Israeli Regulators Request Feedback to Foster Blockchain Innovation

The Israeli Securities Authority (ISA) has issued a Jan. 20 Request For Information to identify potential regulations that prevent the development of blockchain-based ventures in the country. In addition, the regulator seeks to find out the practical applications of Distributed Ledger Technology (DLT).

As Israel’s financial watchdog, the ISA formed a committee to promote the development of the blockchain industry in the country. The regulator focused on platforms that issue and trade blockchain-based securities and their properties, including the use of tokens and smart contracts.

This initiative builds from the work of an earlier committee that studied the risks posed by initial coin offerings in early 2019. At the time, they identified the need for regulatory adjustments to create proper infrastructure for security tokens.

Potential for and risks of DLT

The regulator emphasized that DLT “has the potential to promote the Israeli capital market.”

Specifically, it may reduce trading costs and systemic risks to the economy, in addition to better access to capital markets for Small-Medium Enterprises (SME).

The committee did not identify significant risks to blockchain technology, beyond the general cautiousness warranted for any new technology. As long as the specific platform fulfills regulatory aims such as anti-money laundering and financial stability, the regulator has said it will maintain a technology-neutral approach.

At the same time, the ISA expressed interest in studying practical applications of blockchain technology. It noted that most of the benefits attributed to DLT “are for the most part theoretical,” primarily due to their early stage of adoption.

Request for information

The regulator posed several questions to the public to improve blockchain’s regulatory standing in the country. Development of capital markets is a primary concern, with the ISA directly asking for provisions that “impede the development of a digital market in Israel.” The committee also asked for information on additional risks and use cases specific to the trading of DLT-based securities.

The ISA also invited entrepreneurs to present proofs of concept of features that would ease the development of digital exchanges in the spheres of custody, legal documentation and others.

The initiative appears to be an attempt to streamline the development of blockchain startups, especially exchanges. Despite recording impressive growth in the sector, the Israeli government is often criticized for hindering innovation in the country.