Executive summary
Emerging technologies have enabled the development of new products, services and business models that were hardly conceivable just a few years ago. Their pace and scope continue to have an astonishing impact on markets and societies. Furthermore, the COVID-19 pandemic has illustrated the strategic importance of developing more agile and co-ordinated approaches to improve both responsiveness and resilience in fast-changing environments. In this context, governments face the task of promoting innovation and maximising its benefits for all, as well as mitigating risks that arise. While doing so, governments and regulators face four interrelated challenges:
1. keeping pace with change: digital technologies tend to develop faster than the regulation governing them, and thus there is a continuous need to stay up to date with technological progress and its effects;
2. designing “fit-for-purpose” regulatory frameworks to respond to the encroachment of digital platforms into various sectors, as well as changes in the traditional delineations between consumers and providers;
3. tackling regulatory enforcement challenges, as traditional enforcement might not be effective in the context of emerging technologies;
4. addressing the transversal and transboundary dimensions of these technologies, since digitalisation gives business global reach and has a consequential effect on jurisdictional boundaries.
The report looks at these challenges and how regulators seek to address them through two main lenses. First, regulators are identifying and seizing opportunities offered by emerging technologies to enhance the design and delivery of regulations. Second, regulators are demonstrating agility in adapting their own governance and regulatory frameworks in this fast-changing environment. To illustrate these phenomena, the report brings together fourteen case studies that span nine countries and a wide range of sectors (communication, transport, energy, environmental protection) and provide concrete examples of how regulators are responding to innovation in the sectors that they oversee.
From the case studies, it emerges that regulators are increasingly harnessing the benefits of innovative technologies, by seizing opportunities that ultimately reduce information asymmetries with market actors and increase regulators’ capacity. Some examples include real-time monitoring of traffic flows, use of drones to support risk-based inspections, or data analysis and data interpretation software. In addition, data-driven regulation provides significant opportunities to improve transparency (including with stakeholders as varied as consumers, businesses, policy makers, and local authorities), reduce information asymmetries in regulated industries and create incentives to steer the market in the right direction. Embedding the digital tools for data-driven regulation in the compliance process also leads to savings for market operators, which in turn are passed to the consumers and the wider economy.
With regard to regulators’ agility in adapting their own governance arrangements, resourcing and regulatory frameworks, the case studies highlight approaches and practices across a number of dimensions.
Fit-for-purpose legal and regulatory frameworks: changes brought about by emerging technologies, such as the blurring of traditional sector lines or the rise of “prosumers” have led regulators to assess the relevance of the status quo. Such assessments have required regulators to take into account elements such as new products and services, the pace of disruption, behaviour changes and evolving stakeholder preferences. In some jurisdictions, in-built flexible design has allowed regulatory frameworks to retain their relevance; such cases may provide useful lessons for the development of adaptive, responsive regulatory approaches.
Mandates and powers aligned with sector needs: the volume of data gathered through the use of new technologies grows continuously and at an unprecedented pace, raising a number of challenges for regulators and policy makers. The regulation of digital markets, given their complexity, requires appropriate inspection and data collection powers, data analytics capabilities, and enforcement powers, among others. Having the right “toolbox” and consumer-centric approach may require a reform or an update or the regulator’s mandate and legal powers.
Adequate internal structure, resourcing and skills: emerging technologies and related market evolutions can prompt changes in the internal governance, resourcing and structure of regulators. In some cases, operational change is driven by measures such as the introduction of an innovation-specific department. In other cases, the shift in regulatory approach or market practices is reflected in a holistic organisational overhaul. Across the board, there is need to update skills in the workforce and to implement change management strategies for organisational culture to adapt to and support these changes.
Ensuring foresight: regulators across jurisdictions have set up teams or committees with a focus on innovation and emerging technologies. Such teams can help articulate a forward-looking perspective and channel it into the regulator’s strategy and everyday activities. They can also support regulators in providing inputs to government policy. In order to remain in sync with the sectors, regulators need to embrace an internal culture whereby innovation and new ways of approaching problems are considered business as usual. The role of leadership is crucial in mainstreaming such a vision and culture across the agency.
Embracing enhanced co-operation: Digitalisation enables businesses to have a global reach, just as new business models disregard traditional boundaries between sectors. There are a number of examples of co-operation among regulators at national and international level as well as across sectors. On an international level, regulatory co-operation comes in many forms and types, ranging from prescriptive and formal arrangements such as regulatory harmonisation imposed by international treaties, to information exchanges among regulators through informal working-level arrangements or the participation in trans-governmental networks of regulators.
The case studies show that, given their unique position at the forefront of interaction with and oversight of regulated markets, regulators must stay abreast of market transformations and act accordingly. Moreover, the COVID-19 pandemic has created an urgent need for regulators and policy makers to adapt their approaches and further stimulate innovation.