Israel introduces regulatory sandbox to boost innovation
Israel introduces regulatory sandbox to boost innovation
The Ministry of Justice aims to remove bureaucratic barriers, allowing companies to test new technologies under flexible regulations.
The Ministry of Justice is launching the "Regulatory Sandbox" program as a regulatory experimentation tool to address technological innovation. The regulatory sandbox allows regulators to grant temporary relief or regulatory adjustments to companies seeking to develop innovative models, all under the close supervision of the regulator.
Israeli high-tech companies, especially start-ups, often encounter significant bureaucratic and regulatory barriers, discouraging many from initiating activities in Israel. This is despite the fact that launching products domestically, at least in their initial stages, is often more cost-effective than abroad and enables closer oversight.
Currently, the regulation of technology companies in Israel operates through four main approaches:
- Blocking the technology to study it or because existing laws prohibit it.
- Offering a "green light" by not applying regulation at all.
- Applying existing laws to the new technology.
- Creating entirely new regulations.
The sandbox introduces a fifth approach: flexible regulation that tests new technologies in a controlled environment. This "laboratory-style" regulation enables real-time experimentation and is widely regarded as the most effective way to address technological advancements without requiring the regulator to delay action.
Today's regulatory framework is often overly burdensome and, in only a few cases, supportive of innovation. The need for a flexible regulatory system arises from the rapid pace of technological development, which traditional regulations struggle to keep up with. As a result, many companies in fields such as transportation, energy, health, and finance choose not to operate in Israel due to these barriers, leading to significant missed opportunities for the country.
Attorney Meir Levin, Deputy Attorney General (Economic Law), commented:
"In the current era of the 'Fourth Industrial Revolution,' Israel must create a dynamic and adaptive regulatory system that can evolve with the changing realities while encouraging technological innovation. The guide we wrote is designed to help promote the government’s policy in this area. It establishes the legal foundation for using the regulatory sandbox tool, enabling innovation while safeguarding the public interest."
Alongside its publication, the government is advancing a comprehensive initiative to promote regulatory experimentation and establish sandboxes in partnership with the Israel Innovation Authority, the Prime Minister's Office, the Ministry of Finance, and the Ministry of Science.
According to the OECD, the regulatory sandbox is a specific tool for flexible regulation. It involves altering existing regulations by easing or adapting regulatory conditions for participants. This approach allows companies to test innovative models under reduced or adjusted requirements while receiving support from regulators. Simultaneously, it enables regulators to study the characteristics of new technologies and evaluate the impact of various regulatory approaches on their operation and associated risks.
Several industries are currently on the verge of significant transformation, necessitating new forms of regulation. For example, the emerging field of alternative food production, such as lab-grown meat, requires regulatory frameworks to allow these products to be sold in Israel. Similarly, the automotive industry is undergoing substantial changes, from autonomous vehicles, which required regulatory adjustments to conduct trials in Israel, to traffic systems powered by artificial intelligence, such as adaptive traffic lights. These technologies demand significant regulatory updates to facilitate their deployment.
