Evolving Regulation To Fuel Innovation

By Tengku Azrul Tengku Azhar Head of Innovation Ecosystem, Futurise,

New advancements in industries such as technology, artificial intelligence (AI), machine learning, big data analytics and the Internet of Things (IoT) are all hallmarks of the Fourth Industrial Revolution and are merely the tip of this disruption iceberg. These 21st-century technologies that continue to emerge and drastically affect our lives do however come with an apparent side effect – a gap between regulation and innovation.

As technological advancement continues to shape the future at an unprecedented speed, laws, regulations and policies have not been able to keep abreast, creating a growing need to fill this gap.

This of course begs the question: how do we strike a balance between fostering innovation, protecting consumers and addressing the potential unintended consequences of disruption?

An Age-Old Challenge

The gap between innovation and regulation is an age-old challenge. Presuming that policies and regulations can be drawn at a whim and then remain unchanged has been upended in today’s environment. Regulations will continue playing catch-up, hampering the emergence of what could be the next best invention, brand, company, product or service, unless something is done.

When motor vehicles were first introduced, tough automobile regulations and restrictions were implemented to protect pedestrians, drivers, horse-drawn carriages and even cattle. This stymied advances in automobile development by decades. Today, regulators face similar challenges. They must balance their charge to protect the people with advancing innovation in new technologies and businesses, resisting both over and under regulation.

A most recent example would be the challenging regulatory regimes faced by ridesharing companies that placed enormous strain on traditional regulations. The sharing economy has disrupted policies and laws, blurring the lines between customer, vendor and company. For example, should a ridesharing vehicle be involved in a crash, who bears liability — the company, the driver, or the passenger?

Adaptive Regulation

If we are to keep history from repeating itself, essentially, an effective method to regulate technology is by constantly interacting with technology – identifying and modifying regulations in real-time, enforcing them and communicating them to the public swiftly. And all this must be done while working within legacy frameworks and attempting to foster innovation.

Being adaptive allows for a lot more flexibility and leniency as it relies on a trial and error method of regulatory design. Adaptive regulation calls for the involvement and collaboration of both the public and private sector, ensuring frameworks and pilots are drafted taking into account feedback from various parties.

This work-in-progress approach allows regulators to evaluate policies against standards and revise them accordingly. It requires continuous or iterative re-evaluations while bolstering innovation.

The Sandbox

In most cases, regulations do not get passed but a regulatory framework is set in place in the form of a guideline, standard operating procedure or legislation to continue to encourage creativity, fueling the flames of innovation. The regulatory sandbox approach in recent years has sprung up globally enabling the testing of new innovations in a controlled environment under the facilitation and supervision of a regulatory body.

The sandbox typically relaxes or adapts existing rules to create a conducive environment that does not impede experimentation.

Sandboxes provide regulators with a full spectrum to base their regulatory response to innovations on the results of live experiments. In frontier cases, this helps regulators in making swift and informed decisions on how to congruously regulate these new technologies.

The Malaysian Innovation Regulation Momentum

The need for regulation in Malaysia has gained new momentum in recent years. The Malaysian government has been playing a critical role in ensuring knowledge and best practices relating to the governance and regulation of innovative technologies are trialed, tested and shared across sectors by forging collaborative ties between governments, the private sector and experts.

Through the Ministry of Finance, Malaysia has introduced the National Regulatory Sandbox, a strategic collaboration headed by Futurise that aims to expedite progressive and anticipatory regulation intervention whilst simultaneously enabling innovations and technology solutions to be tested in a controlled environment. The National Regulatory Sandbox so far has facilitated various regulators in Malaysia to understand the impact on regulating innovation such as dronetech, autonomous vehicles, and digital health while at the same time attracting innovation and investment to Malaysia.

With change rapid and uncertainty high, we will need to make peace with the fact that regulatory independence and predictability must be something we must seamlessly adapt with. Malaysia is focused on maintaining a clear and enduring economic regulatory framework that promotes growth in innovation. With new technologies holding the promises for a bright future, we will strive to ensure that the implementation is responsible, equitable and bolsters a growing innovation ecosystem.

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