What Is a Privacy Impact Assessment and Why It Matters
A fintech company is developing an AI-based credit scoring model that analyzes the financial behavior data of thousands of customers. Before launch, a practical question arises: is the company required to conduct a privacy impact assessment before the model goes live, and if so, what exactly should it include.
A privacy impact assessment (PIA) is a systematic process in which a company evaluates, in advance, the expected effects of a new or significant data processing activity on the privacy of data subjects. It is a risk management tool, not merely a formal checklist — its purpose is to identify privacy risks at the planning stage, before they materialize into a breach or security incident.
Since Amendment 13 to the Privacy Protection Law came into force, the PIA has become especially relevant for technology companies. With the database registration requirement now narrowed to public bodies and data brokers, the regulatory focus has shifted from a formal, technical check to a substantive assessment of the risk level inherent in the processing activity itself. The privacy impact assessment is the central tool for conducting that substantive review.
The Legal Basis for Privacy Impact Assessments in Israel
The Privacy Protection Law, 5741-1981, as amended by Amendment 13, imposes on organizations a general obligation to implement data protection measures proportional to the level of risk involved in the processing. The Privacy Protection Regulations (Data Security), 5777-2017, add more detailed requirements depending on the security level required for a given database.
The Privacy Protection Authority has published guidance clarifying that in cases of high-risk processing — for example, the use of new technologies, automated decision-making that affects individuals, or large-scale processing of sensitive data — it is advisable, and in some cases expected, to conduct a privacy impact assessment as part of implementing the Privacy by Design principle.
It is worth emphasizing: as of the date of this article, Israeli law does not contain a closed, enumerated list of cases that trigger a mandatory PIA, unlike the European framework. Instead, Israeli law adopts a risk-based approach, under which the organization itself must assess the risk level and document its decision whether or not to conduct an assessment. That documentation can itself serve as a defense in the event of a regulatory audit or investigation.
When a Privacy Impact Assessment Is Required in Practice
Even without an explicit, numbered statutory list, there are clear categories of activity in which the Privacy Protection Authority is significantly more likely to expect a PIA. Recognizing these categories helps companies prioritize their legal and technical resources.
- Large-scale processing of sensitive data — health information, biometric data, location data, or detailed financial information.
- Automated decision-making or profiling that materially affects individuals, such as credit scoring, insurance underwriting, or candidate screening.
- Use of new technology whose privacy risks have not yet been evaluated, including AI-based models.
- Systematic, ongoing monitoring of individuals, such as employee monitoring, location tracking, or large-scale analysis of user behavior.
- Merging databases from different sources in a way that creates a comprehensive profile of a data subject.
- Significant transfer of personal data abroad, particularly to countries without recognized adequacy for data protection.
When one of these characteristics is present, the professional recommendation is to conduct the assessment before processing begins, not after the product has already launched.
How to Build a Privacy Impact Assessment Properly
A well-executed PIA is not a generic legal document but a focused analysis of a specific processing activity. It is best structured in defined steps so it is useful both to the product team and as documentation for a regulator.
- Describe the processing — what data is collected, from whom, for what purpose, how long it is retained, and who has access to it.
- Assess necessity and proportionality — whether the business objective can be achieved with less data, less identifiable data, or a shorter retention period.
- Map the risks — identify concrete risk scenarios: leakage, misuse, unauthorized access, or harm to data subjects' rights resulting from an erroneous automated decision.
- Assess severity and likelihood — rank each risk according to the potential severity of harm and its probability of occurring.
- Define mitigation measures — encryption, data minimization, access controls, pseudonymization, human review of automated decisions, and other safeguards.
- Approve and sign off — involve the data protection officer or senior legal counsel, and document the final decision.
- Monitor and update — the assessment is not a one-time document; it must be updated whenever the processing changes materially.
Retaining the assessment as part of the organization's compliance documentation makes it possible to demonstrate, if needed, that the organization acted responsibly before any incident occurred.
The Role of the Data Protection Officer in the Process
In organizations subject to the obligation to appoint a data protection officer under Amendment 13, the DPO is the natural party to lead the preparation of the PIA and to give it independent standing. This role includes critically examining the necessity of the processing, challenging the underlying business assumptions, and providing an independent opinion that is not subject to product timeline pressures.
Even in companies not required to appoint a DPO, it is advisable to designate an internal owner — legal, technical, or a combination of both — responsible for coordinating PIA processes. Separating the team that develops the product from the party that approves the assessment strengthens the credibility of the process.
For further detail on the obligation to appoint a data protection officer and the scope of that role, see our separate article on appointing a privacy officer.
Privacy Impact Assessment Versus the GDPR's DPIA
Many Israeli companies also serve customers in the European Union, so it is important to distinguish between the Israeli privacy impact assessment and the Data Protection Impact Assessment (DPIA) required under the GDPR. The European framework sets out mandatory categories in which a DPIA is formally required, whereas Israeli law, as noted, adopts a risk-based approach without a closed list.
In practice, the methodology is very similar: describing the processing, assessing necessity and proportionality, mapping risks, and defining mitigation measures. A company that already prepares a full DPIA for GDPR compliance can, in most cases, adapt it with limited additional effort to satisfy Israeli law requirements, provided the analysis also addresses the specific requirements of the Israeli Privacy Protection Law and its data security regulations.
Because Israel enjoys partial adequacy recognition from the European Union, maintaining consistency between the two processes also helps reinforce ongoing compliance with the conditions underlying that adequacy status.
What Companies Should Do Now
First, build a standard internal template for privacy impact assessments so that every product team knows when and how to complete one before releasing a new feature. Second, establish clear criteria — a list of characteristics, any one of which automatically triggers a PIA requirement — to avoid ad hoc decisions made under time pressure.
Third, integrate the PIA process into the product development cycle itself rather than treating it as a separate step after development is complete — this allows the assessment to still influence product design before significant financial and technical investment has been made. Fourth, keep all completed assessments in a centralized, accessible repository, so that in the event of an inquiry from the Privacy Protection Authority, the company can produce organized and consistent documentation.
A properly conducted privacy impact assessment is not merely a compliance exercise — it improves product quality, reduces reputational risk, and creates internal transparency about how the organization handles the personal data in its possession. Organizations that embed this process as a permanent part of their development culture generally find themselves better prepared for future regulatory change as well.
The information contained in this article is general in nature and does not constitute legal advice. For advice tailored to the specific circumstances of your company, we invite you to contact our firm.
