Friday 28 May 2021 11:00 am

Can Britain keep expanding its playbook for tech regulation without strangling innovation?

Natasha Good, corporate partner and global co-head of tech, media and telecoms at Freshfields

Europe has a reputation for heavy handed regulation. This is often blamed for putting the brakes on innovation and holding back tech businesses in the UK and across Europe. The arrival of GDPR rules, setting out a prescriptive approach for personal data, was a headline grabbing shift with hefty fines which caused reverberations across the world.

In the UK, the rulebook for tech players is long. However, regulation is not necessarily a bad thing. Over the years, the UK has even developed a reputation for thoughtful, measured rules. Many liberalising telecoms markets have replicated Britain’s approach to the licensing regime which predated the current EU approach.

In fintech, the UK was particularly energetic in pioneering the regulatory “sandbox” allowing testing of new propositions in the market and providing support in a collaborative environment. This approach bore fruit. Other countries followed suit.

As more and more consumers and businesses’ lives and work are digitised, policymakers need to address the dramatic shift in behaviours. Technologies such as AI bring huge change and yet there’s widespread concern that the consequences remain misunderstood. Balanced regulation could well encourage consumer confidence and adoption, creating fertile ground for innovation and creativity.

The current approach is reactive and policy is driven increasingly by investigations into the larger tech players.

The UK must be able to maintain a measured approach to regulation of established players while finding a way to recognise, encourage and reward innovators.

The UK’s Digital Markets Taskforce has proposed rules focussed on firms with a “strategic market status”. On the face of it, that should allow for new players to innovate with the regulatory spotlight on more established players or those active in select areas where regulatory oversight is merited. The devil will be in the detail and the application of course. The UK’s rulebook is growing, not shrinking. A raft of EU digital services rules pin additional responsibilities on intermediary platforms including in relation to illegal content and advertising transparency.

When we assess the UK’s ability to attract innovation, we tend to compare ourselves with the US. That’s a tough comparison given the size of the US domestic market.  A further factor at play for the UK is the relative fragmentation of the European market as a whole. A tech company launching in the UK (or an EU member state) may find the regulatory regime manageable, but when looking to expand across the European market will need to tackle not only different customs and languages, but also variations in regulation.

Relatively few areas of regulation have really achieved conformity across the EU to enable friction free expansion. Europeans are fond of consumer protection rules which tend to involve a bigger dose of localisation and politicisation. Even where the rules themselves are reasonable, the sheer number of rules and variations to grapple with across member states, is a disincentive to innovators and investors. Passporting rules across the EU do facilitate a level of low friction access to a significant addressable market (particularly for fintechs) – but this is a benefit which the UK can no longer readily access.

Given the fragmentation noted above and the shifting impact of tech on our daily lives, the UK needs to keep up with well resourced, well informed regulatory and policy teams who are open to dialogue in order to achieve a measured and informed approach to regulation which is proportionate and drives investor confidence in the UK. Trust, transparency  and innovation in our approach to regulation is as important as driving trust, transparency and innovation in the tech players who increasingly manage our lives.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.