The ISA plans to publish a detailed model for calculating and presenting risks related to companies that issue ILNs. The guidelines are aimed at improving transparency pertaining to coverage strategies of companies and at the creation of a single model for comparing between the existing risk management, of similar ILNs issued by various companies, and managed at different risk levels.
This week, the ISA had imposed fines on three trust fund managers, two fund trustees and a bank in the sum of 580,000 NIS. All of the aforesaid were fined for violations under the Joint Investment Trust Law.
"Harel" Mutual Fund was fined following the discovery that "Harel Europe", managed by "Harel", had held assets, for a period of about 6 months, the interest on which is paid according to the rate of Euro or according to the inflationary sum calculated according to the rate of Euro at about 40% from the net value of the fund's assets. By doing so the Harel's investments had exceed its stated investment policy.
Under the stated circumstances, deviation from investment policy seriously affects profit and loss taxation of the capital generated from the remuneration of the fund's units. The fund – is a fund for foreign investment and according to the Income Tax Regulations its inflationary profit, at the time of units' remuneration, must be calculated according to the changes in the main currency (in this case – Euro) and not according to index changes. According to the Regulations, the status of a fund for foreign investment is conditioned by the holding of assets exposed to the main currency, at the rate of at least 90%, (assets traded in the aforesaid currency, or indexed to that currency, or cash in said currency). A 10 day deviation, from the required holding rate, brings about the retroactive loss of the fund's designation as a fund for foreign investment. Meaning, that whoever cashed the fund's units after it lost its status will be taxed on the profit, accumulated from the day of units' acquisition to the day of sale, according to the index changes and not in accordance with the changes in the rate of the main currency, for the entire period of ownership.
The Trustee of the Union Bank (Bank Igud), who acted as the trustee of "Harel Europe", was also fined, since it didn't expose the aforesaid violation for months. The ISA is of opinion that the Trustee did not exercise proper control in supervising the fund manager and therefore did not uncover the violation within a reasonable period of time. The Trustee was fined in the sum of 154,800 NIS – the same sum for which the fund manager was fined, which is also the maximal fine stipulated under the Regulations.
The fund manager "Analyst" was, also, fined in the sum of 77,400 NIS. The manager's violation consisted of publishing an advertisement, authorized by Earnest &Young, in which the data on yields of funds under its management was presented in a way contrary to the regulations of the law.
"Union Trust Funds" (Igud Kranot Neemanut) was, also, fined in the sum of 77,400 NIS, for deviation in trade of options for "Bonds' Financial Immunization" (Hisunim Finansiim Agah). The fund manager created and sold short securities of the aforesaid fund, in a way that the value of securities required for this transaction reached about 24% from the net value of the fund's assets. By carrying out this transaction the company violated regulations stipulating that the required value of securities for it, in a fund that is not an option fund, shall not rise above 20% of the net value of the fund's assets.
Discount Bank was also fined. The bank violated the Regulations of the Law when during the months of February it posted an announcement to the unit holders of "Ilanot Shkalim Estrategiot" (presently "Ilanot Biotechnology") pertaining to the material change of the fund's investment policy. In the notice the bank didn't state that the change might significantly affect the price and the remuneration of said units, and in what direction, as required according to the Regulations. The bank was fined in the sum of 38,700 NIS.
The sums of fines will be transferred to the Treasury.