Part 1: Regulating for disruption
According to the World Economic Forum, the first industrial revolution occurred in 1784 and involved the use of steam, water and mechanical production equipment. This was followed in 1870 by the second industrial revolution which brought with it division of labour, the use of electricity and mass production of goods. The third industrial revolution is charaterised by the rise of electronics, information technology and automated production commencing in 1969. We are now said to be in the midst of the fourth industrial revolution described “as the advent of ‘cyber- physical systems’ involving entirely new capabilities for people and machines”. However, the spread of this revolution is not widely felt as some are still undergoing the processes of the third (and even second) industrial revolution.
“The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover it is disrupting almost every industry in every country.” (See World Economic Forum).
Regulating in this new fast pace and disruptive world becomes a daunting task. Below are three key considerations when regulating technology and innovation:
- The world is in a state of disruption
- This phenomenon occurs across jurisdictions and industries (see this article from Harvard Business Review).
- It is a very difficult task to regulate disruption.
- But it is vitally important for regulators to be able to research and understand the complexities of the consequences of these disruptive forces in order to maintain stability in regulation.
- Emerging technology is adopted at exponential rates
- Exponential acceleration in adoption of emerging technology means that if we are at 100% adoption today, we were at only 50% yesterday, and 25% the day before that and so on and so on (read this great post if you want to learn more about exponential growth).
- If we look backwards at the historical adoption rates to predict the future we will be far off from reality!
- We need to actively track these technologies and their possible impact on regulation and predict possible future scenarios. We then need to have a plan of action in place if the high impact future scenarios become closer to materialising.
- Innovation is good for the economy
- Regulators should not clamp down on technology merely because they do not understand it or because it has disruptive potential.
- Instead they should nurture innovative thinking and ideas and create a homegrown tech environment.
- Regulators should engage with stakeholders working with various technologies in order to learn more about it and its impact on regulation.
In part two we set out some key considerations for regulators to take into account to remain agile when regulating in this state of disruption.
Nerushka presented “How does regulation keep up with technology and innovation” to a number of central banks at the SADC Payments Systems course hosted at the South African Reserve Bank. For more info on booking Nerushka for a presentation on this topic or another one, please get in touch: email@example.com.
“We definitely gained a lot from that presentation, thank you very much.”
– Mrs Likeleli ‘Mathabiso Sengoai, Analyst, National Payments Systems, Central Bank of Lesotho