Relief from Insurance Requirements for Portfolio Managers and Investment Advisors

Barnea Jaffa Lande & Co.

The Israel Securities Authority (ISA) has announced that, temporarily, it will not initiate or recommend taking enforcement measures against corporations licensed in portfolio management, investment advising, and investment marketing that have not fulfilled professional liability insurance requirements.

The ISA’s announcement came in the wake of rising professional liability insurance prices in recent years. This has proved a burden for licensed professionals in portfolio management, investment advising, and investment marketing, since license conditions include the obligation to maintain this insurance.

The high premium prices have caused hardship for licensees, particularly boutique investment houses managing a low volume of funds. They are required to maintain insurance policies at exceedingly high costs compared to their volume of operations.

The ISA recognized this problem and even accurately defined it as a market failure. Consequently, the ISA has tried and is continuing to try to promote legislative amendments that will provide some latitude in the insurance requirements or offer alternatives to these requirements.

Conditions to qualify

Therefore, considering the need for an immediate solution, and with the goal of avoiding harm to the sector, which could ultimately also impact licensees’ clients, the ISA published a temporary relief. It thus announced on December 30, 2020, that it would not initiate or recommend taking enforcement measures against licensed corporations that do not fulfill the insurance requirements, provided they do fulfill, inter alia, the following cumulative conditions:

  1. The arranged insurance volume is not less than a total of NIS 1 million.
  2. If the insurance volume required of a corporation exceeds NIS 1.613 million:

2.1     the insurance volume will be at the rate of 50% of the insurance volume required pursuant to the regulations, provided it is not less than NIS 1 million;

2.2     if the reduced insurance volume exceeds NIS 20 million, even if the insurance volume is lower than the volume of the reduced insurance, but not less than NIS 20 million, provided the corporation’s board of directors confirms that such insurance volume is at a level sufficient to secure the corporation’s liability, inter alia, considering the equity or other collateral it deposited.

  1. The corporation must inform its clients it did not comply with the insurance requirements for a limited period.

The ISA’s announcement will be in effect for three months from its date of publication, or until an amendment to the relevant legislation, whichever is earlier. Accordingly, this announcement will apply to corporations that engage in insurance policies during this period in accordance with the above conditions until the expiration of the insurance period defined in the policy or until one year after the insurance policy was drawn up, whichever is earlier.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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