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Keita Nishiyama, Opening session

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Presentation by Keita Nishiyama at the OECD Global Conference on Governance Innovation which took place in Paris on 13-14 January 2020. Further information is available at http://www.oecd.org/gov/regulatory-policy/oecd-global-conference-on-governance-innovation.htm.

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Keita Nishiyama, Opening session

  1. 1. Governance Innovation for the Digital Era January 13, 2020 Keita Nishiyama Ministry of Economy, Trade and Industry, Japan
  2. 2. 1. Why we need Governance Innovation - Transformation to “Society 5.0” 1
  3. 3. 2  Basic feature of ‘Society 5.0’ is the post- information society.  However, it may have much wider implication for our society and its governance structure.  Post- modernity  Post- homo sapiens (homo deus?) Society5.0 is the fifth stage of society for the humankind after ①hunting society, ➁agriculture society, ➂industrial society and ④information society.
  4. 4. “Information society” Real World Computer(Memory/kernel/CPU) Man/machine interface (Screen, keyboard, mouse) (Machine/assembly/high class /natural language) Communication network/www (TCP/IP Model) Human beings Partially automated “Society 5.0” GUI/VUI Human beings Sensors Actuators Cyber Real World Digitized 3
  5. 5. 4 Information Society Society 5.0 Digitalization within the internet Digitalization beyond the internet Text-based data Data with diversified origin and format Two separated worlds: IT/OT One integrated world: cyber=physical With human intervention With/without human intervention
  6. 6. 2. What is Governance Innovation? 5
  7. 7. 6 Governance Innovation  Why do we need a new concept?  In order to offer a new systematic framework to address our policy agenda.  Privacy / Personal Data  Digital platforms and competition policy  Smart regulation  AI principle
  8. 8. 7 Four premises behind our existing governance Real-time data is not available for monitoring and instantaneous improvement of the system. Regulations cannot be customized for individual cases. Only human-beings make decisions. People make choices in the neutral setting of the market. Development of IoT, 5G technology and AI will nullify these premises.
  9. 9. Human beings Society 5.0 (a) Sensing real-time data Regulator (f) Reverse information- asymmetry between public and private sectors Cyber space (Virtual Realty, Digital twin) Physical space AI, algorithms (e) Ever-changing technologies and businesses (b) Collecting detailed personal information Changes after the Cyber-Physical Integration  More and more judgements will be made by algorithm.  It will affect the basic thinking of who is responsible for what in which way.  Regulations do not keep up with the current speed of innovation.  Regulations do not reflect the reality of the digital space that has a layer-module structure.  Privacy rules should also reflect such a reality of the digital space/business.  Some private players have the capabilities superior to regulators in terms of amount of accessible data and processing power.  We need a new thinking on how we regulate/audit/verify.  ‘Law’ and ‘code’ should be designed in parallel. Architectural thinking may help such an exercise.  It is essential that the new governance model will have a distributed structure and thus respect the values of democracy and freedom. The examples of the issues we would like to address. (c) Algorithms controlling the physical space (d) Cyber space expanding beyond industry sectors and national borders 8
  10. 10. 9 Examples of Governance by Architecture Location requirements A system that ensures better safety by: • continuously monitoring the status of facilities; • reducing the statistical risk of incident to less than X%; • detecting an incident with more than Y% accuracy; • stopping the operation in Z seconds after the incident. Facilities requirements Process requirements 2-1. Plant Speed limitation A system that ensures better safety by: • continuously monitoring the status of the car; • reducing the statistical risk of accident to less than X%; • responding to the accident within Y milli-seconds; • installing the AI that complies certain ethical principles. Vehicle inspection requirements Driver license requirements 2-2. Self-driving Car Duty to hand a paper contract A system that ensures less risk by : • establishing a scoring model that reduces the statistical risk of default to less than X%; • using big data about the borrower’s economic status; • satisfying certain levels cyber security. Duty to rely on risk information provided by a neutral third party Minimum capital requirement 2-3. Credit Governance by Law Governance by Architecture
  11. 11. 10 Governance Innovation provides solutions to the challenges that Japanese society faces  Safety inspection of the infrastructure by the skilled examiners ⇒NOT tenable in the depopulated regions ⇒Replacement by the sensors and computers  Should elderly people be protected for high-risk financial transactions? ⇒’Age’ is too crude criteria for the threshold ⇒Replacement by the scoring system
  12. 12. Triad of Governance Innovation 11  Governance for Innovation Governance that encourages innovation Governance of Innovation Governance that keeps balance between innovation and other values (privacy,…) Governance by Innovation Governance that makes use of innovation
  13. 13. 12 G20 Digital Economy Ministerial Statement (June 2019) “Governance Innovation” - Agile and Flexible Policy Approaches in the Digital Economy • We recognize that harnessing the full potential of emerging technologies would benefit from more innovation enabling approaches to policy making than in the past. We will strive for innovation-friendly policies to capitalize the potential of digital technologies and look to remove barriers to innovation accordingly. • We recognize that various countries have already taken steps with the intention of making policy approaches more flexible, holistic, and agile, for example through the use of regulatory sandboxes. Policies, regulations, or the removal of regulatory barriers can contribute to and accelerate economic growth, and inclusive development by developing countries as well as MSMEs. • We recognize that governance in the digital era needs to be not only innovation-friendly but also innovative itself, while not losing legal certainty. Interoperable standards, frameworks and regulatory cooperation can help in this regard. International as well as national policy formulation with the involvement of all relevant stakeholders in their respective roles is instrumental to address a wide range of societal challenges and facilitate discussion on how technology can be better incorporated into policy tools.
  14. 14. 13 Speed of innovation is accelerating ⇒ Law : Goal=based approach AI/algorithm make decisions ⇒ Control/design of software through architecture (AIs don’t read law.) ⇒ Combination of “Law and Code” ⇒ Rational approach on sanctions(Deferred Prosecution Agreement) Big players possess huge amount of data and computing capacity ⇒ Comply and explain ⇒ Assurance on corporate cyber integrity ⇒ Empowerment of government by Regtech/Suptech ⇒ Competition policy Globalized world ⇒Cross-border interoperability across the countries Illustration of the future governance
  15. 15. 14 Government will become the coordinator of the architectural design of regulation and governance rules rather than the rule-setter. Corporates will participate in architectural design of regulation and governance while engaging with their stakeholders through ‘comply and explain’ activities. Citizens will actively make input to the choice of options provided in the course of architectural design of regulation and governance while evaluating the performance of the government and the corporates by information and data provided by them. Illustration of the future governance(Cont’d)
  16. 16. 15 Governance of data and software design • Law and code • Role of architecture • Corporate digital integrity Society5.0 • Data-driven • Software-driven • More customized services • Smart regulation Benefits • Real-time data monitoring • Instantaneous adjustment of the systems Challenges • Privacy • “Nudge” • Government access to data • Cyber security Why do we need a new concept?
  17. 17. 16 Role of Architecture  Foundation for designing digitalized industrial/social systems  Bridge between Law and Code  Tool for comply and explain
  18. 18. 17 January OECD Global Conference on Governance Innovation WEF Agile Governance Council Report of the METI Study Group on Governance Innovation May Opening of the “Architectural Design Centre” in Tokyo June Programme for “the Regulatory Reform by Digitalization” “Coporate Governance Code for Digitalization” The way forward
  19. 19. 18 https://www.meti.go.jp/english/press/2019/pdf/191226001.pdf Governance Innovation(Redesigning Law and Architecture in the Age of Society 5.0) –Jan 2020
  20. 20. Overview of the New Governance Model State/Government Companies Communities/Individuals Rule-making Goal-based regulations • System architecture • Market mechanism • Social norms Guidelines / Standards Transparency and competition rules Monitoring SupTech: Data collection in cyberspace • RegTech: Voluntary monitoring • Comply & Explain • Internal/External audits Evaluation based on information from multi- stakeholders Real-time data monitoring / Implementation of monitoring review Enforcement • Enhanced Information disclosure ・Enforcement of competition law • Impact-based sanctions • Deferred prosecution agreement mechanism • Incident reporting • Cooperation in investigation • Improvement measures • Posting reviews on social media, etc. • Impact on finance Online Dispute Resolution International cooperation Entity Process Refer Feed- back

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