ISRAEL: Mutual Fund Market to be Opened to Foreign Competition

Tuesday February 23 2016

The Finance Committee of the Israeli parliament has approved regulations which, for the first time, will allow the distribution of foreign mutual funds in Israel.

The regulations were initiated and promoted by the Israel Securities Authority, in the belief that there is a need to improve competition in the mutual fund market in Israel and that opening the market to foreign mutual funds will lead to greater competition and the expansion of investment opportunities, whether passive or active, available to the Israeli investor in the capital market.

The regulations specify the conditions that a foreign mutual fund must meet in order to offer its units to the Israeli public.

One of the main conditions is that the management of the foreign fund whose units are to be offered in Israel will be in accordance with the regulation of its country of origin, rather than the regulation applying in Israel. In this way, the foreign fund or the fund management company will not be supervised by the Israeli Securities Authority, however, the management company of the foreign fund will receive a permit from the Israel Securities Authority to offer the units of the foreign fund in Israel based on its compliance with the foreign regulations that apply on it and after it has proven that it has met all of the conditions specified in those regulations.

Accordingly, only funds that specialize in investments outside of Israel, which have a very large scope of investment and which are among the leading international investment houses, will be allowed to operate in Israel. Essentially, the funds that will be able to be distributed in Israel are only those that are permitted to be offered to the public in the capital markets of Europe (UCITS funds that operate under the UCITS directive in their country of origin) and the US (funds that operate under the Investment Company act of 1940) and which meet the accepted standards of regulators there.

The regulations will come into effect six months after their publication in the Reshumot, the official gazette of record for the State of Israel.

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