Regulatory Cooperation and Collaboration

The UKRN was born out of a shared belief among a group of mainly UK economic regulators of the benefits of sharing knowledge across the regulated sectors.  The UKRN’s proactive events and stakeholder engagement on cross-cutting issues have promoted exchanges of best practices on subjects as diverse as data sharing (Open letter: exploring data sharing within the energy and water sectors | UKRN: the UK Regulators Network) to cost of capital (UKRN guidance on the methodology for setting the cost of capital | UKRN: the UK Regulators Network).

A decade on, we need to assess whether this model is fit for purpose.  To take an example, digitisation as a cross-cutting phenomenon has wide social and economic impact and affects all sectors of the economy and which has created the need for a new approach to regulation. Collaborative regulation or 5th generation regulation (G5) is a broad notion that the ITU has defined based on the concept of generations of ICT regulation but it has implications beyond telecoms.  G5 represents a fundamental shift in the way regulation is executed, its holistic policy ground and the stakeholders it unites.  A collaborative approach recognises the interplay between digital infrastructure, services and content across industries and national borders. While there are some ‘quick wins’ that can be achieved with some ease, other institutional constraints will need to be considered and demand more collective reflection and time.

Regulatory Divergence

The starting point (in very broad terms) is that EU withdrawal has at least created the possibility of regulatory divergence between the EU and the UK.  It is beyond the scope of this piece to chart the intricacies of the process for implementing regulatory divergence.  Suffice to say that on 15 December 2023, the Retained EU Law (Revocation and Reform) Act 2023 (Commencement No. 1) Regulations 2023 (SI 2023/1363) were published and bring into force various provisions of the Retained EU Law (Revocation and Reform) Act 2023 (REUL Act).  Schedule 1 provides for the revocation (or sunset) at the end of 2023 of the retained EU law listed in Schedule 1. A more staggered approach than was originally foreseen has allayed some of the initial concerns of a ‘cliff edge’ abandonment of all retained EU law (unless restated). However, it is evident that the EU and UK regulatory regimes can and have started to move apart.  Regulators, businesses and consumers will need to be prepared for further divergence.

Meanwhile, it may be asked whether there are any cross-cutting themes that can bring some stability, consistency, or accountability to the process?  My views are that there are some fundamental principles which should not be disregarded.  First, be strategic about areas in which to pursue regulatory change where this is possible. Second, develop a regulatory policy in service of the UK’s regulatory strategy.  Third, undertake a through and independent review of the UK regulatory modelagainst alternative model(s).  Fourth, audit to prevent regulatory divergence by default.  Fifth, monitor the EU internal market legislation and constructively engage with future regulatory changes coming from the EU.  Sixth, consider that in some cases the UK may want to follow the EU to prevent friction with NI.  Seventh, support a more balanced approach to managing divergence within the UK internal market (as to which see #4 below).  Eighth, set priorities for the UK as an independent global regulatory actor.  Ninth, with growing competition from the USA, EU and China especially in digital, the UK needs to take account of and manage its market positiondomestically, and internationally.  Finally, consider that the UK could be a regulatory convener between other prominent regulatory jurisdictions and as a leader in a select few strategic niches where it has global strengths.  This goes back to the importance of holistic regulatory strategy and bringing cross-cutting perspectives to the debate.

Regulatory Performance

Differentials in regulatory resources exist and persist – between regulators and regulated entities and between different regulators.  The UKRN’s own membership reflects heterogeneity.  Resource differentials matter and are more acute with increasing workloads which are showing no signs of abatement.  With pressures on public spending, regulators must demonstrate value for money but this should not always mean doing more with less as you may need to spend to deliver palpable change.  The UKRN, with the FCA, Ofcom, Ofgem, Ofwat and the Consumer Council for Water, have been working together to develop a set of performance scorecards to measure the customer experience across key sectors (UKRN publishes its Progress Note on Performance Scorecards | UKRN: the UK Regulators Network). The coming years will test how we measure regulatory performance and outcomes.  It was Peter Drucker who quipped: “If you can’t measure it, you can’t manage it.  What’s measured, improves”.  In a similar vein, Lars-Hendrik Roller, First European Commission Chief Economist, 2005 said: “What we need is quantification, quantification, quantification.”  Measurement of value is necessary, but the concept of real public interest value is more than a number.  For example, in the pursuit of numbers I would make a plea to look beyond the headline statistics.  Case load volumes and decision numbers are just that. Volumes may be driven by the legal framework, can be distorted by own-initiative actionsand say nothing about quality of output.

New Regulation, New Powers and New Regulators

The last decade has seen a number of newer economic regulators emerge, with new powers and potentially overlapping jurisdictions.  The birth of the UKRN itself coincided with the establishment of a new Payment Systems Regulator (PSR), unprecedented internationally as a dedicated regulator for payment systems and services outside of the central banking system.   The PSR has enforcement powers under the Competition Act 1998 and market study and market investigation reference powers under the Enterprise Act 2002, exercised concurrently with the Competition and Markets Authority (CMA). 

While navigating the concurrency regime has been a theme for the last decade, a demarcation for the next is the creation of new regulators or advisory bodies in areas which, by their nature, intersect more closely with policy and politics than ever see before.  An example is the Subsidy Advice Unit (SAU) which provides non-binding advice to public authorities, as well as monitoring and reporting on the effectiveness of the subsidy control regime.  Another is the Office for the Internal Market (OIM)which is responsible for providing expert technical and independent advice to all four governments of the UK on the operation of the UK Internal Market.  Now more than ever independent regulation will be tested.  These bodies will need to be vigilant to challenges to their independence, as they could risk being drawn into narratives outside their remit which could undermine their legitimacy.

The Consumer

There will continue to be an evolution in the relationship between consumer law and regulation.  This is seen in an evolving notion of ‘prosumers’ (where consumers act as both consumers and producers).  EU consumer protection policy has developed systematically over the last 40 or more years and comprises numerous measures aimed at enhancing the position of EU consumers.  The legacy effect of EU withdrawal at least creates the prospect of divergence.

Regulation induces standards of performance by regulated entities.  Regulation protects consumers from poor performance including poor services, false advertising, unsolicited phone calls and the like. This presents a view of consumers as actors capable of making choices and leaves them exposed to the consequences of their own choices.  Increasingly, there are calls to bring consumers to the forefront in regulatory decisions and the UKRN has convened some if its members on cross-cutting projects in response to these issues (Consumer engagement in regulatory decisions | UKRN: the UK Regulators Network).  By creating choices, by educating consumers on those choices and assigning consequences for not acting on them regulators can enhance performance of regulated entities and consumers.  However, consumer empowerment requires more than telling consumers how to cut their bills and requires giving them the information and means to make active choices that are realistic for them.  

Regulation and Investment

Following on from the previous theme, there will be a continuing challenge in balancing the interests of investors and consumers.  This is another area where the UKRN has convened debate on this issue (8 Sep 2016 – UKRN + LTIIA conference: ‘UK infrastructure regulation: opportunities to align the interest of investors and consumers’ | UKRN: the UK Regulators Network).  Previous generations paid for today’s infrastructure.  It may be asked whether now it is our turn?  The next decade will present challenges in this area when balancing in the interests of yesterday’s,today’s and tomorrow’s consumers.  Choices today have consequences for the next generation (e.g. car and house sizes, travel choices, technology choices).  Infrastructure obsolescence, renewable energy sources, communications technology, and years of under-investment compound the need for some seismic investments that need to be paid for.  Enhanced standards come at a cost.  Consumers may not engage in (full) lifecycle costing.  Provision of meaningful education and information to consumers can help them adjust their behaviours to better protect themselves.  There are no easy trade-offs.

Artificial Intelligence and Disruptive Innovation

The debate around artificial intelligence or ‘AI’ and regulation has attracted interest among policy-makers, regulators, practitioners and academics and, as yet, there is no consensus internationally on the extent to which existing policy, law or regulationis fit for purpose.  In their book, Virtual Competition, Professors Ariel Ezrachi and Maurice Stucke postulate the ‘end of competition as we know it’ and call for heightened regulatory intervention against algorithmic systems.  Unsurprisingly, the UKRN has convened cross-cutting initiatives in this area (How can Government and regulators keep up with disruptive innovation? Read the latest blog from the joint UKRN + Policy Exchange roundtable | UKRN: the UK Regulators Network). 

What can be said with some certainty is that the next years will be replete with regulatory pronouncements on this issue.  It then behoves to ask what a relatively small non-statutory body like the UKRN can contribute without a risk of duplication or deflection of efforts.  The following areas would merit attention as topics for further cross-setting analysis beyond a siloed approach: (1) whether there might be alternative outcomes which present competition, regulatory or other concerns but which are not caught within traditional regulatory paradigms (e.g. data capture, data extraction and co-opetition between super-platforms and applications developers); (2) understanding rational and harmful price transparency and whether and when particular consumer outcomes are an appropriate case for regulatory intervention. This accepts that consumers make bad decisions even in competitive markets and that instances of consumers making bad decisions caused by algorithmic pricing may not be an appropriate case for regulatory intervention; (3) understanding countervailing AI strategies by buyers under a range of assumptions, including across B2C and B2B markets and whether these differ across sectors.

Diversity

Preventing discrimination and promoting diversity can mean different things to regulators and society.  The UK Public Sector Equality Duty (PSED) is a legally-binding duty on public bodies and others carrying out public functions.  It ensures that public bodies consider the needs of all individuals in their day-to-day work – in shaping policy, in delivering services, and in relation to their own employees.  At a time when it may be challenging to suggest regulation as a career option to the next generation of public servants, a focus on diversity and sustainability of the regulatory profession is important.  Increasingly diversity may be on a regulator’s own agenda in ways which may be less obvious.  A regulator’s recruitment or contracting practices could discriminate by age, race, gender, national origin or sexual orientation (including shortlisting; less favourable treatment; direct or indirect (criterion, practice, procedure that has an adverse effect on a protected characteristic).  A regulator may identify discrimination in the practices of a regulated entity.  A regulator may even allow unconscious/implicit bias to affect its decision-making.  A regulatory decision may have different impacts on particular groups (e.g. vulnerable customers).  There have been UKRN initiatives which have contributed toregulators’ current thinking on the issue of diversity (28 February – UKRN Diversity Network event on tackling the gender pay gap | UKRN: the UK Regulators Network). Effective regulators mandate quality standards and can do so for diversity.  

The Energy Trilemma

The UK’s energy policy is designed based on the so-called ‘energy trilemma’ consisting of sustainability, security and affordability.  Energy markets are facing the long-term challenge of moving towards a net zero future.  The UK is no exception, and it aims to address the three interlocking challenges: 1) decarbonisation of the energy sector; 2) energy security; and 3) minimalisation of the cost of energy to consumers.  The UKRN has contributed to these debates (Civil Service Climate & Environment Conference | UKRN: the UK Regulators Network).  Despite the restructuring in the energy market and liberalising wholesale and retail markets, the energy sector is still heavily regulated.  The current government aims to transform the energy sector by boosting the UK’s competitiveness and investment into home-grown clean energy, radically enhancing energy security and cut costs of energy for consumers in the long term.  It is to be seen when these plans will be implemented.

UK Regulation on the International Stage

The UKRN started out as a domestic project aimed to bring together UK regulators. While the membership demographic has morphed over the years, it remains an exclusively domestic grouping and is by no means ubiquitous in its coverage of UK sector regulators. This is understandable given its aims and development but the signs are that it is growing.  As it enters its second decade, let’s not lose sight of the fact that it is already making a contribution to international engagement on issues of wider than national regulatory import.  The UK ‘brand’ of independent regulation has international currency, but we should not rest on our laurels.  The UKRN contribution to a thought-leadership panel for the London and Oxford legs of advanced regulatory training for Saudi peer regulators in September 2023 is an illustration of its geographic reach.

UK regulation is at a cross-roads. The coming years will determine the course of development over the remainder of the decade at least.  If UK economic regulation is to remain relevant and responsive, it will need to deal not only with the more immediate home-grown asymmetric issues such as the economic implications of EU withdrawal and the potential for regulatory divergence, but also enduring global themes such as disruptive innovation, climate change and diversity.