On the role of technology in Regulatory Modernization

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On the role of Technology in Regulatory Modernization

The challenge with regulations

Regulations are instruments of legislative power and have the force of law. They carry out the intent of corresponding Acts which set out requirements that businesses must adhere to. Regulations are necessary to protect the health, safety and security of individual consumers and the environment as well as to support commerce within a country. However, too often they are blamed for stifling innovation and commerce because they are not effective in addressing new and emerging trends and industry practices.

The regulators of today must balance the work of application processing, inspections, and liaising with stakeholders while ensuring that regulations are updated to reduce burden on businesses. They must manage this in the face of ever-changing socio-economic realities, explosive technological and scientific advancement, and changing industry practices. With mounting external pressure and complex internal processes, regulators find it increasingly difficult to distribute resources to best serve the public.

One essential task among many for regulators is to reduce the administrative burden of compliance by reviewing regulations to look for those that are outdated to the extent of blocking innovation. For example, if there is a new technological innovation which changes the mechanism of delivering products and services within an industry then the original regulations must be changed to address the innovation. The consequence of a slow change in this kind of regulatory modernization can become burdensome on businesses which can ultimately cause delays in go-to-market initiatives and reduce business growth.

How can technology enable a better regulatory process?

Regulatory modernization becomes a daunting task when you consider the immense number of regulations. How do regulators go about continuously tracking industry changes and reviewing burdensome and outdated regulations when they have so little resources to spare?

Fortunately, regulators are not helpless. The same technologies that are today challenging traditional regulations can also offer many opportunities to reinvent the regulatory process. Technologies which are becoming more widely available today can help regulators do faster regulatory review, automate repetitive tasks, and make faster decisions. In the process of regulatory modernization, artificial intelligence and advanced analytics can play a key role in organizing data and automatically delivering intelligent insights by identifying relationships between regulations and external data, speeding up the process of exploration and review.

Below, I focus on the process of regulatory modernization and explore the possible applications of artificial intelligence in improving regulatory review and reducing the regulatory burden on businesses. Mainly I explore how technologies in natural language processing and text analytics can enable regulators to draw insights from regulations to identify conflicting or overlapping rules in regulations, find relationships between regulations and detect markers of regulatory approaches that support innovation. In a following article, I will showcase an analytics application that I built with the team at Datadex to enable federal regulators in Canada improve the process of regulatory modernization.

Regulatory modernization and how technologies such as AI can play a role

In enabling regulators to modernize regulations, tools that have textual analysis and natural language capabilities will offer great value. Below I discuss some of their applications in linguistic analysis, clustering regulations, and comparative analysis.

A fast pace of change in technology and industrial practices means that regulators must update regulations constantly to keep pace with trends. Today’s regulators are taking a new approach where they make rule-setting in regulations more agile. One way to do this is to make sure that the language of regulations itself does not create impediments for innovation. A natural language analysis tool which can enable regulators to identify the use of prescriptive language in older regulations would be useful in this situation. For example, words such as “shall” and “must” which indicate imposition could be found and replaced by words like “may” in the appropriate context. Similar capabilities would be useful in identifying phrases which indicate very specific or detailed requirements such as particular measures or measurements which regulators can then replace with outcomes that they want to achieve.

Inconsistent use of language among regulators or even by the same regulator can cause misinterpretation. There often occurs a situation where the same language, used in different contexts is used to explain different actions. Businesses can easily associate the use of a language with a meaning and as a result interpret different actions/ procedures wrongly. In other situations, regulators use different words or phrases with similar meaning in contexts which are the same. In this situation, businesses can interpret the words as having different meanings. For example, Transport Canada regulations often use different words to describe similar actions such as “surveillance” and “monitoring”. This ambiguous use of language can result in a failure to comply. Comparative analysis would be helpful in this, for example, if regulators were able to select a section of regulatory text and a word within it and retrieve references of text in other regulations with similar context but using a different word.

Another useful feature that natural language analysis could offer is to enable regulators to see differences between regulatory text over time. A visual of comparison of regulatory texts which exhibits differences in features will enable regulators to see how the language of regulations is evolving in response to industrial practices and allow regulators to adopt changing styles in language to form more agile and responsive regulations. This would also benefit older regulators who can compare their regulatory text with that of newer regulators.

To tackle the immense number of regulatory reviews, regulators need a systematic manner of grouping regulations by common characteristics. This kind of grouping can enable the discovery of patterns and links between regulations which can help regulators find better ways to organize reviews and coordinate with different groups of regulators. A clustering tool which groups regulations based on similar characteristics like context, subject-matter or citations can enable regulators to explore relationships between regulations and business sectors. Building a visualization tool over the clusters would allow regulators to interact with regulations graphically and easily discover relationships and overlaps between regulations, and variations in regulations that have characteristics unique to a sector or industry.

It would also be interesting for regulators to monitor the outcomes of changes to regulatory textual information on the performance of private sector regulated parties. If information from external sources can be collected and organized chronologically with changes in regulations for those sectors, then regulators would be able to study the impact of changes in regulatory text. Textual analysis could also relate changes to the form, language and spirit of text to its impact on the respective sector and public opinions. Regulations often attract considerable attention from the press due to legal proceedings when businesses have broken compliance. In these situations, it would be valuable for regulators to relate words and phrases which have received the most attention from the media with references from the regulations.

These capabilities would be similarly useful in analyzing feedback in public opinions during the drafting and consultation stage, to assist regulators in identifying parts of the regulation which have received the most focus. Textual analytics would also be useful in the comparative analysis of regulations between different jurisdictions or countries. How regulators are responding to industrial changes in other countries could guide how regulations need to evolve in one country.

As technology continues to advance, regulators will face many challenges in developing regulations which protect consumers while ensuring innovation and growth for businesses. By using technology in ways we’ve discussed here, regulators can transform how they work to ensure that their regulations are up to date with the best practices of the time. To realize this vision, they must be willing to make sustained investments in developing these capabilities and re-engineering their work processes to find the best strategies for technology-enabled regulatory modernization.

On the role of technology in Regulatory Modernization was originally published in Towards Data Science on Medium, where people are continuing the conversation by highlighting and responding to this story.

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