by Roslyn Doktor and Robb Henzi*
From pandemic to global conflict, misinformation to inflation, climate change to culture wars - the world is facing a period of broad structural uncertainty. Amidst these less certain, more complex dynamics, efficiency, clear accountability and effective collaboration in our regulatory systems have never been more critical. With emerging technologies, new tools, innovative partnership models and more, the concept of agile governance has been propelled to the forefront of global regulatory efforts.
As a broader culture of innovation sweeps across business, culture and society, regulators with an eye on the future are harnessing the power of Regulatory Technology (RegTech) - a market projected to grow from $7.6bn in 2021 to $19.5bn by 2026 - to create the best possible regulatory outcomes for society.
So, what is RegTech exactly?
In our new report, Regulatory Technology for the 21st Century, with the World Economic Forum’s Global Future Council on Agile Governance, we define RegTech as the “application of various new technological solutions that assist highly regulated industry stakeholders, including regulators, in setting, effectuating and meeting regulatory governance, reporting, compliance, and risk management obligation.”
RegTech can help both the regulator and the highly regulated to minimize risk, improve outcomes, and lower costs. It helps connect “the dots” more quickly and automates tasks. It can also translate complex regulation into code. Applying technologies, like AI, blockchain, and cloud, responsibly to augment the ability of compliance teams can help both the regulated and regulator to do their job more effectively and collaboratively.
For the regulated, it strengthens compliance while enabling agility to anticipate and dynamically respond to changing regulatory needs. For the regulator, it enables more transparency as well as agility in modifying requirements to meet new risks more timely. The nature of the relationship changes from “set-and-forget” to iterative and user-centred regulation design.
Which areas should RegTech stakeholders focus on?
To achieve these outcomes, the new report identified three key common success factors – spaces where regulation-connected stakeholders must invest their time and intention – that can power an acceleration of the advancement and embrace of agile, data-driven regulatory solutions that meet the moment in 2022 and beyond.
First and foremost, regulators must be aware of and embrace new engagement models to power more innovative and agile regulatory processes and outcomes. This means a reinvention of how the private and public sectors engage around regulatory matters, evolving from a producer/consumer dynamic to one grounded in partnership, co-learning and multi-stakeholder consideration - similar to Suade Labs’ support from the EU and successful collaboration with the UK government.
Collaboration holds the keys to a more innovative, RegTech-driven future, and this extends beyond government and the private sector, as regulatory processes, much like capitalism at-large, increasingly requires a stakeholder-led approach - considering the needs of consumers, employees, local communities, shareholders and suppliers whose outputs fuel global supply chains.
Increasing data-driven decisions and creating new design models
A second set of mechanisms poised to power the future of RegTech are new design models that offer transformative toolkits for regulatory bodies. Embracing the idea of radical user centricity, a practice area most frequently applied to product and service design, can help align regulation development with more agile, iterative processes akin to those that enable new software development.
This means embracing a dynamic approach that welcomes experimentation and iteration, seen in certain regulatory sandboxes over the last few years, and one that embraces an “adapt-and-learn” mindset over “set it and forget it”.
Finally, new applications and platforms will give human regulators new superpowers in terms of ingesting larger volumes of data and making more evidence-based decisions. The power of regulation as a platform cannot be overstated, it is a transformation of regulation into a form of digital logic, or codable regulation, accessible to technology developers and overseen by government regulators.
This marriage of data-driven machine intelligence and human insight will most effectively tackle regulatory challenges in unpredictable and ambiguous futures, as recently highlighted in a paper by IBM. Continued investment in AI, advanced data analytics, and other layers of automation will secure RegTech’s place at the center of policy making, implementation and re-assessment, and reduce the cost of compliance for both sides.
A practical roadmap to take the first step
Informed by these success factors, the Global Future Council on Agile Governance has developed a practical roadmap to help both regulators and the regulated take the first step towards preparing for a RegTech-fueled future of agile governance. This roadmap lays out strategies regulators and the regulated can use to find their entry point into the RegTech ecosystem, identify opportunities to use RegTech, determine which RegTech tools and solutions are applicable in a specific context, and apply and prioritize those solutions.
It is not necessary to upend or rewrite entire regulatory and compliance frameworks to begin this journey – rather, adopting a more incremental, iterative, and experimental mindset will mine RegTech’s value in the now, next and future.
What does this mean for policymakers?
1. Regulators – and the regulated – should establish and enable trust. To understand how technology can be infused responsibly into reporting, auditing, and compliance management processes, government leaders should convene academia and industry, including technology and domain experts. Governments should study the best practices in tech ethics being applied to regulatory technologies and assemble a report on how the benefits of digitalization accrue beyond compliance to accelerate their uptake.
2. Regulators should embrace agile governance – an experimental, user-centric, outcome-specific approach to RegTech. As the report details, regulatory sandboxes and pilot programs can help regulators understand different approaches to these technologies, especially AI, to better choose solutions that will be fair, accountable, transparent, robust, and secure at the outset.
3. Any policies around RegTech should ensure that humans remain at the center, recognizing that the technology’s purpose is to augment the capabilities of both the regulator and the regulated.
4. Procurement policies should promote open standards-based solutions that can enable enterprise-wide software interoperability. Siloed, proprietary RegTech solutions may not yield the cost benefits of shifting resources away from compliance and toward innovation. Accordingly, any regulatory guidance in this space should recognize and promote open technologies.
Dynamic instead of reactive RegTech
RegTech responds to the urgent need for transparency and flexibility in modern regulatory practices. By supporting the shift from reactive to dynamic regulation and explicitly recognizing the fundamental interdependency between regulators and the regulated, RegTech provides the key to meeting the challenges of regulation and compliance amidst changing market dynamics, increased complexity, and ever-evolving technology landscapes.
*Vice President, Tech & Science Policy, IBM and SVP, Strategy + Head of Policy & Philanthropy Practice, Sparks and Honey
**first published in: www.weforum.org