The Israel Securities Authority (“ISA”) is currently working on a comprehensive regulatory framework for ICOs. In March 2018, after a consultation of industry professionals and other experts, the ISA released an interim report with a series of recommendations on ICOs and whether they constituted the sale of a security:

“A cryptocurrency will be deemed a security according to the totality of the circumstances and features of each case, taking into account the purposes of the law. Cryptocurrencies that confer rights similar to the rights conferred by traditional securities such as shares, bonds, or participation units, will be deemed securities.

As a general rule, cryptocurrencies that are designed to be used exclusively as a medium of payment, clearing, or exchange and are not limited to a specific venture; that do not confer additional rights; and are not controlled by a central entity — will not be deemed securities.

In general, cryptocurrencies that represent a right to a product or service and are acquired solely for the purpose of consumption and use will not be deemed securities. In this regard, the relevant test is the actual purpose of the acquisition. Therefore, if the token cannot be used when it is issued or if it can be traded on a secondary market, these may be indications that its acquisition was made for investment rather than for consumption purposes.

The use and extension of specific existing and future capital raising tracks for ICOs should be considered, including an examination of the following issues: lenient regulation for small-scale ICOs; raising capital through ICOs on crowdfunding platforms; defining a provisional framework for ICOs pilots, in the form of a regulatory sandbox, including oversight of the cryptocurrency developers, and; examining the option of relying on foreign regulation that applies to cryptocurrencies.

If ICOs are conducted on the basis of prospectuses, the disclosure requirements defined in the Securities Law must be adjusted to the unique features of this field, in line with adjustments made in the past to other areas of operations (such as real estate, gas and oil, and biomed).

Whether an ICO constitutes an offer of securities to the Israeli public will be determined according to the features of the offer. An offer will not be deemed a public offer in Israel if its features clearly show that it does not target the Israeli public, (based on the language of the offer, and an absence of marketing and advertising activities targeting investors in Israel). The committee invites a discussion on whether the current tests should be adjusted to the decentralized and cross-territorial nature of ICOs.”

Blockchain

No blockchain-specific laws or regulations at this time.

Sources

• Israel Securities Authority | ISA Committee for the Examination and Regulation of ICOs (Initial Cryptocurrency Offerings) Submitted Interim Report Today