In light of the meteoric rise in the value of the Bitcoin and the storm generated by the digital currency in the financial world, the Securities Authority is examining three models – the Swiss model, the mass financing model, or the existing model – for the regulation of Initial Currency Offering (ICO) in Israel. According to estimates, there is a preference for a model for mass financing.
ICO is actually a method of raising capital by creating a new digital currency. The participants buy the new currency using an existing digital currency, which the issuing company can convert to another digital currency as well as to ordinary currencies such as the dollar. This method is gaining momentum. To date, $ 1.9 billion have been raised this year, with $62 million raised in 2016.
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Soft taxation regime
In most cases, these are issues in which large sums are raised in a short period of time. For example, Israeli company Bancor raised $ 153 million in Switzerland in just three hours.
Israeli companies do not carry out ICOs in Israel, but rather prefer tax considerations to carry out such issues by establishing a subsidiary abroad in a country with a softer tax regime.
In addition, recruitment in Israel is currently facing stiff restrictions that are also exposed to companies that issue real shares.
Therefore, ICO implementation in countries where there is a special framework for such issuances may be more convenient.
An example of a rigid limitation is the inability to recruit in Israel with over 35 investors, which led to the fact that, with the exception of one Israeli company, all the Israeli companies originally carried out by ICO did so outside of Israel.
Last summer, the ISA set up a special committee to examine the matter. The committee members met with law firms and with many consultants to study the field. The first model examined is actually the existing model. In other words, the PA is examining whether to fix the existing situation.
In the current model, which is based on the American model, each ICO is examined separately. If the legal interpretation of the issuing company refers to the issuance of the currency as a security then it is the same as an IPO. In such a case, all the rules applying to companies issuing shares on the stock exchange, including the filing of a detailed prospectus, will apply to the issue.
The second model is the Swiss model. According to this model, there is special legislation for companies that issue digital coins – regardless of whether the currency itself is issued or not, and if the currency allows only a purchase of a service or product, then it is not considered securities, subject to additional criteria. If the issued currency confers rights, such as voting rights, it is considered securities, but Swiss legislation in general ignores the question of whether the issued currency is securities or not, but simply refers to raising capital through the issue of any digital currency.
“Protects the public more”
The third model is the fundraising model. The model includes raising funds from the public while limiting the total amount and limiting the amount of investment by each investor. The issue of the digital currency is considered a security issue, according to Shaul Aderet of the law firm of Shablat, head of Blockchine and smart contracts, “In this model, a much smaller prospectus should be submitted. Protecting the public and on the other hand greater freedom for the issuing company in terms of compliance with regulation, preparation of a much smaller prospectus. According to him, “the spirit of the Securities Authority is now blowing towards a model of mass financing.”
The Securities Authority did not comment on the matter.
By Reut Shpigelman, Calcalist