Part 3: Approaches to regulating technology and innovation
In Part 1 of this three part series “How does regulation keep up with technology and innovation”, we set out some important technology and innovation considerations when regulating in a world of disruption. In the second post, we expand on that topic by proposing five key considerations for regulating technology and innovation. In the final post, we set out three broad approaches to regulating technology and innovation that could be adopted by regulators:
- Put your head in the sand
- Regulators may elect to ignore the disruption and rise of emerging technology around them and hope that it goes away. Perhaps Bitcoin is just a dream?
- It is OK to do nothing – but doing nothing must be a considered decision after researching the trends and impact on the regulatory environment – doing nothing shouldn’t arise out of ignorance of what is taking place around you.
- Sometimes it is likely that it is just hype and will go away, however, it is also likely that it will reach critical mass adoption at an exponential growth rate and have a significant impact on the economy, for example, widespread use and adoption of an alternative currency. Regulators need to be prepared for the latter.
- Fight back
- Often if something does not fit properly into the existing regulatory framework and definitions, the first reaction is to clamp down and stop the activity as it is unregulated or in contravention of regulation.
- Regulators should first consider what the particular activity or technology is trying to achieve, and decide whether the activity or technology will have an overall positive or negative impact. Regulators should also consider whether they are in fact able to control or regulate its use (for example, decentralised cryptocurrency cannot be stopped by a regulator but can be driven underground by a regulator).
- If it is something that cannot be controlled, or something that will have an overall good impact on the economy or society, consideration should be given as to what else can be done besides fighting back.
- The suggested approach to regulating technology and innovation during this time of disruption and exponential adoption of emerging technology, is one of collaboration.
- Engage with stakeholders, including other regulators, startups, innovators, thought leaders, as well as incumbents. Workshop with them and understand the current environment and what it is they are trying to achieve. Understand what difficulties and grey areas they face in the existing regulatory framework.
- Some regulators have adopted a sandbox approach as a means to collaboration by inviting both incumbents and startups to live test their innovations for a period of time without risk of fines or regulatory clamp down. (see Fintech sandboxes at central bank regulators in UK, Singapore, Australia, UAE, Malaysia and Bahrain).
The best thing a regulator can do in a time of disruption is to provide regulatory certainty, when necessary, through consultations, workshops or position papers.
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: firstname.lastname@example.org.
“Thank you for the wonderful and insightful presentation at the SARB.” – Emmanual Molefe, Payments Unit, Bank of Botswana