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Regulation can be good for both consumers and innovators. It protects consumers from unscrupulous manufacturers or creators, and it fosters a fair market for creators that allows innovation to grow. But with the rapid emergence and advancement of new technologies, regulation is quickly becoming reactive and can be damaging to innovation as regulators are tightening restrictions.
Moreover, regulators often don’t understand or have a working knowledge of the technologies they want to regulate. For instance, with cryptocurrencies, it took nine years for regulators to understand that it is more effective to regulate the application rather than the technology itself, especially in the case of Bitcoin.
It has become apparent to regulators that it’s best for them to work with industry experts or technocrats to come up with regulations that boost technology growth and protect the consumers.
The impact of regulation is twofold with both positive and negative effects on technology based companies, let’s start with the positives:
With regulatory reporting, consumers know which companies are compliant and trustworthy to work with. Buyers are more open to working with compliant companies because they can hold them accountable for their actions, they know where to report cases of fraudulent dealings, and can be assured that their personal data is secure.
This new level of trust built on regulations is how many companies have turned potential, but skeptical users into clients. For example, initially many potential buyers were mistrustful of Bitcoin due to lack of regulations in the virtual currency world, but this view changed when the Federal Reserve started shaping real cryptocurrency policies for regulatory oversight.
With regulatory agencies creating accelerators and sandboxes, they can fast-track innovation and collaborate with industry players to create appropriate regulations.
These platforms allow for partnerships with private companies and entrepreneurs whose expertise can be used to ensure that safe and effective technologies are created in an environment that allows innovators to test their products or services without following the standard regulations which can be stifling.
For example, Impak Finance set a record by becoming the first company to legally raise $1 million through a cryptocurrency crowd sale in the Americas when it took part in the CSA sandbox that exempted it from registering as a security dealer and providing a prospectus.
Consumers want their data protected from third parties. There has been outrage from consumers about this unauthorized sharing of data across the board. This outrage was brought on most vigorously when it was discovered that Facebook sells clients’ personal data to 3rd party marketing companies.
The EU responded to the need for personal data protection of its citizens with the General Data Protection Regulation (GDPR) which restricts cross-border data sharing and gives its citizens the right to limit or erase their data, and a majority of consumers plan to do so according to a Pegasystems survey.
This move is damaging to software developers who need to make updates and improvement based on data collected from users. The data gives them insights into which parts of their software are not performing as well as they should and which ones users are particularly interested in. Collecting this personal data is essential for continuously improving UX but today users are more paranoid than ever about having their activities and personal information collected.
The traditional way of crafting new rules and regulations can take many years - regulators have to first conceptualize the regulations, then draft the rules, then present the draft to the public for observations, and after considering these comments, make a final draft. Even after the final draft has been implemented, it can take additional time for revisions to be made.
The failure of regulators to quickly adopt new regulations and the lengthy process of updating existing ones is not keeping pace with the rapid growth of technology. This lag in regulations creates a pacing problem, where regulators are stifling the advancement of new technologies because of outdated and restrictive regulations that are enforced on an evolved industry.
An example of this is how Uber has faced stiff resistance from regulators all over the world ever since it disrupted metropolitan transport as we know it by spearheading the ridesharing revolution.
Need help navigating today’s regulations?
Get in touch with our specialists at ASB Resources. As experts in business solutions, we can help you create a compliance plan, and stay on track as new regulations pop up. Schedule some time with us today!