Digital Insights & Trends: The Future of Regulation in the Digital Economy


As legal advisors to providers in the digital world, we are always thinking about regulation – whether it is coming, when it is coming, and what it will mean for our clients. After all, it is our mission to keep you on the safe side of the law, so you can create, succeed and prosper. With this in mind, we find the explosion of digital products and the warp-speed at which complex applications are emerging to be both a testament to irrepressible innovation and cause for concern. A recent Op-Ed in the Wall Street Journal (L. Gordon Crovitz, “Uber Shocks the Regulators,” June 16, 2014) notes “permissionless” digital innovation is upsetting traditional regulatory processes. The uber-popular Uber car service demonstrates that traditional taxi regulations are giving way to customer demands. The “old way” of making rules in response to existing providers may be faltering in an era of customer-driven preferences. If so, a sea change in the regulatory function may be looming.

A traditional model of financial services regulation involves government agency examination of a process or product, consideration of consumer protection and money laundering concerns, public comment on a proposed rulemaking, input from interested parties, and the eventual issuance of rules which are nearly always justified as simultaneously balancing the interests of regulated parties and the public. On the consumer protection side, regulators often call for extensive disclosures to customers, on the theory that people should understand what they’re getting, but if they do, their choices should not be tightly constrained.

The e-commerce economy may upend this model. As Steve Wozniak, an Apple co-founder stated recently, “people expect apps … that we can use very quickly, without any hassle or anything we have to sit down and learn to use.” If he’s right (and the burgeoning digital economy suggests he is), lengthy rule-making periods and extensive mandatory consumer disclosures may be on the way out. First, considering the furious pace at which digital products and services are being launched, regulatory rulemakings may last longer than the apps underlying them. Second, if the public demands apps they don’t have to learn to use, they’re unlikely to tolerate lengthy disclosures before transacting. An official of the European Commission suggests that traditional rulemaking may not survive in an era where consumer demand drives providers, and not the other way around. Consider Uber again: Chicago dropped lawsuits against Uber after citizen pressure, and Uber is defying an order to stop operating in Arlington, Virginia and elsewhere. Meanwhile, Britain’s Minister for Skills and Enterprise (and yes, that’s his actual title), is tweeting: “Does anyone have details of this Uber app everyone’s talking about?”

The disconnect between regulators and the digital world is growing by the nanosecond. Undoubtedly, regulation will find a way into the digital economy; what remains to be seen is what that regulation will look like, and how digital innovators will attempt to comply.  Stay tuned.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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