Compliance by Design: an innovative approach to regulatory compliance

Innovation is a key driver of corporate success, and this is consistent across different sectors and markets. Businesses are increasingly spending more on innovation and research and development; global spending on research and development has reached a record high of almost US$ 1.7 trillion according to the UNESCO Institute of Statistics.

This innovation and spending will lead to changes in the way that businesses operate. Evolving business models, particularly in a rapidly changing technological landscape, require a more dynamic and adaptable approach to regulatory compliance and one that has a long-term focus. Regulatory authorities are themselves under increasing political pressure to ensure that innovation contributes to competitive market outcomes that benefit customers. This pressure could create uncertainty for innovators and means that compliance stress testing is essential and has itself got to become more innovative.

To help you innovate ‘safely’, by assessing and mitigating potential regulatory risks, we have worked with the Economist Intelligence Unit to produce a report ‘Regulating the Future’ which looks at the relationship between regulation and innovation.

In conversations with our clients, and with insights from the 'Regulating the Future' report, we have identified the following five forces that are shaping the regulatory landscape.

To help our clients prepare for and embrace the shifting market paradigm and to identify and assess risks relating to innovation from a regulatory perspective, we have developed a qualitative regulatory risk assessment model with nine key factors that we consider to be essential for stress testing innovation projects for regulatory compliance.

For example, algorithms run by artificial intelligence may be able to remove human bias from business decision making. But if those algorithms are poorly designed, incorporate unconscious discrimination, or are “trained” on unrepresentative data sets, they may entrench bias. This could lead to legal risk for your business. These sorts of concerns drive regulation in everything from antitrust, to tax to employment law. We can help you to test this sort of risk.

Contact us for more information at $CompliancebyDesign@freshfields.com or through your usual contact.

References: 

1. The Economist Intelligence Unit/Freshfields report ‘Regulating the future’, 2019
2. Mireille Hildebrandt (2017) ‘Saved by design? The case of legal protection by design’, Springer, https://link.springer.com/article/10.1007/s11569-017-0299-0
3. Lippe P, Katz DM, Jackson D (2015) ‘Legal by design: a new paradigm for handling complexity in banking regulation and elsewhere in law’, Oregon Law Review 93(4), http://papers.ssrn.com/abstract=2539315
4. Lewis Crofts, MLex Global Antitrust (2018) ‘Regulators’ role needs rethink to keep pace with modern needs, UK’s Tyrie says’
5. MLex Global Antitrust (2018) ‘Regulatory “sandboxes” promote innovation, Portuguese competition regulator says’
6. S&P Capital IQ, Company accounts on R&D spending