How does regulation keep up with technology and innovation: Part 2

Posted on Posted in Cryptocurrency, Disruption, Emerging technology, Regulation, Technology

Part 2: Agility in regulation

In Part 1, we set out some important technology and innovation considerations when regulating in a world of disruption.  In this post, we expand on that topic by proposing five key considerations for regulating technology and innovation:

  1. Regulators should keep track of and be aware of the technology & innovation relevant to their environment, as well as the related environment, especially emerging technology trends, for example, artificial intelligence, distributed ledger technology, cryptocurrency and robotics. Having resources dedicated to research and development, as well as collaboration with stakeholders will assist regulators in keeping track of developments. Keep in mind that there may be a number of future possible scenarios that need to be assessed, and regulators need to be agile enough to both understand the possible scenarios, and be able to change course where necessary.
  2. Don’t regulate the hype! Leverage existing research papers, for example, use the Gartner hype cycle to understand the maturity levels of different technologies. In 2016, there was a possible blockchain application for just about everything – regulators cannot chase after every possible theoretical application and need to track which use cases are going to move past the hype and into production.
  3. Don’t regulate the technology! Technology becomes outdated faster than regulations are produced (for example, having laws that refer to and regulate “DVDs” when we live in a world of Netflix and Showmax).
  4. Instead, regulate the underlying products and services that the technology is trying to deliver or improve. Often innovation arises when trying to improve the delivery of an existing service (for example, Uber and AirBnb).
  5. Make amendments to existing legislation and regulation as a last resort.
    • First understand the regulatory framework that the technology operates in and determine whether there is an existing interpretation that includes the use of the technology.
    • If the technology operates outside of the scope of the regulatory framework or if the technology is in possible contravention of the regulatory framework, consider whether there are possible special licences or exemptions to existing regulation that can be created for a particular new product or service.
    • Only when it is clear that adoption will become widespread, and clear that there will be a sizeable impact on the economy, society or an industry or market, can a change to existing legislation or regulation be considered. Again, if a change is put forward, do not amend to regulate for the new technology, rather draft laws that are technology neutral in order to future proof them from future technologies.  Drafting in broader frameworks and guidelines that are not tied to the technical specifications of the technology of today allows regulation to have a longer shelf-life.

Read our first post which discusses Regulating for disruption.  In our third and final post in this series, we set out three broad approaches that regulators can take when regulating for technology and innovation.

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: bookings@nerushkabowan.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