Changes in the business world spark changes in regulations. Laws and regulations are essential.
Alongside taxing and spending, they help governments, businesses, and citizens achieve policy objectives, including economic growth, social welfare and environmental protection. But regulations are not static.
After the financial crisis, the regulatory environment in the US, UK and Europe changed from a light touch approach to greater oversight. In 2018 regulatory changes will affect the financial sector across the Middle East, mainly due to the new requirements under the International Financial Reporting Standard 9 (from January 1, 2018) and Basel III (compliance by end of 2018).
But how should regulatory environments be designed and implemented in the first place?
Many countries across the world are committed to implementing better regulation agendas or improving their “regulatory governance”. Better regulation supports economic growth, quality of life, and the rule of law, through enhanced predictability, transparency and stakeholder participation in the regulatory framework governing economic and social activity.
It also supports initiatives to simplify the law and improve access to it. It ensures that policy, laws and regulations are prepared, implemented and reviewed in an efficient manner, informed by the best available evidence to change, manage or prevent behaviours, and supported by stakeholder’s participation.
New industries, technological advancement and uncertainty across the world are raising new challenges for governments and regulators. How to deal with the online world and data; what about automated vehicles; and how about energy storage technology? This New World requires even greater emphasis on better regulation that can encourage and not stifle innovation.
In Singapore and Korea, there are “sandboxes” or experimental spaces to grow certain industries such as in fintech. In the US, Canada and Europe, regulators are applying behavioural insights to increase compliance by citizens and companies, improve the operation of markets and encourage different consumption patterns by consumers.
Adapting to this new world will rely upon some of the key principles for having better or smart regulation. Consistency and coherence will ensure a stable and predictable environment which citizens and investors like.
Participatory processes will minimise the risk of failures, ensure interventions are proportional to the risks posed, and increase acceptance of regulations. It is very important for governments and regulators to have consultation and engagement mechanisms in order to develop new laws and regulations that will promote economic growth and societal well-being.
They can also help to find, create and test solutions, including non-regulatory interventions such as nudges. But ultimately the new world will need smarter regulation that is adaptable and flexible to constant change, and not prescriptive or rigid.
The new world will need even smarter regulation that is focused on outcomes and not processes. Here there are already tools such as impact assessments and stakeholder engagement mechanisms that can be used.
But even these can be further enhanced such as public consultations that remove biases or live data on implementation to improve compliance.
Better and smarter regulation in the GCC will be a key determinant of achieving economic and social growth. Just like other regions, the GCC may also find itself gathering momentum in this area.
And why not? After all we can all be smarter, even regulation.
The writer is a public policy expert and currently Senior Economic Adviser at the OECD. The opinions expressed do not represent the official views of the OECD or of its member countries.