Israel Securities Authority Regulates Online Advertising: Mutual Funds, Likes, Influencers, and Everything in Between

The Israel Securities Authority published a new staff position recently on the regulation of advertising in digital space (including on social networks), focusing on advertising relating to mutual funds. The staff position seeks to bridge the gap between the law and the dynamic reality in today’s digital age, and focuses on regulating ongoing online activities and activities with external parties.

Section 73 of the Joint Investment Trust Law currently prescribes that “any advertisement relating to a fund” must be approved in advance by the trustee, but these provisions became outdated long ago, considering the fact that nowadays any post can essentially become an advertising campaign.

In its position, the ISA delineates clear boundaries for fund managers and marketing entities: digital space is not a regulation-free zone and any publicity, even if short, indirect, or interactive, may be deemed “advertising relating to a fund,” subject to full statutory compliance. This means that fund managers’ responses to or interactions with online content will be deemed “advertising” and therefore subject to regulatory compliance. This also applies to any fund’s paid third-party content. The ISA’s objectives are to prevent “influencers or commercial partners” from publicizing erroneous or misleading data and to ensure that any content perceived as promoting a fund complies with the strict advertising rules prescribed by law.

Fund managers are responsible for ensuring that third parties comply with the law’s advertising rules.

Fund Managers’ Responsibilities for Paid Third-party Content

The ISA staff position refers to content relating to a fund publicized by external parties, such as index providers, consultants, or online influencers, and states that whenever external parties receive direct or indirect financial consideration for content pertaining to a fund, the statutory provisions will apply to such content as if publicized by the fund manager itself. The significance is clear: fund managers are responsible for ensuring that these third parties comply with the law’s advertising rules.

However, the ISA clarifies that general data on an index provider’s website not relating to any specific fund will not be deemed “advertising relating to that fund.”

“Likes,” Shares, and Tags Are Deemed “advertising” for All Intents and Purposes

Among the most prominent innovations in the ISA’s position are the expanded definition of the term “advertising” and regulation of the status of interactive tools on social networks, what we all know as “likes” and other sentiment buttons, tags, content-sharing, etc. The ISA clarifies that the definition of “advertising” is intentionally broad and encompasses all of these means.

The ISA explains that since fund managers’ reactions to third-party content might give the impression that such content is correct or acceptable to them, fund managers that respond using sentiment buttons, even though they did not create the original content, could be deemed as if they publicized “advertising” that is subject to all of the statutory obligations.

Furthermore, text responses to third-party content are perceived as “separate and independent advertising,” which will be examined on their own merits and according to the context of the original content.

Streamlining of Work Processes: “Rigid Advertising Templates”

The staff position also proposes a new mechanism of “rigid advertising templates” with the objective of enabling fund managers to participate in the online discourse and respond in real time, without requiring the trustee’s approval for every individual posting.

The idea is simple, but compulsory: formulate meticulous procedures and pre-approved operating principles to create a “green track” for routine online activities. Fund managers that implement this correctly will be able to enjoy operational flexibility with less bureaucracy (posts will no longer be subject to individual scrutiny) and a higher digital presence, while still complying with the regulatory restrictions.

Summary: Recommended Best Practices Going Forward

In its position, the ISA acknowledges the need to adapt regulations to today’s advertising methods, but emphasizes that digital space is not exempt from the obligations of due disclosure and caution. Since this position is essentially an updated roadmap for regulatory-compliant online activities, we recommend the following best practices for fund managers and marketing entities:

1. Refresh internal work procedures and implement clear rules of conduct on online networks.
2. Redefine the boundaries of permitted activities, including frameworks for comments, shares and “likes.”
3. Ensure that agreements with influencers and all other external marketing entities include explicit covenants to comply with the provisions of Section 73 and the ISA’s advertising rules.
4. Consider adopting advertising templates, especially in organizations with a high digital presence.

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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 its field in Israel. The department’s team provides comprehensive legal advice on a variety of regulations applicable to clients’ business activities. Local and international corporations, investment funds, financial entities, technology companies, industrial companies, and more consider us the go-to law firm to help them contend with the complexities of constantly evolving regulations.