Israeli Regulators to Decide Regulatory Fate of ICOs in December

On August 30, 2017, the Israeli equivalent of the U.S. Securities and Exchange Commission, the Israeli Security Authority (“ISA”) announced it had formed a committee to study whether, and how, to apply Israeli securities laws to initial coin offerings (“ICOs”).  Specifically, the ISA stated it would examine six issues related to ICO regulation, including reviews of the economic nature of the transactions, regulations of other countries, applicability to securities laws, and threats to innocent investors.

Last Friday, it was reported through unnamed sources that the ISA committee’s report, due out by December 31, 2017, was considering strict regulations of ICOs, and possibly even an outright ban on them, similar to what China has done.  The report also references several other possibilities, such as enhancing Know Your Customer rules and marketing restrictions and labeling all cryptocurrencies as securities.  And, it notes that the Israeli Tax Authority may want to get involved and start taxing ICOs.

Other reports see more friendly regulations on the horizon.  Indeed, on Sunday, received an on-the-record comment from vocal bitcoin advocate Moshe Hogeg, an “invited guest” at the ISA committee meetings:

The state of Israel and its leaders understand that we can’t rest on our laurels and that if we won’t promote the blockchain industry in Israel it will be a grave strategic mistake that will hurt our standing as the Startup Nation. The committees are studying the issue and I am certain that in the end we will have friendly regulations, similar to the situation in Switzerland.

The ISA’s moves to regulate ICOs could determine whether Israel (i) becomes the “Startup Nation” of ICOs and adds more successful ICOs to its already long list, or (ii) stifles innovation resulting from a desire to protect innocent investors such that new entrepreneurs end up going elsewhere.  In any case, it will be at the forefront of a handful of countries creating a legal framework for this complicated new ecosystem that has already raised more than $3.75 billion US dollars this year alone.  Stay tuned.