Keeping Regulation Up To Speed With Technology Innovation

The increasingly heated discussion around fake news and online electoral manipulation demonstrates a pressing challenge in today's technology-driven times: how to regulate new technology?  In this instance, the technology in question is social media platforms, but the same issue is playing out across many technologies in every aspect of our economy and society. 

Keeping Regulation Up To Speed With Technology Innovation

At first glance, the question may not seem a central concern, but what is at stake is whether we as a society control technology or technology controls us – or indeed, whether whoever controls technology controls us.  Key decisions around technology regulation will determine who we are as a species (gene editing), who lives and who dies (medical interventions), what we eat and hence what we are (anti-biotics for farm animals and genetically modified crops), how we communicate as a society (social media platforms) and the world we live in (emissions controls).  Today, we have global warming – the result of unfettered industrialization.  What is tomorrow's equivalent, being shaped right now in the shadows, free from regulatory and political oversight? 

Of course, risk is only one side of the equation, because “Technological change drives long-term economic growth, productivity and improvement in living standards.”[1]  Not only will new technology enable the productivity increases that are essential to address social challenges such as an ageing population, but meeting even today’s energy and environmental challenges will be much more difficult without new technology[2].  The success of advanced economies rests on their ability to mine the technology frontier and diffuse technology from frontier firms to the rest of the economy[3].  Moreover, if you subscribe to the view that today real sovereignty depends on technology autonomy, then the role of regulators in deciding where and how innovative technology can be exploited will be a critical national security issue, with controversies around Huawei merely a harbinger of a broader trend[4].  There is a final, less obvious reason to get regulation right: in the same way that the rise of ancient Athens as the main trading hub in the Aegean owed much to the transparency of its markets and the efficiency of its courts, countries can gain competitive advantage from effective regulation. For instance, Malta and Switzerland have taken a lead in regulating crypto-currencies and, thereby, established themselves as attractive sites for investment[5].  In sum, today the rewards from technology innovation are greater, but the risks of inadequate or inappropriate regulation are greater too. 

Technology innovation creates a modern-day commons dilemma

Deciding if and how to regulate the use of new technologies is at heart a collective action problem.  Since individual companies can exploit new technology in ways that may be at the expense of wider society, in essence, we have a 21st-century variation on the age-old commons dilemma where people's short-term selfish interests may be at odds with long-term group interests[6].  But there are some added twists.  In the classical analysis of the dilemma of the commons, concerning grazing cattle on common land, societies can readily understand what constitutes over-grazing and establish rules and monitoring mechanisms to ensure fair usage of common resources[7].  Today, however, few people have first-hand knowledge of advanced technologies and their potential impact.  This makes dependence on experts inevitable.  Two additional twists to the traditional commons dilemma are the speed of change and the deepening complexity of technology.  These factors reduce the timeframe within which questions must be answered and make the answers that much harder to see.  Taking these three factors together – making complex decisions at speed where dependence on experts is inevitable – it becomes evident that resolving today’s commons dilemma necessitates a high level of institutional competence.  This will require innovation in our institutions to match innovation in our technology. 

In order to understand the nature of the institutional innovation required, it helps to examine each of these complicating factors further.

Dependence on experts is inevitable unless we want to revert to 17th-century technology

Woodrow Wilson once argued that there is a danger in reliance on experts: "God forbid that in a democratic country we give ... the government over to experts ... Because if we don't understand the job we are not a free people”[8].  The problem with this line of thought is that, as a civilization, we are long past the point where any single person can 'understand the job' – in fact, more than four hundred years past if we hold the notion that Francis Bacon was the last person to know everything there was to know.  The reality, therefore, is that unless we want to return to seventeenth-century technology, dependence on experts in the form of regulators is inevitable.

“Change has never been this fast & will never be this slow again.”

The prescient quote above is attributed to Gordon Moore (of Moore’s Law fame).  Indeed, as we are swept along in the river of change, it is all too easy to lose sight of quite how fast the water is flowing.  Just to take one current of innovation: today 900 million people in China use WeChat (China’s What’s App) to make mobile payments; the Chinese banking regulator authorized WeChat as a payment provider in 2014, only 4 years after it was founded[9]; the iPhone, which super-charged mobile phone adoption, was launched only in 2007.  So just 12 years after the launch of a new consumer technology, a single company that had not existed at the time of the launch holds a dominant position in payments across the world's most populous country. 

Since speed is of the essence, institutional lag is a very real risk.  Non-decisions are decisions.  Regulators have a short timeframe within which to understand new technology, shape debate, draw conclusions and introduce any required change. 

Technology has never been so complex & will never be so simple again

It is not only speed that complicates the task of regulators.  As the technology frontier moves ahead at pace, every technical domain is becoming more specialized, splitting into sub-domains, then sub-sub-domains and so on, like the branches of a growing tree.  This complexity creates a challenge, since understanding new technologies often depends on integrating expertise across multiple domains.  For example, Facebook's planned Libra cryptocurrency raises issues across[10]:

  • Economic efficiency – What difference will a digital-native currency make to digital transaction costs?
  • Financial stability – What risks are engendered by a currency that is not issued by a central bank?
  • National economic strategy – China is launching a digital currency built on blockchain which can rival the dollar as global reserve currency and “disrupt both traditional banking and the post-Bretton Woods system of floating exchange rates that the world has lived with since 1973”[11]. Do the USA or Europe need their own digital native currencies to keep up?  
  • Security – How is the blockchain protected ($300m was stolen in 12 major cryptocurrency hacks in 2019[12]) and how are digital payments of individual consumers secured?
  • Greenhous gas emissions – Blockchains are energy-hungry, so how can their environmental impact be mitigated?[13]
  • Monopoly – What impact could a digital currency have on the market for payments and digital services?

Insight into these diverse considerations lies well beyond the comprehension of a single individual expert.  Consequently, regulators have to absorb, synthesize and evaluate information across multiple domains.  Apples and oranges must be weighed – and quickly.  Moreover, in making decisions, regulators must balance the interests of competing stakeholders, taking into account a host of factors: productivity, risk, a level playing field, monopoly/monopsony effects and the position of end consumers. 

Preventing a 21st-century tragedy of the commons

So, what must we do to prevent a 21st-century tragedy of the commons where over-exploitation of resources has catastrophic long-term results?  In my belief, we need to evolve our regulatory institutions in three respects:

  • Technology expertise – How do regulators (society’s delegates) ensure that they have sufficient understanding of emerging technology and its potential impact to advise and regulate effectively?
  • Education, engagement and trust – How do regulators educate and engage with the public and businesses so that the decisions of regulators are suitably informed and understood? Here the process matters as much as the outcome, so an important subsidiary question is: how is trust in the regulators maintained, i.e. how can the public and businesses be sure that the decisions of regulators represent the correct balance of stakeholder interests and short- and long-term factors?
  • Oversight – What powers should regulators have and how can the public directly, or through their political representatives, ensure appropriate oversight?

Below, I explore these challenges, with examples taken predominantly from financial services, since this is an industry where I have first-hand knowledge. 

Regulators must harness deeper technology expertise & become technology practitioners

At a recent conference on banking regulation, a panel of experts was asked what risks they saw to the financial system after the regulatory reforms that had followed the 2008 financial crisis.  The answer they gave was cybersecurity, cloud computing and shadow-banking (i.e. banking that falls outside the scope of regulators which is often facilitated by FinTech).  At the heart of each of these risks lay technology.  Most troubling, however, was the confession of the panel – made up of regulators, former bankers and macroeconomists – that one of the principal reasons why they were so concerned about these risks was that they did not really understand them. 

This example highlights a clear issue with the background of the regulators, most of whose careers were forged in a less technology-driven age.  As further evidence, in reviewing the boards of five banking regulators, I found not one member with a technology background.  Regulators will need to close this gap in technology expertise not only at board level but throughout their organizations, and look to augment their capability, as many banks have, through independent technology advisory committees.

In addition, new institutional models based on collaboration will be a vital strategy for regulators since typically regulators understand the what but technology firms understand the how[14].  Regulators can look to the open collaborative models that have driven development of open-source software and the internet.  An example comes from Open Banking, a regulatory imperative, initiated in the UK and EU but now widespread across the globe.  Its aim is to bring more competition in the banking market by requiring banks to allow third parties – with a customer’s permission – to access customer data and payments.  In the UK, a new institution, called Open Banking[15], was established to determine how the new regulation should operate.  This brought together incumbent banks, regulators, Fintechs, tech players and representatives of specialist interest groups.  People from organizations that had spent a lifetime competing against each other sat around the same table to define the future shape of the industry, including such inherently difficult issues as what would be common and what would sit in the competitive domain. 

While technology is posing so many questions for regulators, it is also a large part of the answer. Regulators will be able to adopt many of the same tools as the companies that they are regulating. For example, regulators can employ artificial intelligence and machine learning techniques to model, simulate and test new technologies. Moreover, with technology evaluation becoming central to regulation, the experimental aspect of regulation is bound to increase. Even in sectors where regulation has traditionally focused on monitoring and reporting, regulators will increasingly deploy laboratories and sandboxes to test new products and services. For instance, banking regulators in Australia, Hong Kong, Singapore and the UK have set up sandboxes to enable regulators and companies to test solutions in a controlled environment. In addition, new ways of engaging and educating the public and business (see below) will depend on harnessing new technology. Ultimately, regulators will have to develop the skills of technology practitioners if they are to be effective as technology assessors.

Regulators must educate and engage with the public in different ways to strengthen trust

Since, as H.L Mencken once remarked, “For every complex problem there is an answer that is clear, simple, and wrong”, much of the role of regulators will be to take intrinsically complex issues and provide explanations that are understandable to citizens whose lives are lived far from the technology frontier.

However, it would be a mistake to view the education of the public as only – or even predominantly – a technical issue.  Ultimately it boils down to trust.  The public must place their trust in regulators to understand, explain and advise about new technology, and, likewise, in politicians to ensure oversight of the regulators.  In turn, the regulators look to subject matter experts (SMEs) and the SMEs to still-more-specialized SMEs.  In effect there is a chain, and not only must information be transmitted across each link of the chain but also trust in the validity of the information.  Successful transmission along the chain depends on a high degree of public trust, and transparency is a vital factor in strengthening trust.

An additional means of fostering trust will be for regulatory processes to assume more interactive forms in keeping with today’s participative digital age.  For example, in healthcare, citizens' panels not only provide a voice for patients and the public but also work with health professionals to decide where ethical lines should be drawn in the adoption of new technologies, such as gene editing and in vitro fertilization.  Likewise, citizens' panels are now coming into their own as a means of determining constitutional issues in an open, transparent manner.  No doubt many issues will remain the domain of specialists (for example, setting interest rates) but one can easily see a role for citizens’ panels in many areas that relate to ethics, the role of regulation and interaction with the public and businesses. 

A further consideration is that emerging technology always comes with considerable uncertainty, so in the early stages of technology development, stimulation of debate to generate insight will be more important than rule-making, reporting and standard-setting.  Regulators will need to build and curate new forums for this debate to take place. 

Finally, education is required not just of the public, but also of elected officials who come from all walks of life and may spend only a few years in post.  In the 2018 US congressional committees that examined the misuse of private data and electoral interference by foreign powers, elected officials struggled to hold social media and research companies to account.  Their ignorance of the technology in question was palpable[16]

Oversight of regulators will become a central political issue

As technology moves ahead more quickly and risks associated with technology increase, regulation of technology, once peripheral to the public sphere, will take centre stage.  In equal measure, once dependence on regulators grows, scrutiny of regulators will intensify.  People will inevitably ask: "Who watches the watchers?"[17]  The appointment of regulators, their terms of office, their links with industry, the funding of regulation and scrutiny by elected officials will all be the subject of intense public and political examination.  As Paul Tucker observes in his study of central bank independence, ultimately "it is about power – unelected power.  How to contain it, hold it accountable, legitimize it.  But it is also about how to make to make the power of independent agencies useful, serving society's needs.”[18] In other words, just as regulators need to run to keep up with technology, so too must society run to keep up with the regulators, ensuring that they are responsive and accountable to citizens.[19]

An issue that will have to be addressed is that regulation and the powers of regulatory bodies have evolved in a piecemeal manner, typically in response to fresh instances of perceived regulatory failure.  As a result, in the UK and USA, regulatory bodies have assumed a disparate range of accountabilities and relationships to the executive.  This is an area where a thorough-going review is required as we move into an era of heightened technology change and the consequent need for speedy and effective regulation.  In the course of this review, we can expect to see a return to the persistent battles over the powers of regulators that took place in the late 19th and early 20th centuries, when agencies such as the Interstate Commerce Commission were established to curb the power of the railroads.  What’s different is that that wave of regulation represented a response to a particular transformation in the organization of the economy, but today the speed of technology innovation appears to be a permanent feature.  Perhaps we ought to be thinking of regulation as a significant strand in our constitution alongside the judiciary?

In conclusion: We need innovation in our institutions that matches innovation in our technology

Right now, regulation of technology is a peripheral topic in our national conversation, but that must change unless we want to learn only through our mistakes and regulation is only reformed in the light of failure.  Ability to mine the technology frontier is fundamental to prosperity but understanding the risks and opportunities behind individual technologies lies well beyond the comprehension of any single expert, and further still beyond that of ‘the man in the street’.  In order to address this collective action problem, society will have to produce innovation in our institutions that match innovation in our technology.  We need new institutional models, not just new regulations.  This may sound like a tall order, yet institutional innovation is nothing new.  Douglass North, the Nobel Prize-winning economist, and a school of followers have shown how the progress of humanity is above all a story of the advancement of institutions.  Put simply, institutions are how humans solve problems together, and it’s through changing our institutions that we will solve the problem of how to harness new technologies in the interests of society as a whole.

[1] The OECD Jobs Strategy: Technology, Productivity and Job Creation: Best Policy Practices,

[2] David Moschella & Robert D. Atkinson, The Enterprise Automation Imperative: Why Modern Societies Will Need All the Productivity They Can Get, LEF, January 2020

[3] Dan Andrews, Chiara Criscuolo & Peter N. Gal, Frontier Firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries, OECD, November 2015

[4] Rowland Manthorpe, Sovereignty: If It's not Technological It Won't Count, Sky News, 14 November 2019

[5] The Race to Regulation, Global Banking & Finance Review, 22 October 2019

[6] Tragedy of the Commons, Wikipedia

[7] Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990

[8] Woodrow Wilson, quoted in John Milton Cooper Jr, Woodrow Wilson, Vintage, 2009 

[9] How Alipay and Wechat Pay Revolutionised Chinese Payments, China Banking News, October 2019

[10] For a wider assessment of the issues surrounding Libra, please see

11] Say Goodbye to Banking as We Know It, Bloomberg, 29 December 2019

[12] Almost $300 Million Stolen From Crypto-Exchanges in 2019, Zerohedge, January 2020

[13] Mike Orcutt, Bitcoin uses massive amounts of energy, MIT Technology Review, November 2017

[14] 2020 Predictions: RegTech Council Chair and CEO of JWG, PJ Di Giammarino on Regulation, Xceptor Unleash Your Data podcast Season 2, Episode 1,


[16] David Rimmer, Where are the Victorians When You Need Them?, LEF, June 2018 

[17] Juvenal, Satires (Satire VI, lines 347–348)

[18] Paul Tucker, Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State,  Princeton University Press, 2018

[19] Daron Acemoglu & James A. Robinson, The Narrow Corridor: States, Societies and the State of Liberty, Princeton University Press, 2019


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