Rethinking approaches to regulation of the Fourth Industrial Revolution

Mass adoption of technologies of the Fourth Industrial Revolution (4IR) potentially could trigger an even larger than projected transition to a new taxonomy of regulation concerning various fields of human life, including that of finance and the market itself. New technologies are enabling new concepts, systems and frameworks, such as driverless cars, drone postal deliveries and central bank digital currencies (CBDC). In the foreseeable future, the role of technology in our society would be exceeding the boundaries of an elementary subsystem, where its regulation would be designated to the stakeholders or the market itself. 

A persistent theme of this short submission is the currently changing approaches to the regulation of technological risks following a rapid transition to the wholesale level leveraging and mass adoption of technologies. I tend to believe that effective regulatory design for new technologies embraced by the currently ongoing Fourth Industrial Revolution should, first of all, be considerate of prerequisites as set by the notions of dominant product design, public perception of technological risk and social benefits versus technological risks.

Turning away from a voluntary and fragmented utilization of technologies and more toward their mass adoption on a wholesale level, public perception toward the technologies’ risks, role and impact on society is continuing to evolve, subsequently resulting in changing approaches to regulation. This is better illustrated by an example of systems with organized complexity such as financial markets where technologies and computerization were of concern predominantly for the market itself. In comparison to the past industrial revolutions, which have not had a direct impact on the banking and financial sector, the currently unfolding 4IR has a direct influence and impact on the whole sector of global finance, which, as of today, is already one of the most digitized sectors of the global economy.

As the ABCD framework of enabling technologies used by fintechs, techfins and regtechs is currently approaching the dominant design stage, their product design model is principally dictated by regulation, a pattern which is similar to most of the regulated industries, including the sector of finance.

New significance and rationale behind the regulation of technologies have now emerged, embracing the acceleration of new forms of doing business on the market, a trend which is more and more commonly observed in many countries. It seems that the notion of Global Technology Risks (GTRs), which previously has not been an issue en vogue, will be gaining more and more pace, mandating changes to be made to regulatory approaches implemented worldwide. The reason for this is simple: The general public, which generally tends to underestimate the risks stemming from voluntary activities, as the utilization of technology has progressed from being purely voluntary such as transferring Bitcoin (BTC) using blockchain more toward the wholesale level of tech utilization (e.g. CBDC), is becoming more concerned of the upcoming risks requiring appropriate regulatory and supervisory response by regulators.

What seems important to emphasize is that the extent to which these responses should be based on technological advances such as embedded supervision ultimately depends on whether the industry itself will readily accept these advances for regulation or not.

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The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Pavel Kulikov is a partner at PLL Legal & CBP in Zürich, Switzerland, advising startups and big firms on financial market regulatory matters, compliance and private equity. His academic research works on New Taxonomy for Technology Regulation on the Financial Markets; DLT Regulation reforms and fintech are often cited on both sides of the Atlantic. Pavel is also an author and a host of a popular LegalTask program on Swiss TV.