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Regulation for the Fourth Industrial Revolution

24/06/2019
In an acknowledgement that regulation has struggled to keep up with the fast-changing technological developments of recent years, the government has released its strategy for ensuring that the UK's

In an acknowledgement that regulation has struggled to keep up with the fast-changing technological developments of recent years, the government has released its strategy for ensuring that the UK's regulatory systems remain relevant going forward.  For new businesses, the proposals will be welcome; for those already established and looking to scale up, the strategy will be something of a disappointment.

The government has released a white paper "Regulation for the Fourth Industrial Revolution" ("White Paper", see here), setting out its plan to transform the UK's regulatory framework to ensure that innovation is supported in the 21st Century.  All aspects of society and the economy are in scope: the White Paper deliberately (and necessarily) sets out a root-and-branch overhaul for how new technologies can be embraced by government and agencies in their approach to regulation.  The intended result is that government should be working in tandem with industries to bring new technologies to market by developing and maintaining an agile regulatory environment. 

The problem today

Partly due to resourcing constraints and distractions, and partly because the pace of change has been so profound, government has in some respects been slow to properly regulate fledgling industries.  The result has been a gap in regulation, which can aide innovation and resourcefulness, but can also lead to uncertainty and establish a competitive disadvantage for UK companies.

Driverless cars, medical devices such as e-cigarettes and utilising artificial intelligence for early diagnosis and treatment of health issues are all examples of innovations that initially fell through the regulatory cracks during their development.  In each case, the existing regulatory frameworks initially struggled to cater for these new technologies.  In the energy sector, where the regulatory system was similarly not designed with 21st Century technologies in mind, new forms of generation and batteries landed in a regulatory blank space.  In addition, questions of data and the ethical sharing of information remain mostly untouched from a regulatory perspective, which poses issues for developers looking to sell their products to consumers.

The White Paper

The White Paper recognises some of these concerns.  In doing so, it seeks to strike a balance between protecting citizens and the environment on the one hand, while championing innovation on the other.

Key measures announced in the White Paper include:

  • The creation of a Regulatory Horizons Council ("Council") to advise government on rules and regulations that may need to evolve and adapt to keep pace with technology;
  • The establishment of a Regulation Navigator ("Navigator") to provide a digital interface designed to help businesses ease their way through the regulatory landscape, so they can bring their ideas to market more quickly; and
  • A review of the Regulators' Pioneer Fund, launched in 2018, which supports projects in their early stages by bringing together developers and regulators to innovate in a safe environment. 

What will the White Paper mean for businesses?

For innovative businesses operating in uncertain regulatory environments, the White Paper essentially provides momentum to initiatives already underway.  The establishment of the Council and Navigator will build on what the UK already does fairly well – promoting innovation and new ideas.  Those existing policy settings have already established something of a pro-innovation culture which has seen the emergence of 13 new unicorn companies (those valued at USD $1 billion or over) in the past year alone.  Challenger bank Monzo and Funding Circle, the peer-to-peer lender, are examples of UK-based tech unicorns which mean the UK is now only behind China and the US in creating fast-growing global tech companies.

The White Paper therefore formalises some of the initiatives already undertaken by regulatory bodies.  The Council and Navigator are essentially expansions of the Financial Conduct Authority's "Regulatory Sandbox", which allows businesses to test innovative products in a controlled and as-yet unregulated environment, with the security of the regulator's support.  The proposals also reflect the approach taken by the Civil Aviation Authority which has established a regulatory framework for drone tests, resulting in Amazon shifting much of its testing to the UK from the US.

What the White Paper does not do, however, is provide any indication as to next steps for businesses that are already established but need to grow to the next phase.  Helping home-grown enterprises to scale-up is a long-standing blind spot for the UK, and it is disappointing that the proposals do not look to aide their growth – for example, by setting out what new forms of regulation the government considers may be necessary in the coming years.  It will therefore come as something of a disappointment to existing businesses who are already in the regulatory 'system' but are having difficulty understanding where the regulatory boundaries lie for their next phase.

In these cases, businesses in industries like transport, life sciences and those that are dependent on artificial intelligence would be advised to work with regulators to develop a regulatory framework.  This requires presenting a detailed understanding of existing legal arrangements, including in model sectors, and setting out an appropriate legislative and regulatory regime taking account of risks and trade obligations.  In our experience, central government welcomes this sort of constructive contribution from companies operating on-the-ground in new and fast-moving sectors.  The alternative would be to have an untargeted and clumsy regulatory design imposed on sectors in the coming years.

For now, the White Paper presents an opportunity for fledgling businesses looking to develop their ideas.  For businesses a few steps ahead of that stage, the White Paper does not provide much by way of guidance.  In that case, the best next step is to get ahead of the curve and to engage meaningfully with policymakers in Westminster by crafting a well-designed legal and regulatory strategy for them.  The White Paper therefore goes some way to helping develop an agile regulatory system, but in reality leaves much of the heavy lifting to the private sector – which in turn should be seen as an opportunity for those businesses. 

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