We are living in a world of rapid technological advancement. In a span of a couple of decades, we have moved from mobile phones to smartphones, from Web2 to Web3 and to an era of AI and clean energy.

But even as we embrace the benefits of innovation, some of the innovation might go awry if left unattended. Hence, the Government might want to come in to ensure the stability of society.

In the EU, there is a push for regulation of the Artificial Intelligence (AI) Act to ensure the ethical use of AI. However, some of the industry players are pushing back against the proposed regulations, stating the burden of compliance with the regulation will hamper the development of the industry.

Such a tussle between the need to promote innovation while having the right regulation to ensure responsible use of technology and safeguarding society is a delicate balance between the society, Government and industry players. Much like the delicate act of nurturing a bonsai plant, the challenge lies in striking the right balance.

The silent revolution of innovations

Historically, innovations often seemed to be running against the current of their times. When cars were first invented, or when the first iPhone was launched, many could not fathom the profound changes they would bring. In many ways, these innovations were like cryptic pieces of art; their true value wasn’t immediately understood. Yet, they had the potential to redefine the world.

The grace of non-intervention

A significant reason some innovations flourished is that they were left relatively untouched in their early stages. Without excessive intervention from the authorities, these innovations are allowed room to grow, adapt and navigate their purpose into the society. There’s inherent wisdom in allowing the market to play its role in determining the fate of these innovations. Some will naturally thrive, while others will wither away.

When is the right time for regulations to come in?

However, non-intervention doesn’t mean a handoff approach. Once an innovation begins to show signs of significant growth and potential impact, regulations should be considered. Introducing regulatory frameworks at this juncture can ensure the innovation grows sustainably and ethically, benefiting the larger community.

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Drawing parallels with bonsai cultivation, a plant needs to be allowed to grow to a certain size before the art of trimming and pruning begins. Immediate restrictions can stunt its growth, depriving it of reaching its true potential. Similarly, introducing regulations prematurely might rob an industry of unparalleled opportunities.

The irreversibility of regulation

However, one has to keep in mind that regulations, once set, cast a long shadow. They will have a great impact, and often lasting, impact on the growth and trajectory of the industry and its innovation. Given the long-term implications and costs, it becomes challenging for regulators to backtrack or make drastic changes. Such shifts come at a high price for both the regulating bodies and the industry.

Therefore, it is important for the authorities to carefully consider the impact of their regulations.

Monetary Authority of Singapore (MAS) and the regulatory sandbox

One can look at the approach Singapore is using to balance innovation and regulation. The MAS introduced a ‘regulatory sandbox’ where fintech startups can test their products in a controlled environment without immediately facing the regular regulatory requirements.

This approach acknowledges the fast-paced nature of fintech innovations and provides a safe space for experimentation. Once a product’s viability and potential risks become clear, appropriate regulations can be established. This forward-thinking approach by MAS ensures that Singapore remains a hub for fintech without compromising on regulatory safeguards.

One use case is how Kristal.AI, a digital wealth management platform, was enrolled into the sandbox to test out the business model and later graduated from the sandbox once both the industry and regulator had a better sense of how the new product impacted the industry.

A healthy environment – a fine art of balancing innovation and regulation

Balancing regulation and innovation isn’t a matter of cold calculus but a nuanced art. It’s about discerning the “right” moment for intervention, ensuring that innovations are given the chance to reach their potential. By adopting a patient, informed, and timely approach, we can harmonise the dance between regulation and innovation, ensuring a vibrant, sustainable, and ethical future for emerging industries.

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