The Open Skies Reform in the Capital Market
Address of ISA Chairwoman Anat Guetta at the 2020 Securities Conference
Good morning to all our guests!
I would like to thank you all for joining us at this significate event.
I especially would like to thank Commissioner Robert Jackson for coming to Israel especially to participate in our event. We are very excited to hear from him about the challenges that the SEC is facing.
This year we are devoting the conference to the future of the capital market — and hope to lay the cornerstone for the capital market that we will be seeing in the coming years, which will, in effect, be a completely new capital market.
A regulator’s job is to outline the course for the future, and to establish a regulatory foundation that makes it possible for the market to grow and develop. A developed market gives citizens, consumers, and investors much more value than a market that is stuck or fails to move forward because it is fearful of changes that are necessary for its natural, effective growth.
Let me start from the end!
I would like to say to the institutional investors who manage the public’s money, the public’s pension savings: Miami is here! Investing in housing complexes overseas is very nice but for at least the next few decades, the real potential for investment will continue to be our own Israeli technology industry.
Foreign institutional investors understand this point very well and it’s time for our own institutional investors to understand that, too — and not only for their nostro portfolios. After all, if it’s good for their own portfolios, it’s also good for savers.
There’s a new axiom going around – customers’ data belong to the customers.
Information is not the company’s property.
Information is now the most valuable commodity there is in our new world.
That’s the reason that people in London are talking in terms of the vision of open finance.
Similarly, to the Open Skies reform in Israel, which created a profound change in the airline market, open finance is also disrupting the old world and creating a new world.
That is what Israel also aspires to do.
I am setting this as our goal, and intend to mobilize all the other financial regulators, because together we are responsible for protecting the public’s interests. The government has and will continue to have an extremely important role in shaping the future capital market.
The question is whether we, the high-tech nation, will lead this trend or lag behind?
Giving the financial regulators’ flexibility will make it possible to adopt new technologies to retain the market’s vigor and to place it in the front line with the world’s leading, most advanced capital markets.
Under my leadership, the ISA is committed to supporting innovation that increases access, efficiency, and competitiveness of the capital market.
So how are we doing this?
At the ISA, we are studying, and implementing.
We are developing expertise in the technological world to be able to understand the risks and to identify which barriers should be removed and how.
We have been promoting several initiatives:
1. We established an internal advisory committee on technology and the capital market. The members of this committee are highly experienced entrepreneurs, technology developers, and managers from the world of venture capital, the high-tech industry, and the academia. Among other tasks, the committee studies how best to connect the local high-tech industry to the capital market for the benefit of the investment portfolios of all Israelis. Mr. Shlomo Dovrat, a member of this committee, will be participating in the panel today and tell you more about the committee’s work.
2. We set up an innovation hub in order to hear first-hand from the entrepreneurs and developers themselves about the latest technologies and the challenges they pose. I am very happy to say that many entrepreneurs have accepted our offer to be a part of this process, and I would like to use the occasion of this conference to invite others to join us in shaping Israel’s capital market — our door is open to you.
3. We are part of the global FinTech community. We are committed to opening the local capital market to the world. To this end we joined GFIN, an international network of financial regulators and organizations including the IMF and the World Bank, which is working to promote financial innovation.
4. We are learning to “speak technology” so that we can communicate effectively with the entrepreneurs and developers in the field, and establish solid ties with them.
5. We are also investing in the technology that we ourselves are using. Our Investigations Department uses the most advanced technological means available today and we are constantly incorporating new technological systems that increase the efficiency of our investigations and enforcement actions. You will hear more about this from Mr. Lavi Ovnat, head of the ISA’s Investigations Department.
6. We are also the first regulatory agency in Israel — and one of the first in the world — to adopt DLT technology in its core systems, the systems that are used to provide services to the public. In this short clip, Mr. Nathan Hershkovitz, head of our Information Systems Department, will give you a taste of the revolution that he is currently leading in the ISA.
7. Israel is a target for foreign investors from all over the world. Israel’s high-tech industry is a magnet for them. We decided to take a pro-active stance in connecting these investors to our tradable market in Israel.
Some tasks still remain if we are to truly attract foreign investors, such as making English-language reporting a default option, making Ixbrl the international reporting standard, and encouraging Israeli firms to voluntarily adopt international standards such as ESG reporting.
These are all important steps, but in order to realize this vision in full we also need to reshape the existing regulatory architecture and adapt it to technological innovations.
Several months ago, I established a committee to promote digital markets in Israel. Today, the committee is publishing its conclusions for the first time, together with an RFI that invites capital market players and technology firms to send us their comments on the ISA’s position.
The committee concluded that DLT technology has transformative potential for Israel’s capital market, and the ability to place it at the forefront of global technology.
We are now embarking on the stage of POC [proof of concept]. After this stage is concluded, we will create relevant regulation that will make it possible to introduce digital platforms in Israel’s capital market. The implication is that these platforms will provide a complete digital value chain for investors, from the underwriting stage to settlement and custodial services. Later today, Ms. Orly Koren, who headed the committee and is the deputy director of the Stock Exchange and Trading Platforms Supervision Department at the ISA, will elaborate on this topic.
I believe that Israel, one of the sites of development and dissemination of FinTech technologies, should and will be the harbinger of technological innovation in the financial markets. It is therefore important to first reap the benefits of these technologies here, at home. This is an enormous opportunity for success and a win-win situation for everyone involved.
So what do these new technologies mean for the individual citizen?
One implication, for example, is that anyone in Israel can open a digital account for remote trading in securities based on advanced technologies such as face recognition. They can set up a new account within a minute, at any time and from anywhere. Users can access digital investment advice for any investment amount, investment vehicle, or market, at any time and from anywhere – even from their bedroom, in their pajamas.
We are not waiting for the results of the upcoming elections – we have already set out on our course. Together with the Innovation Authority and the TASE, we created the data sandbox project. Fintech firms participating in this project receive our support and access to the information systems of the TASE and the ISA, and to information issued by regulated entities that wish to do so.
The Israeli market is a small one for Israeli FinTech firms that are setting their sights on global markets. So, to keep these Israeli firms here in Israel, at least in their beta-trial stage of development, we have to generate added value for them. In this new world – data is the new gold, as we are willing to give it to them. Ms. Yael Weiss, director of innovation at the ISA, will introduce the data sandbox program later today.
But not only will entrepreneurs and investors benefit from the adoption of new technology. We are currently promoting two additional projects that enhance access to financial services using technological means for large groups of the Israeli public.
We are taking steps to establish a retail broker in Israel based on a novel, digital platform that will make it simple and inexpensive to trade in securities and purchase and sell mutual funds. Today, the brokerage market in Israel is highly concentrated and entails high costs for retail consumers. This new initiative is designed to help the general public to benefit from direct access to technologically advanced, inexpensive trading services.
This move will expose the stock exchange to new players, and we will be working to remove any barriers necessary to drive competitiveness.
Alongside improvements in trading services for the public, we also initiated a new digital service — Portfolio Management 2.0 — that combines portfolio management and mutual fund investments. Portfolio Management 2.0 will give new groups access to investments in the capital market, especially individuals whose portfolios are typically too small to justify working with a traditional investment portfolio manager. This initiative is also designed to remove barriers in the portfolio management industry, so that investment managers might benefit from new distribution channels, creating virtually unlimited distribution opportunities, and allowing them to increase the returns earned by the portfolios under their management in the Portfolio Management 2.0 system. Mr. Dudu Lavie, director of the Investment Department, will explain it all in just 30 seconds.
We put efforts also to talk the language of technology. Perhaps you have you noticed that the ISA has recently been making waves in social media, and is extending the circle of individuals who consume ISA contents on social media. Would you like an example? Here is Ms. Hadar Horen, ISA spokesperson and head of financial education.
I will conclude with a forward-looking comment. Although we do not really know what the future will bring or precisely how the technological revolution will affect us, it is our responsibility not to hamper the revolution but rather to be its heralds. In this way, we can help the public, the industry, and Israel’s economy benefit.
The new technological innovations are already out there. We are studying, implementing, and actively moving to change the existing regulatory framework, and we promise that we will continue to place the capital market at the forefront of technological innovation. In my view, the goal of today’s conference is to connect us all to create a collective body of learning and significant collaboration. We are here to listen, to challenge you, and to be challenged, in order to embark on this new road to the future together.
I wish you a fruitful and enjoyable day.