The U.S. Securities and Exchange Commission (SEC) recently approved the registration of several investment adviser firms based in Israel. This is a notable development given the longstanding data protection concerns that previously complicated registration efforts by advisers operating under Israel’s privacy framework.
Israel’s data protection laws—primarily the Protection of Privacy Law and associated regulations—are broadly aligned with EU-style privacy frameworks such as the General Data Protection Regulation (GDPR). These laws impose restrictions on the transfer of personal data outside of Israel, particularly where foreign governmental authorities are involved.
These privacy restrictions have led to uncertainty about whether Israeli-based investment advisers could fully comply with the SEC’s obligations under Section 204 of the Investment Advisers Act of 1940, which requires all registered investment adviser firms—regardless of domicile—to make their books and records available for SEC examination. This uncertainty contributed to the SEC’s informal pause on new investment adviser registrations from certain foreign jurisdictions, including Israel, where examination access was unclear.
The SEC’s recent approvals appear to confirm that, in at least certain cases, it is now satisfied that Israel’s legal framework permits the necessary level of cooperation to support oversight of a registered investment adviser based in Israel.
Implications for Other Israeli-Based Advisers
These approvals provide an important precedent. It seemingly shows that SEC registration in the U.S. is possible for Israeli-based investment adviser firms, provided the SEC determines it can carry out its examination and enforcement functions in accordance with U.S. law.
Investment advisers located in Israel who have U.S. clients—or who plan to expand their services to U.S. clients—may now have a clearer path forward. However, this does not indicate a blanket shift in policy. It is our belief that the SEC is likely to continue reviewing applications on a case-by-case basis.
An Israel based investment adviser firm pursuing registration in the U.S. should prepare a comprehensive readiness package:
-
Legal opinion from Israeli counsel addressing exam access under Amendment 13 to Israel’s Protection of Privacy Law;
-
Data-mapping and retrieval protocols showing how books/records will be produced on demand;
-
Updated privacy notices, client agreements, vendor agreements, and incident response plans disclosing obligations to share with the SEC and reflecting Amendment 13 obligations;
-
ADV-NR filing and a reliable U.S. agent for service of process;
-
AML/BSA procedures in advance of the 2028 effective date for the U.S. Treasury Department’s AML rules for investment advisers; and
-
Marketing Rule compliance systems for U.S.-facing advertising, testimonials, and performance materials.
Enforcement Context
The SEC recently announced a Cross-Border Task Force to combat fraud targeting U.S. investors. This appears to mean that while the SEC is opening registration channels, it is simultaneously raising its enforcement profile on cross-border matters. Foreign investment advisers should assume that registration in U.S. will bring them into sharper focus, not less.
A Clearer Path for Israeli Investment Advisers
The SEC’s approval of Israeli-based advisers is a significant but qualified development. Registration appears achievable, but it is presumably conditioned on exam access assurances, privacy compliance, and enhanced cross-border oversight. Advisers should see this as both an opportunity and a compliance test. While challenges remain and approvals are not automatic, we believe that this outcome demonstrates that Israeli data protection laws do not inherently preclude SEC registration (at least when the applicable foreign regulator provides written guidance offering relief). For Israeli investment advisers seeking to serve U.S. clients, now may be an appropriate time to revisit the possibility of SEC registration, particularly in light of evolving interpretations and increased regulatory cooperation.
Related Resources
Disclaimer and Disclosure
This regulatory alert is a summary which is general in nature and offered only for educational purposes. There is no warranty associated with this regulatory alert. It should not be considered as a comprehensive review or analysis of this development. There are certain requirements and exceptions outlined in the rule which are not covered in this regulatory alert. There may be additional obligations and nuances not covered here. Each investment adviser firm is unique, and specific guidance may be required to address your firm’s circumstances. This communication is not intended to constitute compliance consulting advice or apply to any particular investment adviser firm’s specific situation without further analysis. This regulatory alert is not a safe harbor or a legal opinion. Merely reading this regulatory alert does not create an engagement with RIA Compliance Consultants, Inc. The reader should study the actual guidance, rule or enforcement action in detail and consult with his or her compliance professionals. This information in this regulatory alert may become out of date.
Posted by Bryan Hill
Labels: GDRP
