among industry leaders to a new level.

An attempt to atone

This extreme approach demonstrates the generally severe attitude towards ICOs and cryptocurrencies of the ISA and its chief Prof. Shmuel Hauser. In the founding document of the aforementioned committee, the ISA stated: “In some of the ICOs we saw cases of manipulations and scams in trading that hurt innocent investors and entrepreneurs.” Hauser was recently quoted saying that he wants to make sure that ICOs do not become the new binary options. However, he denied rumors that he plans to ban the ICO industry altogether.

Such statements may reflect the government's lack of understanding regarding the repercussions of placing the crypto industry with its back against the wall. Some industry members even claim that this initiative is the regulator's way of atoning for its treatment of the binary options industry. The Israeli watchdog was criticised for treating the scam-riddled industry with a relatively soft hand, and received equally fierce criticism once this soft hand turned into an iron fist that banned all binary options activity altogether.

Such a strong crackdown on the ICO industry may be dramatic in regard to the local crypto ecosystem and even the entire thriving hi-tech industry of the startup nation. Israel is home to some of the more successful ICOs, such as Bancor (which raised $140 million in less than three hours), as well as countless Blockchain startups and cutting edge blockchain hubs and accelerators, such as The Floor and Alignment.

Other regulators have expressed their intention to define cryptocurrencies and tokens as securities and to regulate them accordingly. For instance, the New Zealand watchdog stated in October: “All tokens or cryptocurrencies are securities under the FMC Act - even those that are not financial products. A security is any arrangement or facility that has, or is intended to have, the effect of a person making an investment or managing a financial risk.”

The ISA refused to comment on the content of this article.