Executive summary

The changes brought by innovation hold great potential to enhance prosperity and well-being, but they also entail significant risks and potential adverse effects. Innovation also fundamentally challenges the way governments regulate. Policy makers and regulators must strive to maintain a balance between fostering innovation, protecting consumers, and addressing the potential unintended consequences of disruption. Several factors combine to create unprecedented challenges in the way governments and regulators operate:

• Difficulties for regulatory frameworks to keep pace with the dynamics of technological transformation;

• Difficulties in designing fit-for-purpose regulatory frameworks given that innovation frequently cuts across administrative and sectoral boundaries;

• Challenges to regulatory enforcement due, for example, to the difficulties in attributing liability when artificial intelligence in involved;

• Institutional challenges raised by the inherently transboundary nature of a number of innovations.

The report presents a series of case studies to document these regulatory challenges and the range of regulatory responses implemented or contemplated by governments.

Main findings:

• Governments can take a variety of regulatory approaches to address the challenges raised by innovation. These can range from explicitly preventing the development and adoption of a technological development, to adopting a “wait and see” approach to ascertain which perceived risks materialise, to developing regulatory guidance or piloting innovative approaches such as the adoption of fixed-term regulatory exemptions (e.g. regulatory sandboxes).

• Given the dynamics of technological advances, it is likely that the appropriate regulatory approach (or mix of approaches) will require periodic adaptation to ensure regulations are fit for purpose. A continuous monitoring of the impact of regulations, coupled with timely and proportionate revaluations of existing regulatory frameworks, appears critical to achieving this. The cross-cutting nature and sheer pace of innovation may also require a combination of different types of regulatory approaches.

• Traditional regulatory policy tools provide important opportunities to pause, consult, question and test the approaches that may help achieve general policy objectives. Yet, the disruptive changes brought by innovation create a strong need to strengthen and systematise the use of regulatory policy tools. As highlighted in the OECD Recommendation on Agile Regulatory Governance to Harness Innovation, this could involve, in particular:

  • Developing more flexible, iterative and adaptive ex ante and ex post assessments;

  • Fostering coherence and joined-up approaches through effective co-operation between the supra national, national and sub-national levels of government;

  • Developing governance frameworks to enable the development of agile and future-proof regulation such as outcome-based regulations (e.g. data-driven regulation and rules as code, co-regulation and non-regulatory approaches such as voluntary codes or standards;

  • Developing new enforcement strategies to promote compliance: governments should prioritise responsive and compliance-promoting approaches to regulatory delivery focusing on outcomes and based on risk-proportionality rather than focusing primarily on the letter of the rules.