Productivity Commission explains how government can utilise regtech

By Shannon Jenkins

October 12, 2020

Regulation must keep up with developments in the digital economy in order to remain effective over time, according to a new report from the Productivity Commission.

The information paper released on Friday states that regulations should avoid setting technology-specific requirements unless they are essential.

This would allow regulators and regulated entities “to more readily adopt new approaches that lower the burdens of assessing and implementing regulatory compliance requirements”, while also allowing businesses to adopt different processes that benefit consumers.

The new paper outlines how policy makers and regulators in government can adopt and make the most out of regulatory technology, or “regtech”, which Prime Minister Scott Morrison has previously encouraged. Its release comes just a week after the federal government announced a new body within the Department of the Prime Minister and Cabinet would work with ministers and agencies to “lift and lock in regulator performance across the board” to promote a culture of “regulator excellence” across the commonwealth.

Regtech can offer benefits to policy makers, service providers and regulators in government, as well as regulated entities, the Productivity Commission says.

“Used well, it can support the improved targeting of regulation and reduce the costs of administration and compliance,” it says.

The Productivity Commission notes that regtech solutions can be particularly beneficial where regulatory environments are complex to navigate and monitor, and where technology can enable better monitoring. It can also be useful where there’s room to improve risk-based regulatory approaches, and where technology can “safely unlock” more uses of data for regulatory compliance.

There are a number of things governments can do to ensure they don’t miss any opportunities to better regulate through regtech, the paper says.

For example, policy makers could design regulation in a way that avoids tying administration and compliance to particular technologies, and resolve policy tensions relating to restrictions on and use of data.

Regulators, on the other hand, could consider the conditions needed for adoption of regtech solutions, such as clean and structured data, and working with other parties — regulated entities, regtech developers, and third party service providers — to collaborate on potential solutions and encourage technological advancement through safe testing.


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Governments can also support the development and adoption of regtech by:

  • Creating a more “regtech-friendly culture” through, for example, influencing the applicability of regtech with technology-neutral legislation,
  • Steering cultural change towards one that enables innovation, regtech development and knowledge-sharing rather than risk-aversion and reluctance to change,
  • Developing and supporting system integrity needed for regtech uptake,
  • Driving engagement and collaboration with regtech providers.

While regtech can make the task of regulating easier, its use requires government to be diligent in other areas, the Productivity Commission warns.

“Increasing the reach of regulation and compliance and enforcement activity is only positive if regulations are well-justified and the enforcement and compliance activity is finely-tuned,” the paper says.

“Given risks of regulatory ‘creep’ and overreach, as well as the potential to reduce costs and improve regulatory outcomes, advances in technology heighten the onus on policy makers to ensure the need for, and design of, regulation are soundly-based.”

In order to create and maintain a regulatory environment that supports the realisation of the benefits of regtech, government decision-makers must invest in the technical skills and capabilities of regulators, and determine accountability for outcomes associated with regtech solutions in areas such as privacy and data security, the paper says.

They must also create familiarity with the possibilities of regtech, facilitate collaboration between regulators, regulated entities and regtech developers, and establish safe environments to develop and test regtech solutions.

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