Regulatory technology (RegTech) holds significant potential to improve regulatory compliance, reduce compliance costs, and improve how we address known harms and identify emerging risks. An article in Policy Design and Practice examines the potential for RegTech to support the creation of public value. Public value is most likely to be realised when governments keep focused on regulatory purpose and effective design.
RegTech involves the use of new technologies to solve regulatory and compliance requirements more effectively and efficiently. Initial applications of RegTech occurred in the private sector, especially in the financial industry to reduce compliance costs and noncompliance risks.
RegTech applications include creation of secure portals for safe sharing of sensitive information, improving the speed and accuracy with which fraud is detected, applying artificial intelligence to better train customer service representatives, and monitoring financial advice to ensure it meets required standards.
There is increasing appetite to adopt RegTech within public functions in pursuit of more efficient targeting and conduct of regulatory monitoring and enforcement.
A focus on creating public value
Mark Moore’s public value framework has been highly influential in the study and practice of public policy and public management. The framework emphasises three aspects of public management:
- delivering services
- achieving social outcomes
- maintaining trust and legitimacy.
The article frames public value as Moore did in his initial definition. It is the public sector equivalent of private value in corporate management. Under this definition, public managers seek to enhance the value to citizens of government activities.
The core of Moore’s public value framework consists of the strategic triangle. Results-oriented public managers must seek to align the three corners of the triangle: value, mandate and capability. Public managers begin by considering how they might create public value and formulate strategic goals. Those goals emerge from thinking about how best to add public value for citizens through specific programs, services, or regulations.
Applying the public value framework
There has been considerable discussion of the potential value of RegTech to regulated entities. This can be extended to consider the use of RegTech in public settings where the end goal should be on delivering public value.
This requires addressing three questions that emerge from Moore’s public value framework:
- What is the strategic goal to be pursued?
- What is the relevant authorising environment relating to this goal?
- What operational capability is required to effectively attain this goal?
Adoption of RegTech by regulatory agencies can create public value by:
- supporting more thorough monitoring of regulated activities and promoting compliance.
- supporting more systematic identification of the emergence of new risks and potential harms.
- reducing the costs of regulation to both the government agencies tasked with regulatory enforcement and those obligation holders required to abide by regulatory requirements.
For government agencies to adopt RegTech, support must be gained from the authorising environment. This will typically mean senior public sector leaders, government decision-makers, and the industries and organisations subjected to changing regulatory practices. The successful implementation of RegTech initiatives and on-going support for them calls for careful attention to be paid to the operational capability of relevant regulatory agencies.
Challenges in the regulatory space
A range of challenges must be addressed if RegTech is to live up to its potential and create public value. These include:
- Addressing misperceptions about what RegTech can achieve. Advocates for greater uptake of RegTech must clearly explain its benefits and limitations and what implementation will entail.
- Addressing lack of readiness within regulatory agencies.
- Ensuring oversight by both technical and regulatory experts. Technical expertise is required to monitor of a particular RegTech as needed. Subject matter experts who understand the regulatory frameworks are also needed to interpret and validate the outputs of the RegTech.
- Avoiding human biases being reflected in technological processes. Poorly designed or managed systems can destroy public value and erode trust in government.
- Supporting thorough commissioning processes and deciding whether this is led in-house or contracted out.
- Bolstering risk management and accountability. Governments can take major reputational hits when technology does not work as intended and new harms emerge.
The bottom line
There is a viable path and place for RegTech in regulatory practice and great potential to enhance public value creation. This will require governments to keep focused on regulatory purpose and effective design. It will also require them to build effective collaboration with RegTech providers and regulated entities. Foresight, planning, and reflection will go a long way to addressing challenges and ensure optimal public value is achieved.
Want to read more?
RegTech and creating public value: opportunities and challenges – Mitzi Bolton and Michael Mintrom, Policy Design and Practice, May 2023
Each fortnight The Bridge summarises a piece of academic research relevant to public sector managers.
- Published Date: 5 June 2023