Israel Securities Authority Clarifies When Advice Law Applies to Foreign Analyses of Israeli Companies
Summary
- ISA staff confirmed that activities of foreign research firms publishing “sponsored analyses” to investors abroad are not subject to the Israeli Advice Law. This determination provides certainty for foreign entities covering Israeli companies, provided they carry out and distribute the activity exclusively outside Israel.
- The ISA’s position is that the Advice Law applies solely to activities carried out in Israel or actively targeted at Israeli clients. The connection to Israel weakens significantly when analyses are written and distributed in a foreign language abroad, even if the relevant company is traded on the Tel Aviv Stock Exchange.
- Non-applicability of the Advice Law is contingent upon no distribution or solicitation in Israel, use of a foreign language only (and no Hebrew translation), and full disclosure of compensation. Foreign entities must clarify that the reports are not intended for investors in Israel and perform periodic monitoring to ensure detachment from the Israeli market.
- This position allows public companies to boost liquidity and attract interest from foreign investors through international research firms. Deviation from these conditions, such as distributing securities analyses in Israel, may trigger application of the Advice Law and expose the parties to regulatory sanctions.
Securities Analyses as Investment Advice
The request for clarification was submitted by a US-based research firm seeking to provide analyses to public companies in Israel for a fixed fee. As a rule, analysis reports constitute an expression of opinion and a recommendation regarding the profitability of investing in securities. Therefore, they qualify as “investment advice” under the law.
The Advice Law stipulates, as a rule (apart from exceptions), that engaging in investment advice requires a license. The law further stipulates that licensees may only receive fees and reimbursements of expenses from their clients, so receiving compensation from a covered company is generally not permitted. An exception permits payment for analysis reports, provided they are carried out in compliance with the ISA’s stringent conditions, designed to ensure objectivity and prevent bias in reports.
Principle of Territorial Applicability
In its latest position, the ISA reiterates its stance and reaffirms its working assumption regarding the territorial applicability of the Advice Law. According to this principle, the Advice Law applies to activity carried out in Israel, especially when actively targeted at Israeli customers (for example, using Hebrew or soliciting Israeli clients).
The ISA determined that when analyses are prepared and distributed exclusively outside Israel, by foreign analysts and in a foreign language, the connection to Israel significantly lessens. In these circumstances, the activity is not subject to regulation under the Israeli Advice Law but to foreign law in the country of origin. The ISA recognizes that such activity may contribute to the development of trading on the TASE by exposing Israeli companies to foreign investors.
Conditions for Non-Application of the Advice Law
To ensure activity is not considered directed at Israel and thus not subject to the Advice Law, the ISA has set several cumulative conditions:
- Prohibition of distribution and solicitation in Israel: The foreign entity must publicize its analyses solely outside Israel, avoiding active distribution in Israel or solicitation of Israeli customers.
- Foreign language only: Analyses may not be written in or translated into Hebrew.
- Disclosure obligations: The foreign entity must clarify in every engagement that its reports are not intended for distribution to the investing public in Israel, and disclose any compensation received from the covered company.
- Control mechanisms: The foreign entity must perform periodic monitoring to ensure its analyses are not actively reaching investors in Israel.
The ISA’s position provides certainty to public companies seeking to expand their circle of foreign investors and encourage share liquidity. It allows them to use the analytics services of international research firms without concern for the applicability of the Israeli Advice Law.
However, it is important to keep in mind that the Advice Law remains applicable to any activity targeting Israeli customers. Deviations from the ISA’s conditions, such as translating an analysis into Hebrew or distributing it on Israeli information platforms, may trigger application of the Advice Law and expose the parties to sanctions.
***
Adv. Andrey Yanai is a partner in our firm’s Regulation Department.
Adv. Avihai Tal is an associate in our firm’s Regulation Department.
Barnea Jaffa Lande’s Regulation Department is one of the leading practices in Israel. The team provides comprehensive advice across a range of regulatory areas relevant to our clients’ business activities. We support local and international corporations, investment funds, financial institutions, technology companies, industrial firms, and more in contending with complex and evolving regulation.