The Israel Securities Authority (ISA) has proposed a framework for the regulation of digital assets in light of the fact that a growing number of Israeli investors are exposed to digital assets and that, according to the regulator, more than 150 companies they are already operating in Israel.

In January 2023, the regulator issued a proposal outlining its purpose to achieve the double value of responding to the risks associated with investing in digital assets and giving the authority the means to adopt regulation. The purpose of the proposal was to achieve both objectives simultaneously.

The proposal also includes a change to the definition of the word securities, which would broaden its scope to encompass digital assets used for financial investment purposes.

In addition to this, the authority intends to obtain the ability to exercise supervision over the digital asset business. This would include setting rules for issuers and intermediaries, as well as imposing penalties for non-compliance.

The document has provided a window of opportunity for the public to comment on the messages until February 12. It is also intended to create a requirement for issuers of digital assets to publish a document that is analogous to a prospectus prior to issuing the assets or registering the assets for trading before the asset is made available to the public. public.

Investor protection is prioritized by requiring intermediaries in the digital asset industry to comply with regulations analogous to those that apply to intermediaries in the traditional securities industry. These regulations include the requirement that intermediaries in the traditional securities industry be licensed and meet capital adequacy standards.

The ability to employ smart contracts and the possibility for tokens to have different functionalities are two examples of areas that need to be addressed to account for the distinctive features of digital assets.

By allowing the construction of digital asset exchanges and by legalizing the use of digital assets as collateral, the regulator hopes to encourage the growth of the digital asset market in Israel.

The authority was given the right to intervene in situations where wrongdoing was believed to be taking place, helping to mitigate risks related to digital assets, such as the possibility of fraudulent activity and market manipulation.

This is because Shira Greenberg, Israel’s chief economist, provided a list of suggestions to lawmakers on how they should approach digital asset regulations and how they can encourage greater use of cryptocurrencies.

Greenberg advocated for a more comprehensive regulatory framework in a 109-page report delivered to the Finance Minister at the end of November 2022. In the report, Greenberg argued that such a framework would standardize cryptocurrency trading platforms and issuers while simultaneously provide regulators with more authority to monitor the industry.