The future of regulation: Principles for regulating emerging technologies

Copyright © 2018 Deloitte Development LLC. All rights reserved.1
The Future of Regulation
Principles for regulating emerging technologies

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

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volume of outdated rules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.

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

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

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
“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

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

Regulators can start by addressing these four important questions…
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

…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

Adaptive regulation
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

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

Regulatory sandboxes
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.

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

Outcome-based regulation
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.

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

Risk-weighted regulation
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.

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

Collaborative regulation
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.

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

These principles can help break the trade off between encouraging
innovation and protecting consumers from harm

Read more
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Detailed report

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

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