The Use of Regulatory Sandboxes in Europe and Asia


Claus Christensen at Regulation Aisa: “Global attention to money-laundering, terrorism financing and financial criminal practices has grown exponentially in recent years. As criminals constantly come up with new tactics, global regulations in the financial world are evolving all the time to try and keep up. At the same time, end users’ expectations are putting companies at commercial risk if they are not prepared to deliver outstanding and digital-first customer experiences through innovative solutions.

Among the many initiatives introduced by global regulators to address these two seemingly contradictory needs, regulatory sandboxes – closed environments that allow live testing of innovations by tech companies under the regulator’s supervision – are by far one of the most popular. As the CEO of a fast-growing regtech company working across both Asia and Europe, I have identified a few differences in how the regulators across different jurisdictions are engaging with the industry in general, and regulatory sandboxes in particular.

Since the launch of ‘Project Innovate’ in 2014, the UK’s FCA (Financial Conduct Authority) has won recognition for the success of its sandbox, where fintech companies can test innovative products, services and business models in a live market environment, while ensuring that appropriate safeguards are in place through temporary authorisation. The FCA advises companies, whether fintech startups or established banks, on which existing regulations might apply to their cutting-edge products.

So far, the sandbox has helped more than 500 companies, with 40+ firms receiving regulatory authorisation. Project Innovate has helped the FCA’s reputation for supporting initiatives which boost competition within financial services, which was part of the regulator’s post-financial crisis agenda. The success of the initiative in fostering a fertile fintech environment is reflected by the growing number of UK-based challenger banks that are expanding their client bases across Europe. Following its success, the sandbox approach has gone global, with regulators around the world adopting a similar strategy for fintech innovation.

Across Europe, regulators are directly working with financial services providers and taking proactive measures to not only encourage the use of innovative technology in improving their systems, but also to boost adoption by others within the ecosystem…(More)”.

Message and Environment: a framework for nudges and choice architecture


Paper by Luca Congiu and Ivan Moscati in Behavioural Public Policy: “We argue that the diverse components of a choice architecture can be classified into two main dimensions – Message and Environment – and that the distinction between them is useful in order to better understand how nudges work. In the first part of this paper, we define what we mean by nudge, explain what Message and Environment are, argue that the distinction between them is conceptually robust and show that it is also orthogonal to other distinctions advanced in the nudge literature. In the second part, we review some common types of nudges and show they target either Message or Environment or both dimensions of the choice architecture. We then apply the Message–Environment framework to discuss some features of Amazon’s website and, finally, we indicate how the proposed framework could help a choice architect to design a new choice architecture….(More)”.

Following Fenno: Learning from Senate Candidates in the Age of Social Media and Party Polarization


David C.W. Parker  at The Forum: “Nearly 40 years ago, Richard Fenno published Home Style, a seminal volume explaining how members of Congress think about and engage in the process of representation. To accomplish his task, he observed members of Congress as they crafted and communicated their representational styles to the folks back home in their districts. The book, and Fenno’s ensuing research agenda, served as a clarion call to move beyond sophisticated quantitative analyses of roll call voting and elite interviews in Washington, D.C. to comprehend congressional representation. Instead, Fenno argued, political scientists are better served by going home with members of Congress where “their perceptions of their constituencies are shaped, sharpened, or altered” (Fenno 1978, p. xiii). These perceptions of constituencies fundamentally shape what members of Congress do at home and in Washington. If members of Congress are single-minded seekers of reelection, as we often assume, then political scientists must begin with the constituent relationship essential to winning reelection. Go home, Fenno says, to understand Congress.

There are many ways constituency relationships can be understood and uncovered; the preferred method for Fenno is participant observation, which he variously terms as “soaking and poking” or “just hanging around.” Although it sounds easy enough to sit and watch, good participant observation requires many considerations (as Fenno details in a thorough appendix to Home Style). In this appendix, and in another series of essays, Fenno grapples forthrightly with the tough choices researchers must consider when watching and learning from politicians.

In this essay, I respond to Fenno’s thought-provoking methodological treatise in Home Style and the ensuing collection of musings he published as Watching Politicians: Essays on Participant Observation. I do so for three reasons: First, I wish to reinforce Fenno’s call to action. As the study of political science has matured, it has moved away from engaging with politicians in the field across the various sub-fields, favoring statistical analyses. “Everyone cites Fenno, but no one does Fenno,” I recently opined, echoing another scholar commenting on Fenno’s work (Fenno 2013, p. 2; Parker 2015, p. 246). Unfortunately, that sentiment is supported by data (Grimmer 2013, pp. 13–19; Curry 2017). Although quantitative and formal analyses have led to important insights into the study of political behavior and institutions, politics is as important to our discipline as science. And in politics, the motives and concerns of people are important to witness, not just because they add complexity and richness to our stories, but because they aid in theory generation.1 Fenno’s study was exploratory, but is full of key theoretical insights relevant to explaining how members of Congress understand their constituencies and the ensuing political choices they make.

Second, to “do” participant observation requires understanding the choices the methodology imposes. This necessitates that those who practice this method of discovery document and share their experiences (Lin 2000). The more the prospective participant observer can understand the size of the choice set she faces and the potential consequences at each decision point in advance, the better her odds of avoiding unanticipated consequences with both immediate and long-term research ramifications. I hope that adding my cumulative experiences to this ongoing methodological conversation will assist in minimizing both unexpected and undesirable consequences for those who follow into the field. Fenno is open about his own choices, and the difficult decisions he faced as a participant observer. Encouraging scholars to engage in participant observation is only half the battle. The other half is to encourage interested scholars to think about those same choices and methodological considerations, while acknowledging that context precludes a one-size fits all approach. Fenno’s choices may not be your choices – and that might be just fine depending upon your circumstances. Fenno would wholeheartedly agree.

Finally, Congress and American politics have changed considerably from when Fenno embarked on his research in Home Style. At the end of his introduction, Fenno writes that “this book is about the early to mid-1970s only. These years were characterized by the steady decline of strong national party attachments and strong local party organizations. … Had these conditions been different, House members might have behaved differently in their constituencies” (xv). Developments since Fenno put down his pen include political parties polarizing to an almost unprecedented degree, partisan attachments strengthening among voters, and technology emerging to change fundamentally how politicians engage with constituents. In light of this evolution of political culture in Washington and at home, it is worth considering the consequences for the participant-observation research approach. Many have asked me if it is still possible to do such work in the current political environment, and if so, what are the challenges facing political scientists going into the field? This essay provides some answers.

I proceed as follows: First, I briefly discuss my own foray into the world of participant observation, which occurred during the 2012 Senate race in Montana. Second, I consider two important methodological considerations raised by Fenno: access and participation as an observer. Third, I relate these two issues to a final consideration: the development of social media and the consequences of this for the participant observation enterprise. Finally, I show the perils of social science divorced from context, as demonstrated by the recent Stanford-Dartmouth mailer scandal. I conclude with not just a plea for us to pick up where Fenno has left off, but by suggesting that more thinking like a participant observer would benefit the discipline as whole by reminding us of our ethical obligations as researchers to each other, and to the political community that we study…(More)”.

The Blockchain and the New Architecture of Trust


Book by Kevin Werbach: “The blockchain entered the world on January 3, 2009, introducing an innovative new trust architecture: an environment in which users trust a system—for example, a shared ledger of information—without necessarily trusting any of its components. The cryptocurrency Bitcoin is the most famous implementation of the blockchain, but hundreds of other companies have been founded and billions of dollars invested in similar applications since Bitcoin’s launch. Some see the blockchain as offering more opportunities for criminal behavior than benefits to society. In this book, Kevin Werbach shows how a technology resting on foundations of mutual mistrust can become trustworthy.

The blockchain, built on open software and decentralized foundations that allow anyone to participate, seems like a threat to any form of regulation. In fact, Werbach argues, law and the blockchain need each other. Blockchain systems that ignore law and governance are likely to fail, or to become outlaw technologies irrelevant to the mainstream economy. That, Werbach cautions, would be a tragic waste of potential. If, however, we recognize the blockchain as a kind of legal technology, which shapes behavior in new ways, it can be harnessed to create tremendous business and social value….(More)”.

Why Proven Solutions Struggle to Scale Up


Kriss Deiglmeier & Amanda Greco at Stanford Social Innovation Review: “…As we applied the innovation continuum to the cases we studied, we identified barriers to scale that often trap social innovations in a stagnation chasm before they achieve diffusion and scaling.

 

Three barriers in particular repeatedly block social innovations from reaching their broadest impact: inadequate funds for growth, the fragmented nature of the social innovation ecosystem, and talent gaps. If we are serious about propelling proven social innovations to achieve widespread impact, we must find solutions that overcome each of these barriers. The rest of the article will explore in more detail each of these three barriers in turn.

1. Inadequate Funding

Social innovators face a convoluted and often elusive path to mobilize the resources needed to amplify the impact of their work. Of the strategies for scale in Mulgan’s typology, some are very capital intensive, others less so. Yet even the advocacy and network approaches to scaling social impact require resources. It takes time, funding, and expertise to navigate the relationships and complex interdependencies that are critical to success. Some ventures may benefit from earned revenue streams that provide funds for growth, but earned revenue isn’t guaranteed in the social innovation space, especially for innovations that operate where markets fail to meet needs and serve people with no ability to pay. Thus, external funding is usually needed in order to scale impact, whether from donors or from investors depending on the legal structure and financial prospects of the venture….

2. A Fragmented Ecosystem

One sector toiling in isolation or digging into an adversarial approach cannot achieve breakthrough scale on its own. Instead, engaging and coordinating actions across various actors from the private, nonprofit, and public sectors is critical. In the case of microfinance, for example, the innovation garnered interest from government and business when nonprofits like Grameen Bank had demonstrated success in providing financial services to formerly unbanked people.

Following the pioneering role of nonprofits to establish proof of concept, commercial banks entered the market, with mixed social outcomes, given the pressure they faced for profitability. As the microfinance industry matured, governments created a legal and regulatory environment that encouraged transparency, market entry, and competition. The cumulative efforts and engagement across the nonprofit, private, and public sectors were critical to scaling microfinance as we know it today and will continue to refine the approach for better social outcomes in the future…

3. The Talent Gap

To drive social innovations in a world of rapid change, organizations need talented leaders supported by effective teams. The insufficient funding and fragmented ecosystem require highly adept people to shepherd social innovations through the long journey to widespread social impact. Unfortunately, attracting and retaining people to navigate these complexities is a challenge…(More)”.

One of New York City’s most urgent design challenges is invisible


Diana Budds at Curbed: “Algorithms are invisible, but they already play a large role in shaping New York City’s built environment, schooling, public resources, and criminal justice system. Earlier this year, the City Council and Mayor Bill de Blasio formed the Automated Decision Systems Task Force, the first of its kind in the country, to analyze how NYC deploys automated systems to ensure fairness, equity, and accountability are upheld.

This week, 20 experts in the field of civil rights and artificial intelligence co-signed a letter to the task force to help influence its official report, which is scheduled to be published in December 2019.

The letter’s recommendations include creating a publicly accessible list of all the automated decision systems in use; consulting with experts before adopting an automated decision system; creating a permanent government body to oversee the procurement and regulation of automated decision systems; and upholding civil liberties in all matters related to automation. This could lay the groundwork for future legislation around automation in the city….Read the full letter here.”

Countries Can Learn from France’s Plan for Public Interest Data and AI


Nick Wallace at the Center for Data Innovation: “French President Emmanuel Macron recently endorsed a national AI strategy that includes plans for the French state to make public and private sector datasets available for reuse by others in applications of artificial intelligence (AI) that serve the public interest, such as for healthcare or environmental protection. Although this strategy fails to set out how the French government should promote widespread use of AI throughout the economy, it will nevertheless give a boost to AI in some areas, particularly public services. Furthermore, the plan for promoting the wider reuse of datasets, particularly in areas where the government already calls most of the shots, is a practical idea that other countries should consider as they develop their own comprehensive AI strategies.

The French strategy, drafted by mathematician and Member of Parliament Cédric Villani, calls for legislation to mandate repurposing both public and private sector data, including personal data, to enable public-interest uses of AI by government or others, depending on the sensitivity of the data. For example, public health services could use data generated by Internet of Things (IoT) devices to help doctors better treat and diagnose patients. Researchers could use data captured by motorway CCTV to train driverless cars. Energy distributors could manage peaks and troughs in demand using data from smart meters.

Repurposed data held by private companies could be made publicly available, shared with other companies, or processed securely by the public sector, depending on the extent to which sharing the data presents privacy risks or undermines competition. The report suggests that the government would not require companies to share data publicly when doing so would impact legitimate business interests, nor would it require that any personal data be made public. Instead, Dr. Villani argues that, if wider data sharing would do unreasonable damage to a company’s commercial interests, it may be appropriate to only give public authorities access to the data. But where the stakes are lower, companies could be required to share the data more widely, to maximize reuse. Villani rightly argues that it is virtually impossible to come up with generalizable rules for how data should be shared that would work across all sectors. Instead, he argues for a sector-specific approach to determining how and when data should be shared.

After making the case for state-mandated repurposing of data, the report goes on to highlight four key sectors as priorities: health, transport, the environment, and defense. Since these all have clear implications for the public interest, France can create national laws authorizing extensive repurposing of personal data without violating the General Data Protection Regulation (GDPR) which allows national laws that permit the repurposing of personal data where it serves the public interest. The French strategy is the first clear effort by an EU member state to proactively use this clause in aid of national efforts to bolster AI….(More)”.

The economic value of data: discussion paper


HM Treasury (UK): “Technological change has radically increased both the volume of data in the economy, and our ability to process it. This change presents an opportunity to transform our economy and society for the better.

Data-driven innovation holds the keys to addressing some of the most significant challenges confronting modern Britain, whether that is tackling congestion and improving air quality in our cities, developing ground-breaking diagnosis systems to support our NHS, or making our businesses more productive.

The UK’s strengths in cutting-edge research and the intangible economy make it well-placed to be a world leader, and estimates suggest that data-driven technologies will contribute over £60 billion per year to the UK economy by 2020.1 Recent events have raised public questions and concerns about the way that data, and particularly personal data, can be collected, processed, and shared with third party organisations.

These are concerns that this government takes seriously. The Data Protection Act 2018 updates the UK’s world-leading data protection framework to make it fit for the future, giving individuals strong new rights over how their data is used. Alongside maintaining a secure, trusted data environment, the government has an important role to play in laying the foundations for a flourishing data-driven economy.

This means pursuing policies that improve the flow of data through our economy, and ensure that those companies who want to innovate have appropriate access to high-quality and well-maintained data.

This discussion paper describes the economic opportunity presented by data-driven innovation, and highlights some of the key challenges that government will need to address, such as: providing clarity around ownership and control of data; maintaining a strong, trusted data protection framework; making effective use of public sector data; driving interoperability and standards; and enabling safe, legal and appropriate data sharing.

Over the last few years, the government has taken significant steps to strengthen the UK’s position as a world leader in data-driven innovation, including by agreeing the Artificial Intelligence Sector Deal, establishing the Geospatial Commission, and making substantial investments in digital skills. The government will build on those strong foundations over the coming months, including by commissioning an Expert Panel on Competition in Digital Markets. This Expert Panel will support the government’s wider review of competition law by considering how competition policy can better enable innovation and support consumers in the digital economy.

There are still big questions to be answered. This document marks the beginning of a wider set of conversations that government will be holding over the coming year, as we develop a new National Data Strategy….(More)”.

The ‘Datasphere’, Data Flows Beyond Control, and the Challenges for Law and Governance


Paper by Jean-Sylvestre Bergé, Stephane Grumbach and Vincenzo Zeno-Zencovich: “The flows of people, goods and capital, which have considerably increased in recent history, are leading to crises (e.g., migrants, tax evasion, food safety) which reveal the failure to control them. Much less visible, and not yet included in economic measurements, data flows have increased exponentially in the last two decades, with the digitisation of social and economic activities. A new space – Datasphere – is emerging, mostly supported by digital platforms which provide essential services reaching half of the world’s population directly. Their control over data flows raises new challenges to governance, and increasingly conflicts with public administration.

In this paper, we consider the need and the difficulty of regulating this emerging space and the different approaches followed on both sides of the Atlantic. We distinguish between three situations. We first consider data at rest, which is from the point of view of the location where data are physically stored. We then consider data in motion, and the issues related to their combination. Finally, we investigate data in action, that is data as vectors of command of legal or illegal activities over territories, with impacts on economy and society as well as security, and raise governance challenges.

The notion of ‘Datasphere’ proposes a holistic comprehension of all the ‘information’ existing on earth, originating both in natural and socio-economic systems, which can be captured in digital form, flows through networks, and is stored, processed and transformed by machines. It differs from the ‘Cyberspace’, which is mostly concerned with the networks, the technical instruments (from software and protocols to cables and data centers) together with the social activities it allows, and to what extent they could/should be allowed.

The paper suggests one – out of the many possible – approach to this new world. Clearly it would be impossible to delve in depth into all its facets, which are as many as those of the physical world. Rather, it attempts to present how traditional legal notions could be usefully managed to put order in a highly complex environment, avoiding a piecemeal approach that looks only at details….(More)”.

How to Achieve and Sustain Government Digital Transformation


Mike Bracken and Andrew Greenway for IADB: “Digital government is rapidly gathering momentum as an effective way for nations and regions to increase their administrative efficiency, develop resilience, and deliver simpler, clearer, and better services for their citizens and businesses. This report summarizes the conditions and context needed for government digital teams to succeed and be sustained across different administrations. The report explores the conditions needed to establish a digital team, examines the ideal environment to make that team successful, and concludes with the conditions required to help that team sustain as an institution across different political administrations…. (More)”.