Highlights
- As emerging technologies have rapidly started driving new business models, governments worldwide must develop, modify, and enforce regulations to protect consumers against unfair activities while letting innovation thrive.
- The “landmark rules” proposed by the EU may turn into “hallmark rules” to mitigate economic risks with emerging technology. The sooner the enterprises can adapt, the better will be their long-term sustainability with emerging tech such as Blockchain and AI.
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A global approach
EU proposes new regulations around tech like AI & Blockchain
Silicon Valley has always preferred emerging technologies to be left unregulated from every legal ground. However, that expectation is soon to be hammered down by the European Union Commission negotiators. On 21st April 2021, the EU Commission proposed its regulation over Artificial Intelligence - one of its several digital strategies to set out an authoritative regulatory structure, limiting the usage of AI with varying degrees of governance. Such trendsetting policies continue to roll out, now with a package of rules and regulations in the Market of Crypto Assets (MiCA).
A new framework
Taming the “Wild West” and protecting consumers.
As emerging technologies have rapidly started driving new business models in the economy, governments worldwide must develop, modify, and enforce regulations to protect consumers against unfair activities while letting innovation thrive. However, policymakers are head-scratching over the fact that emerging tech cannot be tamed by traditional regulations that are slowly crafted, enforced, and left unchanged for years. As new business models emerge, governments are challenged with creating flexible regulations at an unprecedented pace.
Stefan Berger, a German lawmaker who led the negotiation, said,
“Today we put order in the Wild West of crypto assets and set clear rules for a harmonised market. The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act!”
Shortly after, Paolo Ardoino, the CTO of Tether, further added,
“MiCA is one of the more progressive initiatives and is focused on driving crypto innovation in the European region!”
Quite clearly, Blockchain is on the EU’s radar, among other technologies. According to the World Economic Forum, 10% of the global GDP will be stored on Blockchain by 2027. Adding to this number is the market size of Blockchain technology, which is predicted to hit an evaluation of $162.84 billion by 2027. The numbers indicate that Blockchain has brought technology closer to Finance, paving the way for FinTech. Therefore, it is necessary to fulfill regulatory frameworks before making further innovations.
Proposed Principles
The proposed principles to regulate emerging tech
1. Adaptive Regulation
With faster feedback loop as an immediate result, adaptive regulation relies more on trial-and-error and co-design of regulatory standards. More rapid feedback loops allow setting up policy labs and creating regulatory sandboxes to evaluate policies against defined standards and feeding inputs into revising regulations at the pace of innovation.
2. Outcome-Based Regulation
Traditional regulations are inclined towards inputs and are prescriptive. But when the regulation inclines towards outcomes, it can develop efficiencies in business operations and enable greater flexibility for innovators. Instead of defining how results can be achieved, outcome-based regulation prioritizes performance and required results.
3. Collaborative Regulation
In 2018, the International Federation of Accountants reported that regulatory patchwork had dragged the economy by $780 billion. At the rate at which the digital economy is scaling, financial authorities can benefit from Collaborative Regulation to develop and enforce concrete policy guidance and standards to outline several general principles.
When it comes to technology, it may transcend regulatory or national boundaries. Different blockchain platforms can’t be limited to a regulator or a nation!
The impact
How will this regulation impact tech like blockchain?
Decentralized Finance poses significant challenges to regulatory authorities for its anonymity, lack of a governance body, and legal uncertainties. Despite its increasingly prevalent use cases in the FinTech industry with a clear impact on the economy, Blockchain is nascent when it comes to regulation. What’s still in the debate is that the non-authoritative nature of Blockchain lies in its core fundamentals of Decentralization, Distribution, and Immutability.
At the Modern BFSI Summit organized by the Financial Express, the Governor of Reserve Bank of India (RBI), Shaktikanta Das, said,
“When it comes to technology, it may transcend regulatory or national boundaries. The most relevant example in this case would be blockchain technology. Different blockchain platforms can’t be limited to a regulator or a nation!”
Businesses must also deploy operational resilience, cybersecurity practices, and risk mitigation.
Existing players, especially in Blockchain and AI, need to improve the quality and judgment of their governance to match the rate at which emerging technologies are evolving. Alongside designing tailor-made products and services, businesses must also deploy operational resilience, cybersecurity practices, and risk mitigation.
“Technology and innovation are neither destructive nor constructive. It is the use cases that present the responsible or irresponsible sides of particular innovation or technology!”
Shaktikanta Das further added at the Modern BFSI Summit.
The New Policy
EU expects the same governance around the world
As with any governing authority chaired by governments worldwide, the “landmark rules” proposed by the EU may turn into “hallmark rules” to mitigate economic risks with emerging technology. The sooner the enterprises can adapt, the better will be their long-term sustainability with emerging tech such as Blockchain and Artificial Intelligence.
Despite effective regulations, enterprises must enforce risk management layers integrated with manual supervision at the beginning of any business model that leverages emerging tech. The exercise would further benefit from Risk Assessment and Cybersecurity Strategies.
