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Business | GLOBAL BUSINESS

Automating Regulation & Compliance

Regulation and Legal Status of Algorithms

A core focus of regulators of late has been the challenge of Digital Regulatory Reporting (DRR). Indeed, the Financial Conduct Authority (FCA) issued its Feedback Statement on its Call for Input FS18/2 in October 2018. This call for input outlines a “proof of concept” developed at its TechSprint initiative in late 2017, seeking to make it easier for firms to meet their regulator reporting requirements and improve the quality of the data that they provide. The feedback analysis weighs up the pros and cons of each of the following concepts, namely: disambiguation of reporting requirements; common data approach; mapping requirements to firms’ internal systems; a mechanism for firms to submit data to regulators; utilising standards to assist the implementation of DRR; a common data model; application programming interfaces; DLT networks; disambiguation of regulatory text; and of course uItlising standards to assist the implementation of DRR

Legal redress for algorithm failure seems straightforward. If something goes wrong with an algorithm, just sue the humans who deployed the algorithm. But it may not be that simple: for example, if an autonomous vehicle causes death, does the lawsuit pursue the dealership, the manufacturer, the third-party who developed the algorithm, the driver, or the other person’s illegal behavior? This stimulates the debate of whether or not algorithms should be given a legal personality in the same way as a company.

In terms of the potential benefits of DRR, these can be summarised as follows: • a reduced need for firms to interpret rules, making the information submitted to regulators more accurate and consistent; • increase in efficiency via reductions both in time and costs taken in complying with regulatory reporting requirements; • increase the attractiveness of the test jurisdiction’s regulatory framework for firms operating or considering operating in a certain jurisdiction; • increase the consistency of the information that regulators receive by reducing potential ambiguity within reporting requirements; • potential to implement future reporting requirements more quickly, and to improve the quality of data that are received were also commonly noted benefits; • provision of higher quality data is seen as a potential benefit for both regulator and regulated • potential improvement in information sharing between firms - specifically internal risk and management purposes.

As we know, a ‘Legal person’ refers to a non–human entity that has a legal standing in the eyes of the law. A graphic example of a company having legal personality, is the offence of corporate manslaughter, which is a criminal offence in law, being an act of homicide committed by a company or organisation. Another important principle of law is that of Agency, where a relationship is created, where a principal gives legal authority to an agent to act on his behalf when dealing with a third party. An agency relationship is a fiduciary

Conclusion The prolific short story writer, Saki (H.H. Munro), used the term: “Design in haste, repent at leisure”. It is fair to say that a number of key regulators, such as the FCA, ASIC, Singapore, and the BVI’s Financial Services Commission are backing the future and facilitating innovation fast but their high level of consultation with key industry players means that repentance is unlikely – and why, with such cutting edge initiatives, should it be?. We all know about tempus fugit and time flying but some of these leading regulators may just be more about carpe diem or seizing the day. Long may it continue…! If robots do their jobs, then perhaps some complacent regulatory noses deserve to be put out of joint and it may be appropriate to “cock a snook” at the also rans.

Time will tell. | BB

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JULY 2019

one. It is a complex area of law, with concepts such as apparent authority, where a reasonable third party would understand that the agent had authority to act. As the combination of software and hardware is producing intelligent algorithms that learn from their environment. It is conceivable that, with the growth of multi algorithm systems, decisions will be made that have far reaching consequences for humans. It is this potential of unpredictability that supports the argument that algorithms should have a separate legal identity, so that due process can occur in cases where unfairness occurs. The alternative to this approach, would be to adopt a regime of strict liability for those who design or place dangerous algorithms on the market. To deter behaviors that appear or turn out to have been reckless. Is this a case of bolting the door after the horse has escaped?

Profile for Business BVI

Business BVI July 2019  

The theme for the July 2019 edition is ‘A View Beyond the Horizon’, which is intended to reflect where the territory is post 2017, while at...

Business BVI July 2019  

The theme for the July 2019 edition is ‘A View Beyond the Horizon’, which is intended to reflect where the territory is post 2017, while at...

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