Exclusive: ISA Considering Regulating ICOs – Complete Ban an Option

Are we approaching the end of the era of ICOs in Israel? The Israeli Security Authority (ISA) is contemplating on the future of the cryptocurrency industry and all options are on the table. According to sources in the industry, the ISA is considering regulating the initial coin offerings (ICOs).

Among the considered possibilities is a full ban on ICO activity within the jurisdiction. Such a move would be extremely noteworthy given it would place Israel on a short-list of countries such as China that have opted for a full cessation of ICOs. While extreme, the move would certainly go a long way in helping sharpen ISA’s regulatory teeth.

On a slight lighter note, ISA is looking into ways to preserve this innovative practice, but to enforce strict regulations on the ICO process, with special emphasis on KYC rules and marketing restrictions.

Another plan considered by the Israeli watchdog is defining all cryptocurrencies (including tokens issued by initial coin offerings) as a form of security, thus forcing all involved – traders, exchanges, etc – to comply with the rules and regulations set by the authority with respect to securities.

The sources claim that this initiative was raised during a set of meetings held by the ISA over the last two weeks, in which key figures in the industry, along with prominent Israeli CPAs and lawyers specializing in the field of securities and cryptocurrencies were invited to express their thoughts on regulatory initiatives.

One of those industry players is the crypto-entrepreneur Moshe Hogeg, who recently met with the Israeli Finance Minister Moshe Kahlon to discuss the government attitude towards cryptocurrencies. Mr. Hogeg is no stranger to cryptocurrencies or token sales, having solidified himself as one of the most prominent investors behind Israeli ICOs. He has consistently invested in startups including Kik, Mobli, Sirin, and others.

Another governmental body involved in these discussions is the Israel Tax Authority, eyeing to tax this prosperous new practice. These meetings were conducted by a special ISA committee, which Mr. Hogeg is said to be a part of, that was established last August with the intention of defining the nature of ICOs and whether they should be regulated as a form of security. The Committee is expected to publish its decisions during December 2017, raising the tension among industry leaders to a new level.

An attempt to atone

This extreme approach demonstrates the generally severe attitude towards ICOs and cryptocurrencies of the ISA and its chief Prof. Shmuel Hauser. In the founding document of the aforementioned committee, ISA stated: “In some of the ICOs we saw cases of manipulations and scams in trading that hurt innocent investors and entrepreneurs.” Hauser was recently quoted saying that he wants to make sure that ICOs do not become the new binary options.  However, he denied the rumors that he plans to ban the ICO industry altogether.

Such statements may reflect on the governments’ lack of understanding of the repercussions of placing the crypto industry with its back against the wall. Some industry members even claim that this initiative is the ISAs way to atone its treatment of the Binary Options industry. The Israeli watchdog faced a fierce criticism on its relatively soft hand with regards to the Binary industry, and an equally fierce criticism once this soft hand turned into an iron fist that banned all Binary activity altogether.

Such a strong crackdown on the ICO industry may be dramatic in regard to the local crypto ecosystem and even the entire thriving hi-tech industry of the startup nation. Israel is home to some of the more successful ICOs, such as Bancor (which raised $140 million in less than three hours), as well as countless blockchain startups and cutting edge blockchain hubs and accelerators, such as The Floor and Alignment.

Other regulators have expressed their intention to define cryptocurrencies and tokens as securities and to regulate them accordingly. For instance, the New Zealand watchdog stated in October: “All tokens or cryptocurrencies are securities under the FMC Act – even those that are not financial products. A security is any arrangement or facility that has, or is intended to have, the effect of a person making an investment or managing a financial risk.”

The ISA refused to comment on the content of this article.

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