There is no doubt that policy and lawmakers are finding it harder to keep up with innovation. Tedious parliamentary, legislative and regulatory processes are ineffective at regulating new technologies and processes which have the ability to unlock significant financial, social and sustainability value; but at the risk of adverse impacts that are hard to predict or quantify.
So what are governments doing to catch up? And what should businesses be doing to ensure innovation projects are not stifled while regulators find their feet at more agile policy and law making? Put differently, how do businesses supplement their licence to operate and social licence to operate with a “licence to innovate”.
Over the following few weeks we’ll publish a series of insights on what we believe are steps in the right direction. This week’s focus is on where governments should start when regulating novel products and processes.
What are the foundations of licence to innovate enabling policies and laws for novel products or processes?
A widely accepted framework on how to regulate for innovation is yet to emerge. However, as 4IR policies surfaced in the late 2010s; there was some consensus that legislative processes needed to be redesigned to allow policy and legislation to develop alongside
experimentation with new technologies, or practices that may not fit neatly within existing laws. The goal is to strike a balance between fostering innovation and maintaining necessary safeguards while addressing the fact that traditional regulatory approaches may sometimes stifle innovation, especially in rapidly evolving fields.
This concept is not all together new for South Africa. Efforts have been made toward the establishment of regulatory sandboxes and innovation-friendly policies in recent years, particularly in the financial sector. This is what we’ve seen to date:
Financial Sector Focus: The South African Reserve Bank (SARB) has been at the forefront of implementing a regulatory sandbox, which has given innovators a licence to innovate.
Intergovernmental Fintech Working Group (IFWG): Established in 2016, this group includes multiple regulatory bodies and aims to foster fintech innovation.
Regulatory Sandbox: Launched in 2020, the IFWG's regulatory sandbox allows innovators to test new products and services in a controlled environment.
Crypto Asset Regulatory Working Group: Formed to investigate all aspects of cryptocurrencies and related blockchain concepts, potentially leading to more innovation-friendly regulations.
Innovation Hub: The SARB launched an innovation hub to promote fintech innovation and explore emerging technologies like blockchain and AI.
Key aspects of a licence to innovate enabling framework for novel products and processes:
Regulatory sandbox: Often implemented as a "regulatory sandbox," it provides a supervised space where innovators can trial new products, services, or business models with real customers.
Time-limited: Regulatory sandbox permissions are usually granted for a specific period, allowing for experimentation while limiting potential risks.
Oversight: While offering more flexibility, regulatory sandbox permissions still involve regulatory oversight to ensure consumer protection and manage potential risks to the environment and other potentially affected members of society .
Learning opportunity: They provide regulators with insights into emerging technologies and business practices, potentially informing future policy decisions.
The above framework has been applied in various sectors, most notably in financial technology (fintech), but also in areas like energy and mining. Various countries have implemented versions of this concept, including the UK and Singapore, often to promote innovation in specific industries.
Stay posted for Part 2 in this series of the "Licence to Innovate".
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