Israel Securities Authority Publishes Second Draft Directive Regulating One-Off Services and Restricted Assets

From the First Draft to the Second Draft

At the end of April 2026, the Israel Securities Authority (ISA) published a first draft of a directive governing the activities of licensed investment advisors and marketers when providing one-off services and services relating to assets that are neither offered to the public pursuant to a prospectus nor listed for trading. (See our previous update.) The ISA received numerous comments during the consultation period, including from investment houses, institutional entities, and professional associations. The ISA has now published an updated version of the directive, together with a regulatory impact assessment and a document responding to the public comments on the first draft.

What Changed in the Second Draft?

• Replacement of “alternative asset” with “restricted asset” and clarification of the directive’s application to qualified customers

The second draft replaces the term “alternative asset” with “restricted asset.” This term refers to assets that are not offered to the public pursuant to a prospectus or another approved offering document, and that are not listed for trading. These include partnerships, private investment funds, such as hedge funds and private equity funds, partnerships for which a prospectus has been published, and structured products.

The second draft also adds a section that explicitly specifies which provisions do not apply to qualified customers. It distinguishes between provisions concerning suitability for customers, which do not apply to qualified customers, and obligations arising from the duty of care, such as familiarity with the asset, which continue to apply.

• Examination of “investment alternatives” instead of a “variety of assets”

The obligation to provide services in relation to a “variety of assets” is replaced by an obligation to examine relevant “investment alternatives,” including at least one additional asset, whether restricted or not. According to the ISA, this does not preclude specialization in a particular niche or recommendations relating to a single asset, provided that the recommendation results from a professional process rather than serving as its starting point.

• Due diligence (know your product)

Regarding the “know your product” obligation, the second draft clarifies that a reasonable professional review, commensurate with the asset’s characteristics, is required. The review may rely on information and assessments provided by professional entities, but the licensee remains responsible. At the same time, the draft expands the scope of the review to include material conflicts of interest, transaction fees, early redemption fees, and redemption and suspension mechanisms.

• Investment summary in Hebrew instead of translating the entire PPM

The second draft replaces the obligation to translate the entire private placement memorandum into Hebrew with the obligation to prepare an investment summary in Hebrew containing key information, such as the characteristics of the asset, the investment policy, costs, liquidity, and conflicts of interest.

The investment summary does not replace the original documents. If it is prepared by a third party, the licensee is responsible for ensuring that it faithfully reflects those documents.

• Elimination of the obligation to record interactions with customers and expansion of the obligation to oversee referring entities

The updated draft eliminates the obligation to record every interaction with customers but retains the statutory documentation obligations. However, the ISA recommends using recordings as a control tool.

The draft also requires licensees to take reasonable and effective measures to oversee referring entities, including through agreements containing restrictions, internal procedures, sample testing, and documentation of referring entities’ interactions with customers.

• The updating obligation is now limited to material negative information

The second draft replaces the ongoing monitoring obligation with a more focused obligation to inform all customers, including former customers, who received services in relation to an asset about material negative information that comes to the licensee’s attention. Customers may waive their right to receive updates, but such a waiver may not be given in advance as part of the engagement.

• The preparatory period has been extended to nine months

The directive will enter into force nine months after its publication in Reshumot, Israel’s official gazette, rather than three months after publication. With respect to restricted assets for which services were provided before that date, only the updating obligation will apply upon the expiry of 12 months.

Practical Implications for Licensees

The second draft reflects the ISA’s response to some of the market’s comments, particularly concerning burdensome operational requirements. However, the substantive framework of obligations has been retained and, in certain areas, expanded.

Licensees, particularly entities marketing private funds, structured products, and investment ventures, as well as entities that use referring entities, should assess the impact of the updated draft on their activities.

We also recommend reviewing the structure of arrangements with referring entities, oversight and control procedures, product review processes, the process for examining investment alternatives, and the information provided to customers.

Entities wishing to comment on the changes included in the second draft may submit comments to the ISA until October 13, 2026.

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Adv. Efrat Cohen is a partner and head of the firm’s Regulation Department.

Adv. Avihai Tal is an associate in the firm’s Regulation Department.

Barnea Jaffa Lande’s Regulation Department advises licensed investment advisors and marketers, investment houses, fund managers, and financial institutions on services involving restricted assets and private investments. Among other things, the department assesses the applicability of licensing and regulatory requirements, develops compliance, oversight, and control procedures, formalizes arrangements with referring entities, develops due diligence processes, examines investment alternatives, and prepares disclosure documents and information for clients. We also help clients manage their interactions with the ISA and implement regulatory changes in their operations.