Out-Law News 2 min. read

'Fair and proportionate' regulation needed to support disruptive tech, says Scottish Government

New research into how businesses can be encouraged to adopt disruptive technologies and business models without it impinging on fair competition is to be carried out in Scotland.

The Scottish Government outlined the plans in a new report featuring its strategic assessment of markets in Scotland (29-page / 683KB PDF) in which it said it would use its competition powers to "ensure that Scotland’s markets are competitive and fair to consumers".

The report highlighted the impact technological change has had in transforming markets. The Scottish Government said "disruptive technologies bring significant benefits to consumers, competition and the economy through lower prices, greater choice and better service" and "allow for a more efficient use of underused resources by allowing people to share their resources through online platforms".

However, it said that regulation is necessary to maintain fair competition in markets between incumbents and new entrants. Government and regulators "need to be agile in their response to changes to markets", it said.

"Benefits [of disruptive technologies] must be balanced with the need for regulation and for these new businesses and traditional operators to be treated fairly with no unfair competitive advantage," the Scottish Government said. "A key element of debate surrounding disruptive technologies is the degree to which they should be regulated. Often, market structures and regulation can create barriers to new entrants. Where there are such barriers to entering a market, these regulations and structures should be reviewed to ensure that they encourage competition and, consequently, increase consumer choice."

"It is important that consideration is also given to regulation which may have become obsolete or may discourage innovation in the market. Regulation must be proportionate, encourage innovation and provide a favourable business environment in which all companies can grow and flourish. On the other hand, new businesses are often competing with existing providers but are not necessarily bound by the same rules and regulations. The existence of a regulatory gap between new and incumbent operators can lead to an issue of market fairness," it said.

The Scottish Government said new technologies can help companies disrupt markets and become dominant in them quickly. It said there is a need for close monitoring of dominant firms to ensure they do not abuse that position. It also said consumer protections, in areas such as health and safety standards, need to be preserved when disruptive technologies are in use.

"Further analysis is needed to understand where the balance is between encouraging competition and ensuring regulation is appropriate to ensure there is no competitive advantage nor unintended consequences," the Scottish Government said. It said it will "carry out research to consider how to ensure Scottish businesses are able to make the most of the arrival of disruptive technologies and that market structures do not unnecessarily restrict the entry of new disruptive business models".

"The Scottish Government will be looking at the issues around disruptive technologies in detail in the coming months," the report said. "Specifically on regulation, the independent Regulatory Review Group is also undertaking a review of the regulatory environment within Scotland for key sectors affected by digital disruption to ensure that it remains appropriate to encourage and support innovation while maintaining a level playing field."

"Disruptive technologies transform current business models. In Scotland, we must ensure that Scottish businesses are able to capitalise on these disruptions and have the necessary tools and ability to enter these markets should they wish to. It is also important to ensure that market structures and features are not unnecessarily restricting the entry of new disruptive business models," it said.

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