2018 will be the Year of the Regulator

January 11, 2018

Almost exactly two years I proclaimed that 2016 would be the Year of the European Entrepreneur.

At least two other geopolitical earthquakes — in the UK and the US of course — garnered most of the attention in 2016, and understandably so. Still, I submit that a case could be made that several European startups demonstrated domain leadership on the global stage, notably in the areas of fintech, e-commerce, and health care. Moreover, now with a bit of distance it looks as though the aforementioned geopolitical shockers are further uniting continental Europe.

It is in continuing the spirit of making audacious proclamations that I’d like to suggest that 2018 will be the Year of the Regulator.

What a great time to be a regulator

“What a great time to be a regulator,” my friend exclaimed to me the other day. The friend in question happens to be an experienced operator in the tech sector, not a dyed-in-the-wool socialist by any stretch. His enthusiasm reminded me of author Robert Stanek’s description of living in Germany during the fall of the Berlin wall, “So much potential unrest yet everywhere everyone was so excited. What a great time to be alive.”

Never before in my lifetime have the societal challenges brought forth by technology ever felt so daunting.

Increasingly powerful tech giants like Facebook and Google appear to have found a way to cheat the Innovator’s Dilemma. They simply deploy their vast war chests to stifle, copy, or acquire any whiff of disruptive innovation on the horizon. Facebook’s dominance of our social graphs merits a reconsideration of antitrust regulations in my opinion. Whereas back in the day it was the disruption of the O/S by the web browser — not antitrust lawsuits — which curtailed Microsoft, Facebook can clone Snapchat’s Stories and leverage their heft in user base to quickly eclipse it. I’ve said many times (with the benefit of hindsight) that Facebook should have not been allowed to acquire Instagram. Absent legislation requiring some kind of unbundling or portability of the social graphs, fresh innovation and hence power shifts in this space seem impossible. Scary stuff for a company whose influence over our thought processes has demonstrated a real-world impact on democracy.

The current debate over whether Facebook should play a more active role in censoring advertisers on its network is intellectually stimulating. I mean that sincerely. There are well-reasoned and thoughtful arguments on both sides. Vetting terrorists and nefarious advertisers sounds obvious, but could there be unintended consequences of granting Facebook a pass to start taking sides ? Next week more Senate Commerce Committee hearings take place with Facebook (alongside Google and Twitter). I wish officials all the best in judgement and wisdom on these complicated questions.

The era of decentralization ?

I had concluded my 2016 piece in stating that, “Companies are no longer defined by national boundaries.” If 2017 was the year that the masses woke up to blockchain, it also gave us a glimpse into the fragility of national governments. I’m not referring to the rise of populism in many so-called “Western” countries — which is a different cause for alarm — but rather to the fundamental notion of the nation-state. Are we heading into a world in which citizens become sovereign individuals who cherry-pick à la carte the government services they require based on the most competitive jurisdiction for each ?

Then we have the question of cryptocurrencies, their regulation and their taxation. Many governments are sending mixed messages, some are criminalizing them, while others are leading the way (notably in this last category: Japan, as I’ve explained in my book, Japan Bitcoin #1).

Data protection

The European Union appears to be leading the way when it comes to data protection. In May of this year the EU GDPR directive takes effect. The General Data Protection Regulation is designed to enable individuals to better control their personal data. It will hopefully provide some harmonization of data rules and provide substantially-reinforced guarantees over the usage of consumer data. The legislation encompasses requirements regarding consent, notification of breaches, data portability, profiling, and the right to be forgotten.

(As a side note: I’m fascinated with the conundrum of reconciling the right to be forgotten with the fundamental immutability principle of blockchain technology).

While the regulation is European, it’s remit will be far-reaching. Organizations outside the EU that collect data concerning an EU resident are subject to the jurisdiction. Penalties could reach up to 4% of the violator’s global gross revenue. The implementation and enforcement will present interesting challenges, but it would be hard for any reasonable person to disagree that something needs to be done.

Machines as arbiters

Of course no regulator’s checklist of items requiring urgent attention would be complete without the topic of artificial intelligence. Machine learning algorithms can score a borrower’s credit worthiness, evaluate a candidate’s job eligibility, or diagnose a patient’s risk of prostate cancer far more efficiently than a human process. However, sometimes these algorithms are so effective on such complex problems that their very inventors cannot re-engineer or troubleshoot them. Fail-safes need to be constructed to detect and handle the occasions that technology makes the wrong call. Establishing the mechanisms for recourse when the machine gets it wrong will require a thoughtful regulatory framework. Could an AI ultimately replace the regulator as final arbiter ?

Hope to see ya later, regulator !

You’ve probably figured out by now that my point of this piece is not to criticize regulators’ actions (admittedly I often do that), but rather to suggest that the job of regulators has never felt as important as it does now.

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posted in technology by mark bivens

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