The Legal and Regulatory Implications of Disruptive Technologies in Emerging Markets

Whilst the word ‘disruptive’ may have negative connotations, the potential applications of disruptive technologies can lead to positive developments in emerging markets. This potential is constrained by the innovators’ imagination, but potentially also by a country’s legal and regulatory framework. Our report, ‘Legal and Regulatory Implications of Disruptive Technologies in Emerging Market Economies’, was commissioned by the World Bank Legal Department’s Thematic Working Group on Technology and Innovation in Development. We highlight some of the legal and regulatory considerations which should be taken into account when financing projects where disruptive technologies are a component.

The report first defines the examined disruptive technologies and their uses. The term refers to a range of technologies, but for our purposes we focused on Artificial Intelligence (AI), drones, nano-technology, geo-spatial technology, Blockchains (including distributed ledger technology (DLT), cryptocurrency, and smart contracts), cloud-computing, the Internet of Things (IoT), FinTech, and the collaborative/shared economy. From this varied list one can already begin to understand the importance of identifying the application of the technology in order to identify the scope of the issues which could be faced when attempting to introduce a particular technology. Amongst many others, uses could range from military, to agriculture, energy, human rights, trade, logistics, public administration, energy and healthcare. A number of potential applications are highlighted, having in mind the emerging market setting and the goal of sustainable development. This includes FinTech as a way of increasing accessibility to banking, including mobile money which has proven successful in East Africa, in particular the M-Pesa in Kenya. It provides small business owners smallholders and individuals with a tool to sell to and buy goods from markets which they would not otherwise have access to.  AI in combination with drone use can identify the exact disease that is attacking crops and send a drone to spray the appropriate substance to prevent further crop damage, thus playing a role in food security. DLT has been used to provide identification to refugees, to trace the origins of diamonds to ensure they are conflict-free, or verify the supply chain of cotton to ensure human rights and labour rights have not been violated. DLT can also be used in the public sector to promote good administration and tackle bureaucratic inefficiencies as well as corruption. The IoT can be used to track the health of individuals through wearable sensors and apps. These are just a few of the uses disruptive technologies are already being used for, with the number of innovations growing daily.

However, it is not always easy to take advantage of technological advances because local laws can act as barriers to adoption. Some examples include the impact of a country’s laws of evidence (which require original, notarised and locally produced documents) on the adoption of smart contracts or other electronic contracts. In some countries, laws regulating the use of drones place within the same classification as aircraft. This restricts their potential positive uses in agriculture or to survey rural areas or conflict areas for population displacement, droughts, and much more.  These are not impossible obstacles to be overcome, and solutions have already emerged.

Technology can also be used to create solutions to issues which some technologies give rise to. These include the use of technology as a regulation tool (RegTech), as well as privacy enabling technologies (PETs).

In our report we include an overview of legal and regulatory considerations specific to each technology. For example, the attribution of responsibility under data protection laws when deploying blockchain techniques. The legal and regulatory framework is composed of both substantive and procedural rules, as well as obligations applicable to vertical sectoral activities (eg, financial services) and horizontal conduct (eg, competition law), not only set by states but increasingly by non-state actors and institutions (eg, codes of conduct).

We identify three essential elements for any legal environment to have for it to be conducive to a sustainable and secure integration of disruptive technology: data protection, cybersecurity, and intellectual property laws.  We take each in turn setting out best practice, cautions and potential obstacles. The EU General Data Protection Regulation (GDPR) is used as an example of data protection regulation adapting to the challenges of technology, giving the data subject increased control over their personal data whilst providing necessary flexibility in its implementation. Given the tendency of some states to focus on cybercrime law, including some using them for political purposes, when adopting cybersecurity laws caution should be exercised to ensure a distinction between cybersecurity (the prevention) and cybercrime laws (the cure). When it comes to intellectual property, care should be taken to ensure that these laws do not stifle innovation, whilst at the same time providing sufficient protection of investment to encourage new market entrants.

Our conclusion is that when it comes to achieving sustainable development through the use of disruptive technologies, the legal responses need to be tailored for each specific technology, its use and the community or country. It is important to note that it is not only the legal and regulatory framework that is key; the political and social appetite to embrace, promote, and develop the use of the technologies needs to exist.

Ian Walden is Professor of Information and Communications Law and Head of the Centre for Commercial Law Studies (CCLS), School of Law, Queen Mary University of London

Dr Theodora A Christou is Convenor of Transnational Law and Governance and a Member of the Cloud Legal Project at the Centre for Commercial Law Studies of the School of Law, School of Law, Queen Mary University of London