February 13, 2019

“Regulation is a competitive advantage”

Europe can lead the way in creating a regulatory regime that stimulates innovation.

Harry Armstrong

5 min read

Recent high profile events, from the Cambridge Analytica data scandal to drone chaos at London’s Gatwick airport, have thrown regulation back into the spotlight. At a political level it’s becoming a hot topic too, as public unease with technologies like artificial intelligence grows while the global race to dominate the ‘fourth industrial revolution’ heats up.

Once this might have meant a race to the bottom and a cutting of ‘red tape’. Instead, we are seeing a radical shift in both regulatory theory and practice, driven by a greater acceptance that innovation needs to deliver public value and, more practically, the need for regulatory clarity around uncertain novel innovations like autonomous vehicles, drones or cryptocurrencies. ‘Anticipatory regulation’ is becoming a source of huge competitive advantage.

We are seeing a radical shift in both regulatory theory and practice.
Harry Armstrong, head of technology futures at UK innovation foundation Nesta

This presents an important opportunity for any government but only a few places are ready to fully exploit it. If Europe can lead the way in creating a regulatory regime that stimulates innovation while protecting and creating value for the public, it will have achieved something neither the US or China are in a position to do.


Europe's strongest competitive advantage lies in its size, diversity, and commitment to maintaining basic rights and delivering public values. A host of established regulatory institutions also mean it is uniquely placed to capture this opportunity. General Data Protection Regulation (GDPR), for better or worse, has already shown Europe can be a regulatory leader.

The tricky question is how: What would it take for European governments and the EU to develop an innovation-enabling regulatory system that protects European rights and delivers public value?

Regulation renewed

Regulatory systems have failed to keep pace with technological change (and other innovations). They increasingly face problems they have no way of dealing with. Platform economies, the growing importance of data, and development of cross-cutting technologies like AI have all deeply disrupted our outdated regulatory frameworks.

The emergence of new anticipatory regulation practices have started to reshape the role of regulation as a forward-facing, inclusive, proactive and innovation-enabling system.

However in the last couple of years we have seen an explosion in regulatory innovation. The emergence of new anticipatory regulation practices have started to reshape the role of regulation as a forward-facing, inclusive, proactive and innovation-enabling system. New practices such as the Financial Conduct Authority’s (FCA) sandbox (and the many other fintech versions worldwide) or the development of various testbeds for autonomous vehicles were at the forefront of this change. More recent developments are supporting even more innovative thinking — the UK government’s £10m Regulators’ Pioneers Fund is the first system-wide attempt to promote the testing of new innovation-enabling regulatory approaches.

Anticipatory regulation in practice

There are four key elements of anticipatory regulation:

#1 Proactive

Engaging innovators and innovation early: this is particularly important when problems and opportunities can scale very quickly. The FCA sandbox or the various innovation hubs regulators have set up are a great example of this in practice. Being proactive is not just about engaging innovations earlier, it is also an opportunity to use regulatory action as a way of driving innovation around a particular strategy or public need. Nesta has found challenge prizes a very effective way to do this: identifying the outcomes you want to achieve and supporting the market to develop innovations that deliver that outcome. For example, we are working with the Solicitors Regulatory Authority to stimulate AI-powered innovations that could serve to widen access to justice, and at the same time inform the regulator's approach to these new technologies.

#2 Inclusion and collaboration

Where new technologies raise ethical issues with sensitive political implications, the public need to be engaged; as part of a more diverse set of stakeholders, and a more collaborative, co-creation approach (in part to avoid public backlash). Regulators have to leverage the capabilities of businesses, cities and civil society to secure policy goals and build capacity in new areas like data.

Gardens by the Bay, Singapore. Credit: Dronepicr/Flickr

#3 Future-facing

Being future-facing is arguably a large part of the success of the Singaporean approach to regulation. While horizon scanning and identifying emerging issues and opportunities is a vital part of this function it must be paired with other foresight and futures approaches to develop resilient, adaptive strategies that can cope with the inherent uncertainty of fast-changing markets.

#4 Decentralised experimentation

Lastly there is the need for decentralised experimentation in facilitating diverse responses to the regulation of early-stage opportunities and risks where national or global policies or standards are still to be established. Autonomous vehicle development in the US is a good example; lots of states are taking different approaches with a set of general standards being developed at the federal level.

What Europe can do

Europe is in a strong position and can boast a number of particularly interesting and innovative initiatives (see Austria’s approach to autonomous vehicles or the UK’s new regulation strategy) but it is by no means in the lead. Singapore still represents the most innovative regulatory system and other places are moving quickly to capitalise on the opportunities, for example Canada’s emerging Centre for Regulatory Innovation.

Building and embedding these anticipatory approaches into national strategies and at the EU level is not an easy task; it requires a very different mindset and way of working. Some bits of Europe are ahead of the game, but for the whole of Europe to benefit it needs a coordinated anticipatory regulation strategy.