Israel’s securities watchdog calls for new legal structure targeting digital currencies

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The Israel Securities Authority (ISA) is pushing for a new legal framework to regulate digital currencies and will bring the asset class under its control.

The securities watchdog noted that the move will ensure uniformity across the board for financial instruments and will see digital currencies treated as securities. Opinion has been split in the country on whether or not digital assets should be viewed as securities, but the ISA’s proposal has seen the pendulum swing toward securities.

Anat Guetta, chairwoman of the ISA, disclosed that the proposed framework will offer wholesome definitions of digital assets to remove ambiguity in cases of dispute. The proposed regulation seeks to term digital currencies as “a digital representation of value” on distributed ledgers used for financial investments.

Guetta says the definitions are designed to protect Israeli investors from the events in the digital currency industry, such as the implosions of FTX and Terra. The ISA chairwoman notes that applying existing securities legislation to digital currencies could trigger several legal loopholes for regulators to grapple with, making a new legal framework imperative.

“We have to wake up and understand that there is no real difference between crypto and securities and we have to unify the definitions in order to protect consumers and investors, and to make this industry legitimate,” Guetta notes.

The ISA confirms that public consultation is underway, which will last till February 12, and upon approval, the new legal framework will be operative after a six-month window. The securities regulators disclosed the proposed legal framework would be handy while keeping up with the tides of rapidly changing technology.

Guetta stated that the ISA’s quest for wider powers to regulate its local digital currency ecosystem derives inspiration from the U.S., given the high-profile moves taken by the U.S. Securities and Exchange Commission.

Covering all the bases

Among its neighbors, Israel currently lags behind in digital asset adoption, but despite the paltry metrics, regulators are taking due diligence to cover all the bases. Israel’s Ministry of Finance has proposed a series of recommendations to regulate the asset class, with taxation forming the core of the suggestions.

In October 2022, the Tel Aviv Stock Exchange (TASE) announced it was exploring trading securities using distributed ledger technology (DLT) after the country issued its first permanent license to a local firm to “engage in crypto activities.”

Law enforcement in Israel has been cracking down on the illicit use of digital currencies by terrorist groups, going as far as seizing tokens in digital wallets linked to the group.

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