The Committee set up by the Israel Securities Authority (ISA) to examine and possibly regulate Initial Coin Offerings (ICOs) has released a series of recommendations which will aims to help bring some stability into the market – one of such decisions was to determine whether crypto assets like bitcoin were securities.
The ISA is of the view that as a general rule, cryptocurrencies or digital currencies designed to be used exclusively as a means of payment or exchange are not limited to specific ventures and as such will not be considered as securities especially if they are largely decentralized.
This decision could be a precedent for some other nations who have been struggling to classify or define similar crypto asset classes. Israel has been more in the fore-front of a hands-off approach to cryptocurrencies, with Bitcoin ATMs in the country not requiring much KYC in comparison to places like the United States where more identification is required.
The report says that “the question of whether cryptocurrencies should be considered a security will be decided on the totality of the circumstances and features of each use case in accordance with the purposes of the law… As a general rule, cryptocurrencies that confer rights similar to the rights conferred by traditional securities such as shares, bonds and participation units, will be deemed securities. In contrast, cryptocurrencies that represent rights to a product or service are acquired solely for the purpose of consumption and use and not for investment purposes, will not be considered securities.”
The ISA set up a committee in the summer of last year to examine the application of the securities Law to ICOs originating from Israel. The committee was tasked to study the space thoroughly and draft recommendations for a workable regulatory framework especially with ICOs that bore similarities to securities. The aim was to strike a balance to ensure that regulation works to encourage innovation and not impede it.
From the release document, it is clear that the regulators are attempting to strike a delicate balance between safeguarding people’s investments and encouraging innovation. For ICOs, the committee held that “the use 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 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.”