Tech regulation: will the UK go it alone after Brexit?

Once the political decision about Brexit is settled, the focus will move swiftly to the precise nature of the new relationship between the UK and the EU. The question of regulatory alignment or divergence will then take centre stage - with an uncertain outcome and potentially far-reaching implications for the tech sector.

If there is one objective everyone seems to agree on during the UK election campaign, it is that the uncertainty surrounding Brexit has to stop. At one level, all political parties promise to bring the UK’s torturous process of leaving the European Union to a happy end, notwithstanding the fact that ‘a happy end’ means different things to different groups in society. Exasperation and fatigue are undoubtedly running deep. They could well be the decisive factors in this polarising contest.

Of course, the simple truth is that uncertainty is here to stay, and probably for much longer. Leaving aside the scenario of a complete Brexit reversal, settling on and then adjusting to a different kind of relationship with the EU will take many years, if not decades. The idea of a clean and fast-track Brexit was always delusional. The question is whether the looming disruptions are best mitigated ex ante, i.e. during extensive (trade) negotiations and the search for compromises and mutually beneficial arrangements, or ex post in an attempt to contain the damage that a more abrupt separation would entail.

In this context, the issue of continuous regulatory alignment between the UK and the EU is particularly explosive. For some, the purpose of Brexit is precisely to embark on a journey of divergence which seeks to use differing sets of regulations as a means of legitimate competition between two economic entities. For others, staying close to EU rules is not only seen as indispensable for strong cooperation, but also the best way to guarantee high social, environmental and consumer protection standards. For European policymakers, the prospect of Britain becoming a ‘Singapore upon Thames’ is as scary as it gets: an eventuality which risks undermining Europe’s hard-fought harmonisation efforts.

Alignment versus divergence

Put bluntly, regulations could diverge between the UK and the EU for three reasons: First, the new British government decides to adopt less stringent requirements in areas where it deems EU regulations to be overburdening or misguided. Second, it identifies areas where it wants to go beyond the EU common denominator and introduce higher standards. Third, the European institutions upgrade or complement the existing aquis of EU law (to be brought into UK law by the European Union Withdrawal Act) and the UK declines to follow suit. In all cases, a regulatory gap would emerge between the UK and EU – albeit derived from very different motives.

One area where these decisions will have a far-reaching impact is technology regulation. The new European Commission under President Ursula von der Leyen has made no secret of its ambition to rewrite the rule book for the digital economy: modernising competition law so that it better serves a market that remains dominated by a powerful few; tightening online platform responsibilities, including more severe liability and transparency rules; pushing the agenda for digital taxation if a global consensus cannot be found; or setting a robust framework for the use of artificial intelligence and algorithmic decision making – to name just a few. Europe’s appetite to carve out a distinct regulatory regime that sits in between America’s predominantly libertarian approach and China’s authoritarian instincts is stronger than ever.

Against this, the UK looks at the technology sector as one of the big drivers for growth and R&D post Brexit. According to the 2019 Tech Nation Report, the UK is now fourth in the world for scaleup investment, trailing behind only the US, China and India. 35% of Europe’s tech unicorns (i.e. $1bn valued businesses) have been created in the UK. From Fintech and Insurtech to Cyber, AI, Big Data and Cleantech, the UK continues to attract highly qualified tech workers from all over the world. Few sectors display as much potential to realise the Government’s vision of ‘Global Britain’.

It is therefore no wonder that some UK politicians have already started toying with the idea of diverging from Europe’s regulatory regime in the space of technology regulation, be it in the application of the General Data Protection Regulation (GDPR) or the way in which digital competition needs to be upheld and policed. The Brexit logic basically dictates it: if Britain wants to exploit its relative strength in the global tech ecosystem, a more favourable domestic regulatory environment seems to be imperative, or so the argument goes. Expect political temptations for unilateral action to run high.

The quest for smarter tech regulation

Yet politics is not the only dimension that will weigh on the extent and pace to which regulatory divergence might actually happen. Beyond raw ambitions, a number of other, more subtle factors will gradually grow in importance.

For a start, any remit change in the UK regulatory system will have to deal with the challenge of taking over competences currently exercised by the EU Commission and its many specialist agencies. While, for instance, the Information Commissioner’s Office (ICO), Ofcom and the Competitions and Market Authority (CMA) – three critical regulators for the tech sector – have all recently expanded their capabilities to deal with digitally-driven change, a lot of the groundwork and expertise are still being delivered at EU level. The same goes for the likes of the Financial Conduct Authority (FCA) or the Civil Aviation Authority (CAA), which increasingly find themselves confronted by tech innovators who want to push the boundaries. A UK at arms-length from established EU operating procedures will have to seriously assess its regulatory and standard-setting capacity.

Conversely, UK regulatory influence must not end with Brexit, even if the withdrawal from EU institutions cannot be adequately compensated for. Informal channels, networks and knowledge communities have always played a critical role in shaping the content and application of policy frameworks, especially in areas where technological progress necessitates new approaches. Deep expertise on how to best regulate next generation technology will be in high demand in the coming years. It is thus a matter of ensuring continuous engagement and knowledge transfer in forums from which regulatory alignment or divergence may emerge.

Not least, there will be wider international developments that are likely to bear on the UK’s room for manoeuvre, or indeed expectation, to set its own regulatory path. The current dispute about Huawei’s involvement in rolling out 5G networks across the Western world is a case in point: cutting-edge technologies which will underpin a whole range of applications, such as driverless cars, smart cities and factory automation, have turned into strategic assets that are now subject to heightened geopolitical competition between the leading nations. If shaping the right kind of regulatory framework for emerging technology wasn’t difficult enough in itself, add to it another layer of complex cyber security or country of origin considerations – and predictability goes completely out of the window.

Whatever the precise outcome, the UK election is poised to offer a way out of the immediate political impasse. However, any form of Brexit cannot provide the certainty that businesses so desperately need. The extent to which the UK might diverge on regulations affecting the tech sector will be an open question for a long time to come. And one that deserves a lot of scrutiny.