Recently, several cases of unlicensed investment management and consulting have made headlines. These include an instance where an administrative fine of NIS 130,000 was imposed for unlicensed investment management, and another case that led to an indictment. Such cases highlight the importance of understanding the legal rules and requirements in this field.
Accordingly, we have compiled ten questions and answers worth knowing about unlicensed investment management and consulting.
- Can I engage in investment management, consulting or marketing in Israel without a license? No. The law mandates that any individual or entity providing investment management, consulting, or marketing services must possess an appropriate license. Operating without such a license is considered a criminal offense.
- Are there cases where providing investment advice without a license is permitted? The law defines a limited number of exceptions such as: the provision of investment advice or portfolio management to a maximum of five clients during a calendar year; investment advice provided by a person on a one-time basis and not in the capacity of a professional occupation; or investment advice provided within a family or to close friends. These exceptions are very limited and do not cover commercial activities.
- Does operating a hedge fund require a license? Hedge funds are not obligated to obtain a portfolio management license, but they are subject to stringent statutory and supervisory requirements. Legal advice should be obtained before forming a hedge fund.
- What are the main criminal offenses involving investment management and consulting services? The law defines several criminal offenses involving investment management and consulting, with the most serious offense being engaging in investment consulting, marketing or portfolio management without a license when a license is compulsory. This offense carries a prison sentence of up to two years or a fine of up to approximately ILS 375,000 (the fine will be doubled if the offender is a corporation).
- How can the public ascertain whether a person is a licensed or unlicensed investment manager or consultant? Investment managers or consultants must hold a valid license to engage in investment management or consulting and must operate in compliance with the statutory rules. Licensing status may be checked on the Israel Securities Authority website.
- Do investment advertisements require a license? Yes. Any advertisements that solicit investments or make recommendations about financial assets could be classified as investment marketing or investment consulting. Any advertisement of investments must comply with the statutory requirements.
- Is every investment recommendation considered investment Consulting? The law defines investment consulting as providing advice on the feasibility of investing in, holding, buying, or selling securities or financial assets. However, as noted, one-time counselling or advice given to friends or family members is exempt.
- Can the offering of investment advice on social networks be considered investment consulting? Absolutely. Offering investment advice on social networks, such as which stock to buy or when to buy it, could constitute a violation of the law. However, under particular conditions, investment advice may be offered via communications on media accessible by the general public even by anyone not holding a license, provided that the post includes a declaration as to whether or not the person offering the advice has a personal interest in the matter, and a declaration that the advice does not constitute a substitute for obtaining professional advice that takes each person’s particular circumstances and needs into account.
- How are investment management and consulting activities supervised in Israel?The Israel Securities Authority oversees investment management and consulting activities in Israel. The ISA is authorized to perform audits, demand documents and information, impose fines on offenders and to conduct criminal investigations. The ISA’s supervision is designed to ensure lawful trading in the capital market and consumer protection.
- Does the Israeli Securities Law allow trading platforms and/or systems to offer trading services without a license? The Securities Law prohibits trading platforms and/or systems from offering services without a suitable license. This means that no person may solicit Israeli citizens to open accounts on trading platforms without a license in Israel. Indictments have been filed against foreign trading platforms who marketed their services to Israelis without a license in Israel.
***