Yesterday, the Knesset (Israel’s parliament) ratified an amendment to the Securities Law that paves the way for Israel’s integration into the IOSCO (International Organization of Securities Commissions) multilateral cooperation agreement with foreign securities authorities.
In the international arena there is a growing trend towards formalizing international cooperation in enforcing securities laws. The Israel Securities Authority (ISA) attaches great importance on Israel’s full integration in the global network of securities regulation and enforcement, including Israel’s membership in the select circle of countries whose securities commissions are party to the IOSCO Multilateral Memorandum of Understanding (MMoU) on international cooperation, the key multilateral agreement in the field of securities regulation. Some 30 commissions representing leading capital markets such as those of the United States, Canada, Britain, France, Germany and Australia are currently signatories to this agreement, while others, like Israel’s ISA are currently in the process of attaining full signatory status.
The enhancement of understanding and cooperation between the ISA and commissions charged with securities supervision and enforcement abroad will make securities regulation more effective and improve protection of Israel’s investing public and will augment market integrity and alignment with norms governing global financial markets.
Israel’s membership to the MMoU is contingent primarily on increasing the ISA’s legal authority to respond to requests for assistance submitted by foreign authorities, and to adjust certain aspects of its securities legislation to conform with international standards. Within the framework of the interaction between IOSCO and the ISA’s Department of International Affairs, Israel has made significant progress towards becoming a signatory to the MMoU. However, two key legal matters remained problematic that necessitated the amendment to Israel’s Securities Law.
Until now, the Securities Law has stipulated that a condition for extending assistance to a foreign regulator was that the matter for which assistance was sought was defined as apt to be a matter for a criminal investigation under the Israeli securities law. In contrast, the condition for joining the IOSCO MMoU is that a request for assistance from a signatory will be granted even if the subject matter is not specifically designated as a securities violation in the country receiving the request, or even a violation of any local law.
Another barrier to IOSCO MMoU membership pertains to the transfer of information by the ISA to a third party. According to Israeli law, the ISA can be required to divulge information to a third party, even if the information that was provided by a foreign securities commission or gathered or generated by the ISA in response to a request for assistance initiated by a foreign authority is confidential. IOSCO views these kind of provisions as a breach of confidentiality. For example, the blanket requirement to divulge information upon demand to the Tax Authority prevents the ISA from entering cooperation agreements with its counterparts in key countries such as Germany and France. In a number of countries, information derived from a foreign authority or generated as a result of a request by a foreign authority, is granted special status and its transfer to parties other than that country’s securities commission without the permission of the requesting authority is protected.
The amendment ratified by the Knesset has removed these two main barriers to ability of the ISA to enter into cooperation agreements with foreign authorities and to its membership in the IOSCO MMoU. It paves the way for the ISA to join the international community of securities regulatory and enforcement agencies.