The Israel Securities Authority (ISA) has big plans to make the country’s fintech space more safe and sound. In the beginning, it’s going to hold its first ever hackathon next month.
In the hackathon, the Israel Securities Authority is looking for blockchain-based solutions that can improve the infrastructure that helps securities and sovereign debt markets in Israel work better, and they want to find them. People from companies like VMware, Digital Asset, and Algorand will help run the hackathon in person in Tel Aviv on March 24, 2022.
The hackathon will be led by QEDIT, a privacy tech provider and a World Economic Forum (WEF) Technology Pioneer. QEDIT wants to help teams find and fill in gaps in privacy compliance and regulation during the event.
It’s a part of a bigger plan for the ISA to work with professionals in the field of fintech innovation, but also to start collecting the knowledge and power needed to regulate the whole field. The blockchain hackathon is one part of that plan.
Guetta has been the chairwoman of the ISA since 2018. She is an economist and a banker who has worked for many years. In 2020, Guetta said that distributed ledger technology could change the way Israel’s capital markets work.
We asked Guetta about the ISA’s plans for the hackathon and Israel’s long-term goals for regulating crypto, and he told us.
Why is Israel’s securities regulator hosting a blockchain hackathon?
Guetta: As the main regulator of fintech in Israel, the ISA is in charge of a hackathon. This is just one of the things the ISA does as part of this job. The main goal of the hackathon is to make it easier for people to move technology from a development environment to applications that can be used in a real-world setting. This could raise a number of technological, business, and regulatory issues. Because of the steps taken by the ISA, we hope to add new technologies to Israel’s capital market infrastructure. We also believe that the steps will encourage other regulators in the country to support new technologies.
We also hope that the hackathon will help people in Israel’s financial system work together more effectively and in a high-quality way. People from the ISA, developers, technology companies, and academics will meet at the hackathon to talk about how they can help each other. Bringing together the teams of these technology providers will give regulators and other stakeholders a chance to learn more about global fintech developments in more depth. This is also the first time that Israeli regulators have organized a hackathon that is focused on fintech, like this one.
How does this hackathon fit into the ISA’s broader plans for crypto?
The first thing I have to say is that regulators are behind when it comes to new technology. It has always been true, and it will always be true. To put it another way: We’re not so far along, and we don’t like taking risks like the industry likes to. We are here to keep things in balance and to keep an eye on things.
Our view is that crypto and the blockchain are two separate things. We think blockchain technology has a lot of promise. In Israel, we are looking into how crypto activity should be regulated in the same way that it should be regulated in other parts of the world, just like it should be in other parts of the world.
What blockchain-based fintech solutions will be the focus of this hackathon?
The first thing that the hackathon will look into is how securities and government bonds are made. Different types of assets, like stocks and bonds, have different rules for how they can be bought and sold. Brokers, for example, may be involved in the process. It means that the people who make an asset usually don’t have a direct way to get in touch with investors and buyers, which makes things more complicated. This experiment will show us how to use blockchain in new ways to lead the issuances of securities and the government in the future.
How does Israel’s approach to regulating blockchain and crypto compare to other jurisdictions?
The ISA is part of the IOSCO group, which is the group for securities regulators from all over the world. It’s part of the main groups that work on blockchain and crypto. Israel is not the biggest country in the world, but because we are a small and smart country, we don’t have to start over every time we need to do something about it. When I think about how Israel should act, I think they should be “passporting.” It means that we would accept a company that has a license from a regulator that is approved by the ISA if it has one now. It’s my opinion that we’ll have to keep up with regulatory changes around the world and learn how to adapt the rules for Israel, so we can keep up with what’s going on.
Looking beyond the hackathon, what should be the most urgent focus of a regulator in establishing oversight in the blockchain space?
Finally, our goal is to get the power that we need to supervise and build up this new market for people to join. We know that regulation, like many other things, is the license to do business. The people who make, create, or market blockchains need rules to make sure they know what is allowed.
See the stats? See, most blockchain companies are not based in Israel, and we don’t see them here. They prefer to do business outside of Israel. The economy and our country are going to lose them, I think, because they don’t like us. The laws we need to follow in order to get them back are very specific and clear. And we should make it possible for them to work legally and legally from Israel in a way that is acceptable to us. So, our main goal is to get the right powers so that we can do this.
How do you see the ISA regulating the crypto space?
I think that crypto needs a comprehensive regulatory framework in Israel that will cover the whole industry from start to finish. We’re paying very close attention to what the United States and its Securities and Exchange Commission (SEC) are up to.
Trying to find small differences between different types of crypto assets is a mistake, I think. Think that crypto as a whole should be looked at by the government. Otherwise, technology will be smarter than us and we won’t be able to keep up with it. They didn’t notice when the initial coin offering craze began in early 2018. You can now get complicated crypto that isn’t a security, like stable coins or utility coins. We should use a very broad definition of crypto and let the government keep an eye on it. Here, I think we should go.
This is not very clear: There are a lot of differences between securities and crypto. We can’t always figure them out with our legal tools. Ultimately, I think that regulators should accept crypto as a security, no matter how it is formatted, without going into too much detail about how it is made. There is no way for us to protect investors and consumers from the crypto phenomenon in the way that they should be protected. The public is out in the open. Chances to make money are also going away because we don’t know what is eligible and what is not. As a goal, this is what we should want to achieve.
In January 2021, a company called Kirobo tried to prove that they were issuing a utility coin but the ISA ruled it was a security. Is this what you mean?
As long as there are more than 14,000 different crypto tokens and we can print one almost instantly, we can’t use the resources we were given to protect investors to look into each case. My opinion is that we should have a lot of responsibility for this new industry from start to finish. This is the only way to close the gaps between where we should stand and protect our public and where we are now.
When you said crypto assets should broadly be considered as securities, did you also mean cryptocurrencies like bitcoin as well?
In general, I don’t think bitcoin is any different from any other thing. When bitcoin was first made in 2009, it was a very small thing. It took a long time for it to become what it is today. Cryptocurrencies that are used today are on the same path. Because bitcoin is not a security today, the ISA will have to get the right rights and legislation to give us the powers that we need that we don’t have now, which is why I don’t separate them.
There is no real difference between crypto and securities, and we need to figure that out so that people and investors can be safe and this industry can be legit, too.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.