By Korede SOTUBO
The “pacing problem” is the gap between the rapid development of emerging technologies and the much slower pace at which regulatory frameworks evolve.
This issue presents significant challenges for businesses operating in fields such as artificial intelligence, fintech, biotechnology, and renewable energy, where innovation outpaces the ability of governments to create enforceable laws.
Businesses must navigate this regulatory lag and mitigating the risks that come with adopting new technologies.
The regulatory gaps and emerging technologies
Emerging technologies often introduce complexities that exceed the traditional scope of regulatory agencies. For example, in areas like digital currencies or artificial intelligence, the risks – ranging from privacy violations to cybersecurity threats – extend beyond the jurisdiction of existing regulatory bodies in most jurisdictions around the world.
The unique nature of these technologies calls for innovative regulatory approaches, as traditional legal frameworks are often ill-equipped to address the risks.
For businesses, these gaps in regulation create both opportunities and challenges. Companies can take advantage of regulatory grey areas to innovate freely, but they must also be aware of potential future regulations that could impact their operations.
The unpredictability of eventual “hard law” frameworks makes strategic planning difficult, especially in industries subject to heavy regulation.
The role of soft laws in managing risks
With the reluctance of governments to stifle technological growth with premature regulation, soft laws have emerged around the world, as a flexible solution to manage the risks associated with new technologies.
Soft laws include best practices, private standards, professional guidelines, public-private partnerships, and codes of conduct. While these are not legally binding, they are influential in shaping business practices by providing interim guidance in the absence of formal regulations.
For businesses, the advantage of soft laws lies in their ability to contribute to these standards as a good number of them emanate from the private sector and stakeholders.
Industries such as data privacy and AI ethics have benefited from soft law frameworks like the GDPR’s precursor, which provided initial guidelines before being enshrined in formal legislation. Soft laws give businesses insight into the probable direction of future regulations, allowing businesses stay in compliance with growing legal requirements.
Moreover, adherence to soft laws can help businesses position themselves as ethical leaders in their industries. In a world where consumers and stakeholders are increasingly concerned about corporate social responsibility, compliance adoption of soft laws can enhance a company’s reputation, creating a competitive advantage.
Businesses that proactively adopt best practices and align with international standards can build trust and avoid the societal perception of being “bad actors” in their respective fields.
Impact on international business
Global businesses must also consider how soft laws influence international trade and collaboration. International standards and best practices, such as those from the International Organization for Standardization (ISO), often fill regulatory voids, creating a common framework for companies operating across borders.
Businesses engaged in cross-border transactions must adapt not only to the soft law frameworks in their home countries but also to those in foreign markets, ensuring they maintain compliance and avoid reputational risks.
For example, the International Financial Reporting Standards (IFRS), while not legally binding in all jurisdictions, have been adopted voluntarily by companies worldwide, setting a de facto standard that influences business practices.
Conclusion
The pacing problem between emerging technologies and regulation presents both risks and opportunities for businesses. In the interim, soft laws serve as valuable tools for managing these risks and aligning with ethical best practices.
By embracing these flexible guidelines and preparing for future hard laws, businesses can not only navigate regulatory uncertainty but also position themselves as responsible innovators in a rapidly changing technological landscape.
The pacing problem underscores the relationship between emerging technologies and regulations. The development of many emerging technologies far exceeds the capabilities of existing laws and the pace of new law creation.
>>>the writer is a qualified attorney in Nigeria with an advanced degree and Business Law certification from Duke University School of Law in the United States. She has worked with highly ranked, top-tier organizations, advising international businesses on foreign direct investment into Africa and ensuring regulatory compliance within African and U.S. legal frameworks. As a Salzburg Cutler Fellow in International Law and an Associate in Research at Duke University, Korede has authored several publications on the regulation of emerging technologies and their impact on international business, with a focus on cross-border transactions.. she can be reached via [email protected]
