Technology companies seeking to develop and test innovative products and services in Israel often encounter regulation designed for established technologies that lacks sufficient flexibility. Examples include requirements that are not suited to limited-scale testing, high compliance costs, and lengthy approval processes involving multiple regulators. These barriers may delay market entry and even lead companies to conduct trials abroad.
To improve the Israeli government’s response to these challenges, the draft final report of the Interministerial Team on Smart Regulation, concerning the advancement of a regulatory environment that supports technological innovation, was published for public comment a few days ago. The report seeks to address these gaps through agile regulation – a flexible, adaptive and data-driven approach that enables controlled testing and the adjustment of requirements to technological developments.
The report was prepared by the governmental Smart Regulation Team, comprising representatives of the Ministry of Justice, the Israel Innovation Authority, the Regulatory Authority in the Prime Minister’s Office, the Ministry of Finance, and the Ministry of Innovation, Science and Technology.
The report’s principal recommendations are outlined below:
- Enacting framework legislation for the operation of regulatory sandboxes: Advancing framework legislation authorizing regulators to grant exemptions, relief or adjustments in respect of existing regulatory requirements for the purpose of testing innovative technologies or business models. Trials would be limited in duration and scope and subject to risk management, oversight and transparency requirements.
- Establishing a government knowledge hub to support regulators in leading regulatory sandboxes: The hub would provide regulators with professional, technological and legal support for the design, operation and supervision of regulatory sandboxes.
- Developing ministry-level mechanisms for receiving requests and advancing trials: Developing internal ministerial infrastructure to promote regulatory experimentation, including the appointment of a contact person in each government ministry to coordinate requests from market participants concerning regulatory barriers, assist in identifying the need for a trial, and refer requests to the relevant professional teams.
- Strengthening regulators’ ability to identify significant technological developments and their regulatory implications at an early stage: The report proposes holding a regular annual meeting led by the Israel Innovation Authority and the Regulatory Authority, at which emerging technological trends would be presented to regulators, enabling advance preparation and the identification of areas requiring regulatory adjustments.
- Creating positive incentives for regulators to promote responsible experimentation: Establishing a fund aimed at providing regulators themselves with budgetary and professional support for regulatory experimentation projects. The fund would operate through calls for proposals inviting regulators to submit regulatory experimentation projects for consideration. An interministerial committee would assess the projects based on their degree of innovation, public benefit, quality of risk management and potential to generate regulatory learning.
- Recommendations for the design of future regulation and further action: Among other recommendations, the draft report proposes adopting a guiding principle whereby, when developing new regulation or amending existing regulation, regulatory requirements should be drafted in a manner that is as technologically neutral as possible. Preference would therefore be given to wording that focuses on the regulation’s purpose, the required level of performance and the level of risk, rather than imposing obligations to use a particular technology, means, process or physical infrastructure. The draft report also proposes exploring a fast-track import procedure for items intended for research and development, and linking regulatory sandboxes with government procurement, so that the state could serve as a testing ground and a first customer for innovative solutions.
The deadline for submitting comments on the draft report has been set for November 9, 2026. The opportunity to comment on the draft report’s recommendations provides technology companies with an important avenue to highlight practical barriers impeding their operations and propose adjustments that would enable the development, testing and implementation of innovative regulatory solutions in Israel.
Our firm’s Regulation and Government Affairs Practice will continue to monitor developments and further updates on this matter and remains available for any questions or consultation.
This publication is provided as a general service to the firm’s clients and friends and does not constitute a substitute for specific legal advice. We do not recommend taking action based on the information above without obtaining legal advice from qualified professionals, based on the specific facts and circumstances of each case.
