Scottish expert advisory panel on the collaborative economy: report

2.0 Supporting a Responsive and Agile Regulatory Environment for the Collaborative Economy

2.1. Regulation failing to keep up with innovation

Historically, regulation works well for stable industries, but in more fluid industries, particularly where digital businesses are becoming very significant players, there is a very real dilemma about when regulators get involved and understanding how to act. Intervene too heavily, too soon, and it can be damaging to growth of new, potentially highly impactful businesses. Intervene too late and risk not adequately protecting consumers, providers and users. This, alongside the twin challenges of the sheer variety of types of participants that exist on many platforms and the challenges of just how to enforce regulation if and when it is necessary, is at the heart of every government looking at how to respond to the growth of the collaborative economy.

The situation in Scotland is complex because a considerable portion of the regulations which apply in Scotland originate from the European Union and the UK Government. However, the Scottish Government has taken steps in recent years to create a regulatory environment which focuses on supporting sustainable economic growth. That has been done by championing the five principles of better regulation proportionate, consistent, accountable, transparent and targeted. Any measures which are taken forward should be in-line with these principles.

There is also a specific need to ensure that regulators are appropriately skilled to understand the technologies which they are seeking to regulate. This may in future require quite technologically forensic activities. Uber's use of 'greyballing' is a stark reminder that technological capabilities in the market are very powerful and it is currently beyond the skills and capacity of most regulators (outside perhaps the financial services industry) to effectively monitor its use.

The use of algorithms to make decisions and advancement in machine learning will require an entirely new regulatory and auditing skill set.

When examining issues as they arise, it may be in the interest of the Scottish economy for voluntary measures to be proposed first rather than initially reaching for legislation or regulation. In those cases, any voluntary regulation should follow the government sponsored voluntary regulation guidelines; which require an evidence based problem or objective, a clear outcome, a practical, proportionate and targeted proposal, a Business and Regulatory Impact Assessment, and application of the better regulation principles.

Recommendations

Support the development of a more agile regulatory environment specifically through:

• Undertaking an assessment of the medium and long-term skills requirements of the regulatory sector to effectively regulate and audit a more algorithmically based economy.
• Experimentation and Iteration – Setting up of an experimental space in partnership with regulators; with a focus on one or two specific regions in Scotland testing the impact and practicalities of specific regulations, particularly within tourism and transport, with a view to evolving or expanding as necessary. This 'regulatory sand box' approach could also be constructed to enable long-term policy making, regulation and innovation in the market to be more intimately connected.
• Open Dialogue – The collaborative economy and its impacts are continually evolving. Continue the work of this panel to bring together industry (both innovators and incumbents), policy makers and stakeholders in an open dialogue with regulators; and making the most of new tools for public engagement at scale as an input to deliberating decisions on regulation.
• Prompt open innovation in regulation; for example through incentivising innovators and/or the market to develop novel and effective ways of achieving the intended outcomes of regulation or creating better services for consumers and participants in the collaborative economy.
• Looking more consciously to other countries to maximise the value from digital, collaborative platforms such as Estonia, through membership of global bodies such as the Sharing Cities Alliance.