The Israel Securities Authority (ISA) has proposed a series of legislative changes related to digital assets, inviting comments by February 12. When a digital asset is a financial investment, it will be treated as a security. The goal is to provide greater clarity on which digital assets are regulated by ISA and to prevent areas where investments are not regulated due to definition issues. Regulatory efforts have accelerated following collapses of cryptocurrencies like FTX and Israel-linked Celsius.

The proposals follow a November 2022 publication from the Ministry of Finance on plans to regulate the digital asset sector. More on that later.

Digital assets or crypto assets have numerous definitions around the world. The Israeli proposal for digital assets: “a digital representation of a security or right, used for financial investment purposes, and can be transferred and stored electronically through the use of distributed ledger technology (DLT) or other technology.”

Although digital securities already exist, the proposed amendments will remove formatting requirements, such as the need for a written document. It will also expand the definition of securities to include securities offered as digital assets (already in scope), as well as digital assets used for financial investments. The latter is a starting point because all securities currently must be ‘financial instruments’. The ISA also has the authority to issue additional instructions and oversees derivatives of digital assets.

Israel’s law on joint investments will be expanded to include digital assets. And legislation related to investment consulting, marketing and portfolio management will include, in the future, digital assets.

Approach of the Ministry of Finance

In November last year, the Israel Ministry of Finance published a series of proposals with the aim of encouraging innovation and also reducing risks. You intend to complete a licensing process for Digital Asset Service Providers (DASPs). Ideally, the Ministry wants to consolidate the supervision of digital assets in a single regulator. However, you also want to make sure that ISA remains in charge of the securities.

It plans to introduce comprehensive legislation for asset-backed digital tokens, including stablecoins.

In other news, the Israeli government announced a test of government bonds in partnership with the Tel Aviv Stock Exchange (TASE) last October. Subsequently, the stock exchange published its distributed ledger (DLT) strategy.