Rein in the dynamics between disruption and regulation

In this age where new things keep coming out, it seems that regulators are always a step too fast or a step too slow. The disagreements between regulators in different countries over ride-hailing apps such as Uber are still manifesting themselves; now transportation and urban authorities are facing the new challenge of shared bicycles.

Similarly, when many financial regulators are still trying to find the best way to rein in the P2P financing sector, ICOs are knocking at the doors of retail investors. Here is the dilemma, to regulate or not to regulate? And if the answer is the former, when?

 

What should regulators do?

As the regulator, if you do it too strictly or too early, you are ‘killing innovation’; if you do it otherwise, you are ‘not doing your job and letting chaos brew’. If your regulations are too harsh, you are ‘against the tide of history’; if your regulations are too soft touch, you might be accomplice of some evil conspiracy by venture capitalists.

Maybe what Singapore’s Land Transport Authority did with the ride hailing apps could offer a glimpse of the right approach? When ride-hailing apps (Grab Taxi & Easy Taxi) first appeared in Singapore, the authorities met with all the operators. In these meetings they told the operators where the current law stands, and what their boundaries for the players are: do not break any of the existing laws and regulations; and do not do anything that causes too much negative public or media attention.

In the same meetings they told the operators that they were open to discussions and sharings. They also welcome industry players with operations in multiple countries to share the developments in these countries. Such communication channels remained open and regular. Players were allowed space to innovate, while those who openly violated existing rules were swiftly punished. Industry players as well as incumbents were invited for consultation when new regulations were being prepared.

When the final set of regulations were in force – the players were all relieved (but not at all surprised) that the rules were a light touch. Moreover, they already had the necessary understanding such that meeting the requirements, if they intend to, is not difficult at all. Of course, this is an industry where the risk of things going severely wrong is relatively low, unlike areas such as financial markets. Nonetheless, what is valuable here is methodology of engagement while setting the boundaries, and co-creating the regulations with relevant stakeholders.

 

How about disruptive startups?

If you are a disruptive start-up, quite often you need to deal with regulators. There are a few general principles in our opinion:

1. Do not take a one size fit all approach if you are operating internationally: different countries have different regulatory environments and industry dynamics, better to map these out first before you decide which approach to take. Whether to engage or challenge – it really depends.
2. Do not openly challenge the regulators unless the power dynamics are in your favour. In certain countries when you do so, you can fight in the court and maybe your lawyers tells you the likelihood of winning is quite high. In most (especially developing) countries, good luck.
3. Do not cry foul if you have run into problems with the regulators, again unless the power dynamics are in your favour. In a few developed countries when you do so, you win over the media and public, and in turn they put pressure on the authorities. In most (developing) countries, it is far more complicated than that.
4. Avoid any public (including regulatory) attention if necessary. In many cases, that gives you the breathing space to prove that your model is actually benefiting (rather than harming) the socio-economic fabric of the city or country.

As you probably figured out, Uber is the antihero in all these points. That’s why although they managed to push through in a few countries, in many other places, including the Philippines, Taiwan, Korea and many European countries, they have their wings clipped too early. And always remember that you are not (as big or influential as) Uber, even if you think the media and public should be on your side.