Client updates /  Foreign Investments

The Israel Securities Authority published a position statement recently addressing various issues pertaining to brokerage activities and offerings of joint investment arrangements, including the applicability of the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law (“Advice Law”) and the Joint Investment Trust Law to these activities.

The Supreme Court noted that, by its nature, the essence of a brokerage transaction is joining two parties into one transaction. Therefore, treating the transaction as providing a service to each party separately—a foreign resident and an Israeli resident—does not reflect the true economic essence of the service.

It is surprising to realize Israel does not have a general regulatory binding framework for the approval of such transactions as they pertain to national security, like CFIUS in the United States, the recent UK National Security and Investment Act 2021, or similar bodies in developed countries. As a result, there are no broad cross-sector consolidated controls on foreign investments.

The Israel Securities Authority’s (ISA) new draft amendment to the general permit to offer foreign brokerage services in Israel proposes to obligate permit holders to supervise the activities of marketers on their behalf. For example, permit holders must carry out due diligence examinations of marketers.

In October 2019, Israel’s Ministerial Committee on National Security Affairs (the National Security Cabinet) decided to devise a mechanism for scrutinizing foreign investments in Israel. At the mechanism’s core is the “Advisory Board for Evaluating National Security Aspects of Foreign Investments.”