NSW Treasury report shows how AI can fast-track regulatory reform process

By Shannon Jenkins

Wednesday July 29, 2020

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The New South Wales government has released a report detailing opportunities to “future-proof” regulation to keep it responsive in times of change.

The new report outlines potential areas of reform, as identified by Deloitte’s RegExplorer, “an augmented intelligence tool” which analysed information publicly available on the state’s regulation website.

NSW Treasury secretary Michael Pratt said the paper would “kickstart” a conversation about ways to improve NSW regulation, prompted by the rapidly changing circumstances as a result of COVID-19.

“The NSW government responded [to COVID-19] with a raft of temporary regulatory changes to protect citizens, while allowing businesses to flexibly deliver their products and services and enabling ongoing legal and administration requirements to be met through digital solutions,” he said in the foreword.

“COVID-19 could act as a catalyst for broader regulatory reform that will support businesses to adapt to changed business patterns and consumer preferences and facilitate economic recovery.

“Treasury’s Strategy and Delivery Unit is currently leading the way to ensure the state is well equipped in its response, recovery and reform efforts. Beyond the COVID-19 pandemic, we must also consider the future of regulation in this age of continually changing social, technological and economic circumstances. This report identifies opportunities for NSW to future-proof our regulation and keep it flexible, fit-for-purpose and responsive in times of change.”

There are 88,704 sections in NSW regulation, the analysis found. Of these, 7% (6139) of sections have not been edited since they were created, 4% (3893) have only been edited once, and 5% (4179) have not been edited for ten years.

The average age of a piece of regulation in NSW is 22 years, and a piece of regulation is edited an average of 104 times. Two times as many sections of regulation were created between 2010 and 2019 than in the preceding decade.

One area of “regulatory burden” was unnecessary compliance functions, the report noted, with 37% of all sections in NSW regulation containing prescriptive language.

“Reducing the level of requirements makes it easier for businesses to comply, thus increasing productivity. Outcomes-focused legislation gives businesses the flexibility to comply on their own terms. A step towards outcome-focused regulation is to review sections of regulations that may be overly prescriptive,” the report said.

The analysis identified hundreds of sections which referenced outdated requirements, and thousands of sections that referenced paper-based compliance activities, demonstrating how regulation no longer reflects contemporary ways of working. For example, the report noted 81 sections in NSW regulation require a notice to be published in a newspaper.

“Ensuring regulation reflects the way we live and work today helps keep regulation relevant and fit-for-purpose. Outdated legislation can slow businesses down by imposing unnecessary or out-of-date requirements,” it said.

“For example, there are 350 references to facsimile and 27 to telegram in sections in NSW regulation, despite these technologies generally being considered obsolete.

“Rethinking where compliance could be made easier could help to reduce the regulatory load on businesses and consumers, as well as lightening the administrative burden for regulators. This can involve moving away from paper-based activities such as certifying or posting physical documents.”

Regulators often must play a game of “catch-up” to deal with disruptive new products and services brought about by emerging technologies such as AI, blockchain and autonomous vehicles, the report noted.

“A prescriptive, rules-based regulation is appropriate under certain circumstances to provide better clarity, certainty and protection for the public health and safety,” it said.

“However, this approach to regulating risk is often challenged by continually changing social, technological and economic circumstances. In these instances, prescriptive regulation may not be able to keep up with the pace of technological advancements.”

To keep up with the rapid change, regulators often end up modifying regulations incrementally, which can hinder the benefits of innovation.

The report proposed that outcomes-focused and technology-neutral regulation could provide flexibility for regulators to frame regulation in terms of outcomes, while also providing businesses with the flexibility to innovate, adopt and realise the potential of new technologies, without having to seek permission from regulators.

Regulatory reform could also facilitate economic recovery post COVID-19, the report argued, with the help of AI.

“In the same way that AI and advanced analytics are revolutionising sectors like agriculture by helping to optimise yields, they can also be used to help fast-track the process of regulatory reform,” it said.

“Being able to identify where regulation is restrictive or especially burdensome helps regulators target laws that are not fit-for-purpose. This, in turn, accelerates regulatory improvements, driving long-term benefits for the NSW government, businesses and residents more broadly.”

Pratt said the NSW Productivity Commission would soon release a Green Paper with recommendations on reforms that could improve productivity in the economy, including a number of regulatory reforms.

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