Shibolet & Co. – Capital Markets and Financial Regulation | Israel | September 2026
The Israel Securities Authority (ISA) published recently for public comment a second draft directive to licensees under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995 (the Advice Law). The draft directive sets out how licensees are to perform their duties toward clients in two situations:
- where investment advice or investment marketing is provided on a one-time basis,
- and where it relates to “restricted assets”, meaning assets not offered to the public under a prospectus and not traded on a stock exchange or regulated market. In fact, restricted assets in this regard are alternative investments, which have become a very common investment in recent years.
What Does the Draft Directive Change?
The draft clarifies how licensees are to perform the duties that already apply to them under the Advice Law: to act solely in the client’s interest, to tailor the service to the client’s needs, and to ensure full transparency as to risks and costs. What is new is that, for the two situations the ISA regards as more problematic for clients’ interests, a specific standard is set out for the first time, in the form of defined procedures and parameters.
Why These Two Type of Services?
One-time service. Unlike an ongoing service, in which the licensee monitors the portfolio and adjusts it over time, a one-time service ends once the recommendation is given. The ISA identifies three risks: the client may not understand that the service will not continue; the service may not match the client’s needs; and, without an ongoing relationship, the service may take on the characteristics of a product sale rather than advice centered on the client’s interests.
Restricted (“alternative”) assets. The Advice Law applies to such assets whether or not they fall within the statutory definition of a “financial asset,” since its application depends also on the circumstances and substance of the service, as established in case law. The ISA attributes the risks to the nature of these assets: illiquidity, lack of transparency and oversight, valuation difficulties, and heightened exposure to operational failures and fraud.
Where a restricted asset is recommended on a one-time basis, the ISA regards the need for a tailored process as greatest.
Common Requirement: Suitability
In both situations, suitability is assessed before and during the service, taking into account the characteristics of both the asset and the service, including its cost. The licensee must explain these features simply and clearly and make best efforts to ensure the client understands them, including, for a one-time service, that the service is not ongoing. For restricted assets, the licensee must examine more closely whether the client is suited to the service, taking into account the client’s financial understanding, professional background and capital markets experience. This applies all the more where the service is one-time.
Services Relating to Restricted Assets
Consideration of alternatives. The ISA derives from the suitability duty a requirement that the recommendation result from a review of relevant investment alternatives, including at least one additional asset, whether restricted or not. The final recommendation may still relate to a single restricted asset, provided it suits the client.
Know your product. Familiarity with the product and its material risks is, in the ISA’s words, a precondition to providing any service in respect of it. Shortly before providing the service, the licensee must examine:
- Structure — legal form, regulatory status, investment policy, custody arrangements, tax exposure and return components, including the hurdle rate;
- Risks — leverage, collateral, and material conflicts of interest, including those arising from compensation arrangements, fundraising targets and business relationships;
- Total costs — direct and indirect, initial and ongoing, including any component affecting the client’s net return;
- Liquidity — lock-up periods, exit points, investment horizon, and redemption mechanisms, including gates and suspensions;
- Managers — the experience and reliability of the manufacturer, issuer, manager and sponsor, including their own participation in the investment and past events such as redemption suspensions.
Parameters that are inherently irrelevant to a given product, such as certain structured products, need not be examined, provided all material aspects have been.
Investment summary. In addition to the source documents, the licensee must provide the client with a summary in Hebrew covering the product’s key features, supervisory status, risk indicator, costs, liquidity and conflicts of interest. The summary does not replace the source documents, and where it is prepared by a third party, the licensee remains responsible for its accuracy. Its content resembles the EU Key Information Document (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs), but unlike the EU regime, where the manufacturer prepares the document, the draft directive places responsibility on the licensee.
Documentation. Every interaction with the client before, during and after the service must be documented in the best available manner, delivered to the client shortly thereafter, and kept retrievable for seven years.
Referral agents. A licensee working with parties that refer clients must exercise reasonable and effective oversight to ensure that referral activity does not amount to unlicensed investment advice or marketing, using tools such as contractual restrictions, internal procedures, sample checks and monitoring of the agents’ interactions with clients.
After the service. On termination of the engagement, the licensee must tell the client where to obtain current information about the investment and how to exit it. Where the licensee becomes aware of material negative information about the asset, it must promptly notify all clients who received services in respect of it, including one-time clients and clients whose ongoing service has ended. A client may opt out of such notifications only in writing, at its own initiative and at the time of notification, not in advance in the client agreement.
One-Time Service
A one-time service may not be provided to a client already receiving an ongoing service; any such recommendation is deemed part of the ongoing service. A licensee may serve some clients on a one-time basis and others on an ongoing basis, but must distinguish clearly between the two so that each client understands which service it is receiving. As part of the needs-assessment process and the client agreement, the licensee must explain to the client, orally and in writing, that the service is limited to the recommendation given, does not include subsequent monitoring of the investment or its continued suitability, and that the client must monitor the investment independently, as well as the risks this entails. The licensee must verify the client’s understanding and document its confirmation.
Internal Controls and Eligible Clients
A licensee providing either service must establish internal controls addressing, at a minimum, the client’s difficulty in understanding the service, a mismatch with the client’s needs, and the use of external parties or unlicensed employees to refer clients, as well as a dedicated internal procedure.
For Eligible Clients, the ISA distinguishes between requirements derived from the duty to tailor the service to a specific client, from which the Advice Law exempts licensees, and those derived from the duties of care and professionalism, which apply to all clients. Accordingly, the suitability assessment, investment summary, documentation, negative-information notification and one-time needs assessment do not apply to Eligible Clients, while the consideration of alternatives, product due diligence, oversight of referral agents and the one-time service rules continue to apply.
Timeline and What to Consider
The ISA has asked that comments focus on the changes made to the draft. For licensees, three areas merit particular attention:
- Notification of former clients — the duty requires a register of all clients and assets and a notification process with no time limit;
- Investment summary — who prepares it, and how responsibility is allocated where it is supplied by the manufacturer;
- Referral agents — the requirement appears in the chapter on restricted assets, while the ISA describes the related risk as common to both services; clarification of its scope may be sought.
The directive will enter into force nine months after publication of the notice of its issuance in Reshumot (the Israeli Official Gazette), with a twelve-month period for the negative-information notification duty in respect of services provided before that date.
How We Can Help
Shibolet & Co. advises licensees under the Advice Law on all aspects of the regulation applicable to their activity – from formulating and submitting comments on the draft directive, through assessing its implications for the business model, to operational preparation, review of client and referral agent agreements, and updating of internal procedures ahead of the directive’s entry into force.
