Securitization Transactions Regulation Bill, 5785-2025

This bill is intended to regulate securitization transactions in Israel, which are financial transactions in which a corporation (the "originator") transfers future cash flows from specific assets (such as loans) to a special purpose vehicle (the "securitization entity"), which in turn issues debt securities backed by these assets to investors. The purpose of the law is to develop the capital and credit market in Israel, promote competition, ensure the stability of the financial system, and protect the interests of investors. What the law changes and establishes: Definition of a securitization transaction: The law defines what a securitization transaction is, emphasizing that it includes the transfer of future rights from secured assets to a special purpose vehicle that issues debt securities to investors. The definition also addresses cases where the assignment is not full and determines when such a transaction will be considered a sale. Parties to the transaction: The law defines the roles of the "originator" (the entity transferring the assets), the "securitization entity" (the special purpose vehicle issuing the securities), the "servicer" (the body managing the backed assets), and the "investors." Restrictions on backed assets: The law limits the types of assets that can be securitized and prevents the securitization of complex assets or those that do not meet requirements of simplicity and transparency (such as those defined in the European STS standard). Separation between the originator and the securitization entity: The law requires the securitization entity to be a separate company that engages solely in activities related to the specific securitization transaction. This is to ensure that investors are exposed only to the risks of the backed assets and not to other risks of the originator. Roles of the servicer: The law details the duties of the servicer (the body managing the assets), which include proper management, collection of payments, realization of collateral, and maintenance of the risk inherent in the assets. Restrictions on the originator: The originator is required to retain a portion of the risk inherent in the backed assets and cannot sell all the assets or transfer all the risk. Taxation: The law proposes a special tax arrangement for the securitization entity, aimed at preventing double taxation and allowing for tax neutrality. The arrangement determines that the securitization entity will be considered a "conduit" only, and its income will be taxed only at the end of the securitization period. Supervision and enforcement: The law authorizes regulators (such as the Bank of Israel, the Capital Markets, Insurance and Savings Authority, and the Supervisor of Financial Services) to set additional provisions, impose financial sanctions, and even criminal penalties for violations. Amendments to existing laws: The law includes amendments to various laws, such as the Securities Law, the Companies Law, the Income Tax Ordinance, the Value Added Tax Law, the Banking Law, and others, to adapt the legal framework to securitization transactions. Applicability: The law will enter into force nine months from the date of its publication, and this date may be postponed by order. Additionally, a team will be established to examine the implementation of the law and its impact. Who the law applies to: Originators: Entities interested in transferring future cash flows from existing assets. Securitization entities (special purpose vehicles): Corporations established specifically for the purpose of issuing asset-backed debt securities. Investors: Entities or individuals purchasing the debt securities. Asset managers (servicers): Entities responsible for managing the backed assets. Regulated entities: Banks, insurers, pension fund management companies, holders of licenses for providing credit and other financial services. Regulators: The Bank of Israel, the Capital Markets, Insurance and Savings Authority, the Supervisor of Financial Services, and the Israel Securities Authority. Conditions and numbers: Restrictions on assets: It is prohibited to securitize complex assets that do not meet simplicity and transparency requirements. Separation between the originator and the securitization entity: The securitization entity will operate solely for the purposes of the specific securitization transaction. Retention of risk by the originator: The originator is required to retain a portion of the risk inherent in the backed assets (e.g., 20% or less, depending on the type of asset and the originator). Taxation: The securitization entity will enjoy a tax exemption during the securitization period and will be liable for tax only at the end of the period. Fines: Significant financial fines have been set for violations of the law, which can reach up to one million shekels (for certain entities). Securitization period: Shall not exceed 10 years, unless otherwise determined by order. Team to examine the implementation of the law: A team will be established to examine the implementation of the law five years after its commencement.

Source: הצעת חוק לקריאה הראשונה