The UK has a well-established and well-respected system of regulation, which the majority (83%) of the public see as good for society and for business. But without action, this won’t last long. Brexit is looming on the horizon, with huge implications for our regulatory framework. Firms in all industries need to focus on innovation to keep up with, let alone stay ahead of, new customer behaviours and the increasing pace of technological change.
Regulators will have a growing role, particularly in a post-Brexit world, to remove the barriers to innovation, for example by minimising the hoops organisations need to jump through to release new products or services. There is an opportunity here for the UK’s regulators to be a source of competitive advantage for British businesses, but they will need to understand how they can do this whilst still delivering on - and keeping within - their statutory duty to protect society.
Regulators must play an active role in promoting innovation. This starts with regulators and regulated companies working more closely together, to ensure that the rules reflect the practicalities of running a fast moving business.
There are some examples where this is already happening, such as through the Ofgem and FCA sandboxes, which allow unauthorised companies to test out new products and services in an controlled environment. Sixty firms have been through the FCA’s regulatory sandbox, resulting in material changes to the data they ask for and the way they ask for it, as well as helping new entrants to attain banking licences far faster. This has already proven to be an advantage for the UK’s burgeoning fintech scene.
Lack of money is no excuse for regulators not pursuing these kinds of creative approaches. The Department for Business, Energy and Industrial Strategy has recently launched its Regulator Pioneer Fund which will see it invest up to £10m over two years to support regulators with initiatives that help businesses bring innovative products and services to market. This is explicitly designed to ensure regulation does not get in the way of new approaches and business models.
Empower the consumer
Regulators’ primary responsibility is to protect society from the excesses of the free market. But this too can be a competitive advantage to the UK’s firms. Aside from acting as a badge of quality in international markets, effective regulation can help build consumer trust, especially when it involves providing the public with clear and reliable information. This, in turn, can help businesses retain and recruit customers.
Just think how Ofsted’s assessment of whether schools range from outstanding to inadequate has helped parents make far more informed choices and driven poorer performing schools to improve. Imagine doing that in other areas such as banking or healthcare – and really promoting those assessments so more consumers are aware of and use them.
Play to Britain’s strengths
Clearly in the short term businesses need certainty around Brexit. But looking further ahead, Brexit gives UK regulators the opportunity to create world-leading regulatory frameworks that set standards globally and play to the strengths of British businesses.
The UK will be able to implement regulatory frameworks that amplify areas where UK businesses have competitive advantage and the regulatory regimes can be a differentiator for the UK’s products and services. For example, the Civil Aviation Authority is looking to establish a clearer framework for how organisations can adopt new technologies, which will help British businesses be at the forefront of industry innovations such as drone taxis.
Cross traditional boundaries
Regulators need to work across traditional sector boundaries to maximise innovation opportunities. Whilst UK regulators within the same industry frequently co-operate (for example the FCA, the Prudential Regulation Authority, the Pensions Regulator and others in the financial sector), they should also be looking to innovate further by learning from one another and by introducing ideas from other sectors. For example the Gambling Commission, in considering the future re-tendering of the National Lottery, adopted a scenario planning technique more typical in the energy sector to help potential suppliers consider different future worlds for how gambling might evolve.
Regulators are also increasingly recognising the need to encourage innovation on a more global basis, particularly for services that apply across borders. For example, the FCA has collaborated with 11 regulatory bodies from Europe, the Far East and the US on the creation of a Global Financial Innovation Network. This will seek to provide a more efficient way for innovative firms to interact with regulators, helping them navigate different countries as they look to scale new ideas. It will also create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.
Get ahead of trends
A real challenge for businesses developing new products and services is the risk that significant investment will be wasted if new regulation then outlaws the approach. This is a problem in areas like artificial intelligence or blockchain where regulators are having to develop their thinking in very new ways. To address this, regulators need to respond quickly, collaborating across industries to co-create rules and provide early information about their approach. This will then create business confidence that companies can develop new technologies and be compliant with the regulations.