ISA Publishes Directive Regulating One-Off Advisory Services and Alternative Assets

The Israel Securities Authority (ISA) has published a new draft directive for public comments that will comprehensively regulate the activities of licensed investment advisors and marketers when providing one-off services and services in relation to alternative assets. The purpose of the directive is to reduce information asymmetries and mitigate potential conflicts of interest identified during ISA audits that, in some instances, even resulted in enforcement proceedings. The public may submit comments until May 29, 2026.

Highlights: Alternative Investments & Fiduciary Duty

The directive focuses on two types of services with unique characteristics: (1) a one-off service – which does not include ongoing guidance and ends upon the provision of a recommendation or the execution of a transaction; and (2) a service provided in relation to alternative assets – collective investment schemes that are not offered to the public in Israel or abroad pursuant to a prospectus or similar offering memorandum that has been lawfully approved—or in relation to securities that are not listed for trading on a stock exchange in Israel or abroad or on a regulated market outside Israel.

The ISA notes that in both cases there is a higher likelihood that customers will not receive services tailored to their needs, and that the licensee’s obligations may be overshadowed by the “sales-driven” nature of the service. The directive seeks to clarify how licensees must fulfill their fiduciary duties and duty of care in these circumstances.

New Obligations When Providing Services in Relation to Alternative Assets

The draft directive prescribes several cumulative conditions for providing services in relation to alternative assets:

• The services must be provided for a variety of assets and not solely for a single asset.
• Licensees must conduct thorough and up-to-date due diligence examinations (Know Your Product), including, inter alia, an examination of the asset’s structure, regulatory status, investment policy, tax exposures, return components, leverage and collateral, costs, liquidity and exit options, and the quality of the management entities.
• Licensees must supply customers with the private placement memorandum (translated into Hebrew); record and document every interaction with customers – before, during, and after the provision of services – for a period of seven years; and continue to monitor the asset and inform customers of material changes for as long as the services continue.

New Obligations When Providing One-Off Services

The draft directive obligates licensees to clearly explain the differences between the services they provide, so that customers can readily understand what type of service they are receiving. Licensees will conduct needs assessments in accordance with the existing directive and the characteristics of the one-off service.

Licensees must also provide oral and written disclosures about their services:

• They are limited to providing one or a few recommendations on a one-off basis.
• They do not include periodic updates of each customer’s needs.
• They do not include ongoing monitoring of investment portfolios or the investment in the asset.
• Customers are responsible for monitoring their own investments.

The ISA clarifies that a one-time transaction performed for a customer receiving ongoing services will be deemed part of the ongoing service and will not be included under the category of one-off services.

New Obligations Regarding Internal Controls and Risk Management

The draft directive obligates licensees to establish an internal control system to monitor compliance with the requirements and to identify key risks, including that customers do not understand the nature of the service, are unaware that the service is not customized to their needs, and that licensees use external entities or unlicensed employees to refer clients.

The ISA also obligates licensees to establish a specific procedure regulating the provision of service and a procedure regulating licensees’ engagements with referring entities to ensure such referrals are not tantamount to investment advice or marketing pursuant to the law.

Practical Implications

Entities engaging in investment advice and marketing – particularly those active in the fields of alternative assets, venture capital funds, real estate funds, and private investment platforms – should prepare to comply with these new obligations.

The new directive will come into effect three months after the date of its final publication. Licensees providing ongoing service in relation to alternative assets offered prior to the publication of the directive will be granted an extended preparatory period of twelve months.

This new ISA draft directive reflects a clear trend of strengthening consumer-protection obligations imposed on licensees, particularly in situations involving significant information gaps between the service provider and the customer. We recommend that licensees providing services in relation to alternative assets or one-off services begin preparing for the new directive by reviewing their existing agreements, processes, documentation, and internal control systems. We also recommend they consider submitting comments before the May 29 deadline.

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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.