UK regulators must remain bold post pandemic

This article first appeared in Global Risk Regulator

UK regulators acted decisively when the Covid-19 pandemic struck, but they must retain the initiative in the face of changed markets and a different environment once it passes, writes Chris Burn

In their response to the Covid-19 pandemic, the UK’s regulators roundly dispelled the myth that they are slow and inflexible. From banning home repossessions to providing fast-track authorisations for drone delivery of medical supplies, and enabling 72-hour turnaround approvals for Covid-19 vaccine studies, the watchdogs have shown beyond doubt that they can be nimble, brave and decisive in acting to protect markets and consumers.

But the complex road to economic recovery requires a careful balance between consumer protections and the preservation of healthy and competitive sector markets. While, during the initial response, regulators rightly fell back on wide-ranging exemptions to protect both consumers and regulated firms, these are not sustainable. As we move out of the ‘response’ phase and into ‘recovery’ phase of the pandemic, the UK’s regulators must target their interventions with precision.

To do so, it is critical that they now work to operationalise the same sense of agility, leadership and purpose that they showed during the height of the pandemic.

There are two key considerations in this approach: how they will work in the immediate future and how they will keep the ball rolling.

Working forward

The seismic impact of the virus means that it is incredibly unlikely that what the regulators previously knew about their markets remains true. Energy suppliers, for example, are currently bearing the brunt of the market’s debt and liquidity issues, but at the same time are expected to increase support for vulnerable customers, stretching their operational capacity to the limit. Believing that it is possible to regulate the future based on the assumptions of the past is potentially damaging, so there are three things to consider.

Firstly, understand the sentiment of your market by engaging widely across your regulated entities and the third sector – as the Financial Conduct Authority did in early August with its unprecedented week-long consultation on how to shape consumer protection guidance after October 31. By listening closely to market participants alongside organisations such as StepChange, a charity advising consumers about debt, they have the opportunity to really engage with the economic realities and risks inherent in our complex consumer landscape.

Secondly, do not rely on a one-size fits all approach. Carefully segment those you regulate, as well as those you protect, and plan to create a differentiated regulatory response that focuses attention on the highest-impact instability risks. Tear up the annual supervision schedule and create short-cycle “sense and respond” multidisciplinary teams, working with autonomy and agility to keep guidance updates in sync with local, national and international recovery profiles. These teams must also work to fast-track innovative applications that previously would have been bound in months' or years' worth of red tape.

Finally, it will be critical to work with other regulators at a daily operational level to share intelligence and identify cross-sector pain points and joins throughout the recovery process. The unexpected – almost overnight – shift in regulatory posture must not be taken as an indication that markets can test the waters of unfair advantage. By acting coherently and by using shared datasets, regulators can ensure that their collective authority is best preserved.

Boldness and energy

The second priority is for executive teams to tap into the boldness and energy that policy and legal colleagues have displayed in recent months, challenging established conventions and harnessing new technologies. For a several years, and across many industries, analogue approaches to regulation have not kept pace with our digital world. And things will only get worse: demand on regulators is growing, fuelled by technological advancement, innovation and better market access for SMEs. This means that, without change, regulators, constrained in both resource levels and emerging technology skill sets, will be left behind.

The solution is bold investment in emerging data and automation capabilities. The Medicines and Healthcare products Regulatory Agency is a good example of the former: working with the Department for Business, Energy and Industrial Strategy, Innovate UK and NHSX (the unit responsible for national policy for technology, digital and data use within the NHS), it has created synthetic datasets to train and test innovative artificial intelligence (AI) solutions that mirror cardiovascular and Covid-19 symptoms found in artificial primary care data.

Similarly, experts have used publicly available datasets and open-source analytics tools to trial machine-learning techniques that assess the risk of regulatory returns across a large-entity landscape. By examining metadata across returns and comparing correlations across similar groups of entities, it has been possible to demonstrate to regulators that their sampling approach to compliance checks could be made an order of magnitude more precise, allowing organisations to focus their limited supervisory resource pools on the highest risk areas.

There is incredible potential for all regulators to apply this sort of technology to better assess risk and speed up complex licence applications, using AI models to highlight to human assessors where applications are strong and aligned with extensive technical guidance, as well as weaker areas that need more immediate attention.

By investing and building confidence in these emerging techniques, the UK’s regulators have the opportunity to start catching up with the markets they regulate. The unspoken cautious conventions that have, to date, stalled these types of initiatives at the early trial stage can be swept aside by a new sense of purpose. Perhaps the most challenging phase will not be the recovery itself, but what will happen afterwards if we do not now capitalise on and operationalise our collective renewed imperative now.

Chris Burn is a regulation and transformation expert at PA Consulting