Building Agile Regulatory “Muscles”

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A robust institutional capacity and a supportive legislative framework are needed to ensure agile regulation succeeds.

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The current era is marked by an exponential acceleration in the pace of change, making it challenging for regulators to keep up. Despite some calls for a slowdown of certain technological developments, it is clear that progress continues unabated. But progress can also pose some risks too, and regulators seeking to address those risks face new challenges not only due to the increasing speed of change but also its growing complexity.

Regulators who were once responsible for overseeing the safety of slow-changing automobiles, for example, now face the daunting task of regulating autonomous vehicles. These vehicles are constantly evolving, and the engineers involved in designing them cannot themselves anticipate every possible outcome. As a result, regulations can quickly become outdated, either hindering the development of beneficial new technology or failing to limit innovative technology that poses significant risks to the public.

Technological advancements are undoubtedly a significant driver of these accelerating changes. Scholars traditionally expect regulators to adopt one of four main strategies in the face of innovation: blocking innovation; allowing innovation a “free pass;” applying old regulation; or generating new regulation. But when an innovative technology or business model is being developed, the regulator often does not have the ability to assess which of these four seemingly exhaustive responses is most suitable.

This is when a fifth approach is required, one that would enable regulators to test and learn in a more flexible and dynamic fashion. Agile regulation is that fifth way.

Agility—that is, the ability to respond to changes quickly and adaptively—is becoming a critical attribute of successful regulatory regimes. It is not enough to design the most precise regulation in a long, multi-stage process. It is just as important to do so in a way that keeps pace with developments and changes. This requires a more agile regulatory design of the rules in advance as well as new tools that can foster more agile regulatory processes of rulemaking and rule enforcing.

Against a growing demand for agility in regulation, it is no wonder that “agile regulation” has become the latest buzzword in regulatory quarters, warmly adopted by the World Economic Forum, the OECD, and the National Academy of Public Administration in the United States. As countries strive to foster technological ecosystems and attract innovators and investors, the agility of their regulatory systems becomes one of the areas for competition.

Yet regulators face a significant challenge in putting the aspiration to become more agile into practice. Regulators need to know what it takes to become more agile.

Agility is often viewed mainly as a mindset that can be achieved without “legal changes to the regulatory process itself.” However desirable it might be to view agility as simply a matter of changing one’s way of looking at the world, recent experience suggests that to become truly agile, regulators need to build “agile muscles” that can require not only a new mindset but also legal reforms and capacity building.

A thought-provoking example can be found in Israel—known as the Startup Nation due to the large number of new tech firms that are launching there. Israel has been dealing with the rapidly evolving field of smart transportation—and more specifically, with autonomous vehicles. Unlike the more decentralized American regulatory car safety system that tends to rely largely on self-certification, Israel has a more centralized and prescriptive regulatory system that heavily relies on preapproval procedures by the regulator, much as is true in many countries in Europe. Israel is therefore an interesting example for how to build agile regulation within an unagile regulatory system.

In 2017, the Israeli government decided to support research and development, entrepreneurship, and industry of smart transportation. Among other things, it established a test center for autonomous vehicles aiming to make “Israel a global hub and prime location for AV pilots and AV companies from the world over.” Instead of choosing one of the four traditional strategies—blocking, enabling, applying old regulations, or setting new regulations—the Israeli Transportation Regulator took the fifth way: the agile approach.

Specifically, the Israeli government enabled the development of the autonomous vehicle technology within a limited and supervised environment—a “sandbox.” This allowed the regulator to learn and adapt regulations dynamically.

To approve initial tests of autonomous vehicles, Israel added in 2018 a short clause to its secondary legislation: section 16(1) of the Transportation Regulations (amendment 12). It authorizes the regulator to grant exemptions for the purpose of testing the performance of a new technology or a new use of an existing technology. Later in 2022, Israel also amended its primary legislation to enable large-scale trials of autonomous vehicles for commercial use: section 16(3-33) of the Traffic Ordinance (amendment 130). This amendment generated a broad legislative framework that authorized Israeli regulators to grant special licenses to commercial entities to conduct trials of autonomous vehicles.

The new amendment effectively turned all of Israel into an autonomous vehicles testing site, enabling the approval of autonomous vehicle tests without a human operator behind the wheels for various commercial uses—including public transportation and delivery vehicles. The authority to grant an exemption or a special license was delegated to a so-called designed experiments committee within the Ministry of Transportation. The legislation also created oversight bodies and an advisory committee comprising representatives from pertinent stakeholders.

In this way, Israel became the second country in Europe—after Germany—to adopt a legislative framework for commercial operation of autonomous vehicles. Unlike Germany, though, Israel adopted what can be viewed as a more agile legislative framework. The law uses principle-based rules without secondary legislation—essentially, agency regulations—and is supported by detailed technical procedure that the regulator publishes and can easily update.

Moreover, although the Israeli legislation was primarily established for autonomous vehicles, it used a broad definition of a “trial.” This enabled the regulator to gradually open its doors for requests from a wide range of companies that develop smart transportation technologies beyond autonomous vehicles. In this way, establishing a flexible authorization authority and a supporting institutional structure built an “agile muscle” that enhances agility in the face of a growing range of changes.

As of today, Israel advances towards testing self-driving public bus systems. It also boasts of over 600 startups in the field of smart transportation, around 100 of them in the field of autonomous vehicles. Yet, many challenges still lay ahead and a lot will depend on the capacity and professionalism of the Israeli regulator. Maintaining a constant agile mindset is still crucial, but it can only be fully realized with a supportive agile regulatory process and the necessary regulatory capacity to implement an agile approach to regulation.

Admittedly, the agile approach to regulation is still in its infancy and there is much need for future research. We still need a to define agile regulation more precisely. And then we need to learn from the way the agile approach has evolved in other fields, such as software development and project management. We need to identify which elements of agility fit within the regulatory context, to explore which agile techniques regulators use and how they operate in practice, to assess the pros and cons of agile regulation, and to address the challenges an agile approach to regulation faces given the bureaucratic governmental system and constraining administrative law.

Both regulators and regulatory researchers who wish to be a part of this inevitable revolution should devote attention to the need to build “agile muscles”—a supportive legislative framework and the needed institutional capacity that can foster effective regulatory agility.

Yael Kariv-Teitelbaum is a post-doctoral Fulbright Fellow, research affiliate with the Penn Program on Regulation, and a visiting scholar at the University of Pennsylvania Law School.

This essay is part of a five-part series entitled, Agile Regulation in a Changing World.