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The future of regulation: Principles for regulating emerging technologies

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As emerging technologies drive new business and service models, governments must rapidly create, modify, and enforce regulations. The preeminent issue is how to protect citizens and ensure fair markets while letting innovation and businesses flourish. https://deloi.tt/2NaeMRD

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The future of regulation: Principles for regulating emerging technologies

  1. 1. Copyright © 2018 Deloitte Development LLC. All rights reserved.1 The Future of Regulation Principles for regulating emerging technologies
  2. 2. Copyright © 2018 Deloitte Development LLC. All rights reserved.2 Technological advancements are creating a sea of change in today’s regulatory environment… These developments are creating many challenges for traditional regulatory models Artificial Intelligence Machine learning Big data analytics Distributed ledger technologyInternet of Things
  3. 3. Regulators face business and technological challenges in today’s environment 3 Scholars have identified a host of challenges emerging technologies present to traditional regulatory models, ranging from coordination problems to regulatory silos to the sheer volume of outdated rules Copyright © 2018 Deloitte Development LLC. All rights reserved.
  4. 4. Business challenge: The pacing problem Existing regulatory structures are often slow to adapt to changing societal and economic circumstances, and regulatory agencies generally are risk-averse. “If the volume and pace of digital transformation continues to remain the way it is, the existing regulatory approach won’t work” -Bakul Patel Associate Center Director for Digital Health, FDA Copyright © 2018 Deloitte Development LLC. All rights reserved.4
  5. 5. Business challenge: Disruptive business models As products and services evolve, they can shift from one regulatory category to another. As a result, as companies expand, they may fall under the jurisdiction of different regulators “Many information- economy activities have developed in utter disregard of the executive branch organization chart, cascading around and across existing lines of authority.” Julie E. Cohen Professor of Law and Technology, Georgetown Law School Copyright © 2018 Deloitte Development LLC. All rights reserved.5
  6. 6. From a regulatory perspective, one important question is who owns all this data—the user or the service provider who stores them? If the service provider owns the information, what obligation does it have to store and protect it? And to what extent can data be shared with third parties? Technological challenge: Data digital privacy and security Copyright © 2018 Deloitte Development LLC. All rights reserved.6 “Malicious cyber activity has proliferated. It has become more brazen and sophisticated, more imaginative, and international.” - Andrus Ansip Vice President, Digital Single Market, European Commission
  7. 7. Technological challenges: AI based challenges Algorithms used for vital decisions should make unbiased and fair decisions. But some algorithms have been found to have inherent biases. And while in some countries regulations explicitly prohibit discrimination in these areas, grey areas exist and often the underlying algorithms are opaque. “People are basically getting or not getting those things that they need based on scores that they don’t understand and sometimes don’t even know exist. Right there you already have something very dangerous.” - Cathy O’Neil Author of Weapons of Math Destruction Copyright © 2018 Deloitte Development LLC. All rights reserved.7
  8. 8. Regulators can start by addressing these four important questions… Copyright © 2018 Deloitte Development LLC. All rights reserved.8 Blockchain Data privacy Ridesharing Drones Autonomous vehicles Minimum government regulation Strong precautionary regulation Light precautionary regulation The regulatory spectrum Stage #1 Pre-regulatory What do we have now? Stage #2 Testing and evaluation When to regulate? Stage #3 Regulatory approach How to regulate? Stage #4 Revisit What has changed? Artificial Intelligence
  9. 9. …And then consider these five principles… Adaptive regulation Shift from “regulate and forget” to a responsive, iterative approach 3 1 2 4 5 3 1 2 4 5 Regulatory sandboxes Prototype and test new approaches by creating sandboxes and accelerators Outcome-based regulation Focus on results and performance rather than form Risk-weighted regulation Shift from one-size-fits-all regulation to a data-driven, segmented approach Collaborative regulation Align regulation nationally and internationally by engaging a broader set of players across the ecosystem Copyright © 2018 Deloitte Development LLC. All rights reserved.9
  10. 10. Adaptive regulation Copyright © 2018 Deloitte Development LLC. All rights reserved.10 Adaptive regulation relies on trial and error and co-design of regulation and standards; it also has faster feedback loops that allow regulators to evaluate policies against set standards, feeding inputs into revising regulations
  11. 11. Copyright © 2018 Deloitte Development LLC. All rights reserved.11 We decided to remove those old laws and create a new transport code that incorporates all transport modes into one piece of legislation, to be technology-neutral, and to create the same level playing field for different transport modes… ” “ - Anne Berner Finland’s minister of transport and communication Finland reforms its transportation regulation, building the foundation for MaaS Source: ITS International
  12. 12. Regulatory sandboxes Copyright © 2018 Deloitte Development LLC. All rights reserved.12 Sandboxes are controlled environments allowing innovators to test products, services, or new business models without having to follow all the standard regulations Accelerators are designed to speed up innovation. They often involve partnerships with private companies, academic institutions, and other organizations that can provide expertise in certain areas.
  13. 13. Copyright © 2018 Deloitte Development LLC. All rights reserved.13 This sandbox allows businesses to test innovative products and services in a safe, live environment, with the appropriate consumer safeguards, and, when appropriate, is exempt from some regulatory environments. 90% of the testing firms continued to a wider market launch, while 40% received investments during or after the first year of operation. The UK Financial Conduct Authority launched the first fintech regulatory sandbox in June 2016 Source: United Kingdom Financial Conduct Authority
  14. 14. Outcome-based regulation Copyright © 2018 Deloitte Development LLC. All rights reserved.14 Outcome-based regulation specifies required outcomes or objectives rather than defining the way in which they must be achieved. This model of regulation offers businesses and individuals more freedom to choose their way of complying with the law.
  15. 15. Copyright © 2018 Deloitte Development LLC. All rights reserved.15 Guidelines are preferable to legislation as they allow the flexibility to be quickly amended and updated, if required. Regulations for automated vehicles should be proportionate, performance-based, and regularly reviewed. - Australia’s National Transport Commission Australia has developed performance-based guidelines for autonomous vehicles. Source: National Transport Commission Australia
  16. 16. Risk-weighted regulation Copyright © 2018 Deloitte Development LLC. All rights reserved.16 Shift from one-size-fits-all regulation to a data-driven, segmented approach. Use data analytics to evaluate the risk of non-compliance with regulations and enable fast tracked approval processes.
  17. 17. Copyright © 2018 Deloitte Development LLC. All rights reserved.17 As part of its Digital Health Innovation Action Plan, the FDA created a Pre-Cert pilot program for eligible digital health developers that demonstrate a culture of quality and organizational excellence. FDA also intends to monitor the performance of these companies continuously, with real-world data. For some digital health products, the FDA is using risk-based approaches that balance potential risks with patient benefits. Source: Food and Drug Administration
  18. 18. Collaborative regulation Copyright © 2018 Deloitte Development LLC. All rights reserved.18 As the digital economy expands, with new business models, technologies, products, and services, regulators around the world can benefit from collaborative approaches such as co-regulation, self-regulation and international coordination. This ecosystem approach can encourage innovation while protecting consumers from potential fraud or safety concerns.
  19. 19. Copyright © 2018 Deloitte Development LLC. All rights reserved.19 These principles establish a de facto regulatory structure that sidesteps the traditional process for promulgating new rules in favor of a system of co- regulation and multi- stakeholder engagements involving government, the private sector and e- commerce among others. In 1997, the framework for global electronic commerce was released to guide the development of digital communications technologies. Source: The White House
  20. 20. Copyright © 2018 Deloitte Development LLC. All rights reserved.20 These principles can help break the trade off between encouraging innovation and protecting consumers from harm
  21. 21. Copyright © 2018 Deloitte Development LLC. All rights reserved.21 Read more Interactive web page Detailed report
  22. 22. Copyright © 2018 Deloitte Development LLC. All rights reserved.22 William D. Eggers Executive Director, Deloitte Center for Government Insights Deloitte Services LP +1 571 882 6585 weggers@deloitte.com Contacts Mike Turley Global Government and Public Services leader Deloitte Consulting LLP. +44 7711 137213 mturley@deloitte.co.uk
  23. 23. Copyright © 2018 Deloitte Development LLC. All rights reserved.23 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. This communication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the “Deloitte network”). None of the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2018. For information, contact Deloitte Touche Tohmatsu Limited This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Disclaimer

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