What can UK business expect from regulators in future?

The prime minister, Keir Starmer, spoke about the need to upgrade the regulatory regime at the UK's International Investment Summit on 14 October. He declared an intention to "rip up the bureaucracy that blocks investment" and "make sure that every regulator in this country, especially our economic and competition regulators, takes growth as seriously as this room does".

However, a consultation on the green paper on the UK's modern industrial strategy took a very different tone towards regulation: it identified the positive role effective regulations (and especially competition regulations) can play in driving growth, and lists eight "growth-driving sectors" of focus.

It will be interesting to monitor how the strategy will interact with the newly created Regulatory Innovation Office (RIO) which aims to "reduce the burden of red tape and speed up access to new technologies", with a particular focus on four fast-growing areas (engineering biology, space, artificial intelligence and digital in healthcare, and connected and autonomous technology).

Regulatory environment

The government has stated an intention to identify where new regulatory frameworks can assist in the development of new technologies and allow for new products to be more effectively regulated and approved.

This is exemplified by the recent launch of the RIO, with the aim to position the UK as the best place in the world to innovate. It is intended to speed up regulatory decisions for new technologies, in line with the government's industrial strategy.

The green paper states that regulation must be created in partnership with business and regulators. To be effective, regulations must consider implementation and enforcement. To that end, the government is keen to understand how current regulations and the regulatory environment are affecting the growth-driving sectors identified by the RIO. It will act where regulations are identified that are not fit for purpose or that will not drive the transformational change sought.

Another example given in the green paper is in relation to company law, where the government is making several reforms, including immediate changes to non-financial reporting regulations, with further consultation to follow.

The government is also looking at regulation which affects the whole economy, including regulation that relates to planning and infrastructure, the energy transition, transport and childcare.

Life sciences and healthcare

Two of the four initial focus areas of the new RIO will have a direct impact on regulation in the life sciences and healthcare sector.

The RIO will particularly focus on engineering biology. This encompasses synthetic biology and biotechnology which can create new products that can, among other things, provide healthcare benefits such as new vaccines. The RIO is intended to help regulators bring engineering biology products to market safely and more quickly, however, the specifics of how that will be achieved have yet to be announced.

The RIO will also focus on the role of AI and digital in healthcare, aiming to help deploy, quickly and safely, innovative healthcare products and services. Although there are no specifics on how the RIO will work with the Medicines and Healthcare products and Regulatory Agency (MHRA), the MHRA has emphasised digital technology in its 2024/2025 business plan. One of the MHRA's priorities is to deliver new pathways for access to transformative medicines and medical devices, so businesses can expect to see regulatory guidance from the MHRA in this regard.

Alongside this, the government included life sciences as a growth-driving sector in its industrial strategy green paper, acknowledging that the sector "sits at the intersection of healthcare innovation and cutting-edge technologies", which offers transformative potential.

These recent activities indicate the government's prioritisation of technological advancement in the sector and its intention to create a regulatory environment that is attractive for businesses to bring their products to market. It is likely that this would be achieved through innovative approval pathways at the MHRA. The MHRA demonstrated its flexibility earlier this year with the introduction of its International Recognition Procedure, which allows it to take account of the expertise and decision-making of trusted regulatory partners to speed up the approval process for certain market authorisation applications. It is likely there will be more efforts to improve regulatory approval timelines in the future.

Creative industries and AI

The industrial strategy green paper lists the creative industries and digital and technologies (which includes AI) as two of its eight growth-driving sectors.

However, there is ongoing conflict over the relationship between intellectual property law and the development of AI. The government has recently vacillated on whether it will provide a legislative solution or policy updates to bring some much-needed clarity to the issue. It has been rumoured that it will open a consultation on a text and data mining opt-out model, which would allow rightsholders to opt-out their works from being used to train AI systems and which is similar to the approach taken in the EU.

The EU approach and this rumoured direction of travel in the UK has not been without critique, in particular by the creative industries. The government has consistently maintained that it seeks to find a middle ground in the debate, but this is something that eluded the previous government.

It is certain that there will be some government intervention in this area, but quite what form it will take or what impact it will have, on both the creative industries and the development and regulation of AI, remains to be seen.

Digital

According to the green paper, the UK lags behind in the adoption of digital technologies which is holding back growth. This was reflected in the autumn budget, with a number of funding measures announced to help businesses, especially SMEs, adopt digital technologies.

The government has also announced a cross-government review of technology adoption for growth, to look at barriers (which presumably includes regulatory barriers) to the adoption of transformative technologies that could enhance innovation and productivity. This will focus on the sectors identified in the green paper.

The government also recognises in the green paper that the most valuable businesses in the world are digital and technology companies. To deliver growth in this area, it wants to focus on a range of technologies and their commercialisation: backing smaller, less proven, and more disruptive businesses alongside those that are larger and well-established. Again, this was reflected in the recent budget, with investment in research and development. Commercialising technology by speeding up the time it takes to bring digital products and services to market is a key aim of the RIO.

While the government has not yet taken any action in relation to implementation of the incoming online safety regime under the Online Safety Act 2023, which Ofcom is currently undertaking, it has, arguably, increased pressure on the regulator to deliver a regime that succeeds in protecting people online, especially children. It recently wrote to the regulator asking how it plans to regulate "small but risky" online platforms alongside the larger platforms. It also recently requested that Ofcom investigate the spread of illegal material online and whether there was a link with the disorder experienced on UK streets over the summer, as well as whether it is considering further measures to counter disinformation to prevent this happening in the future.

Data

The draft industrial strategy recognises that effective use of data is crucial for the country's industrial strategy, both in itself, and as the substrate for digitalisation and AI systems. Reflecting this importance, the government recently published its Data (Use and Access) Bill, which aims to make better use of data to grow the economy, including by creating a framework for smart data schemes, as well as a certification regime for digital identity verification systems.

The bill would make targeted reforms to UK data protection laws, partly to reduce the regulatory burden on businesses and also to enable attainment of the government's stated industrial objectives: improving lives by maximising the potential of science and technology. This includes a softening of the restrictions on automated decision making and those on researchers' use of personal data.

The new bill would also make changes to the structure and powers of the Information Commissioner's Office (ICO), which will become the Information Commission. As currently drafted, the bill states that in carrying out its functions of protecting personal data, the Commission will also have to consider the desirability of promoting innovation and competition. It will also have to consult other regulators about how the exercise of its duties may affect economic growth, innovation and competition.

In addition, there are changes to speed up the regulatory process in relation to complaints and subject access requests and improve efficiency. In its response to the new bill, the Information Commissioner welcomed the changes that will "significantly improve the ICO's ability to function effectively".

Speaking at the ICO's annual practitioners' conference in October, the Information Commissioner outlined steps being taken to improve regulatory effectiveness. This will mean the ICO dealing with fewer cases, but resolving them much faster, helping address the multi-year case backlog. The ICO also confirmed that it would continue to take the lead on regulation of AI.

Separately, the government has indicated that it is likely to consult on and enact law or regulation relating to the safety of frontier AI models. This raises the possibility of new regulatory powers, and the question of whether these would entail a new regulator, or expansion of the remit of an existing one.

Product regulation

The government has recently introduced the Product Regulation and Metrology Bill, which will allow for the creation of product and metrology regulations aiming to make it easier for the government to update legislation. This bill also allows for alignment with EU standards where advantageous. The government states that the bill’s purpose is to enable the “UK to maintain high product standards, supporting businesses and economic growth, by allowing the UK Parliament the power to update relevant laws".

While the bill is in the early stages of its legislative journey and is subject to change, its underlying purpose reflects how the government intends to use the product regulatory framework to help drive growth and facilitate innovation.

The government is already taking steps to identify areas where the new powers in this bill can be utilised and where regulatory reform can be introduced to benefit businesses. For example, its consultation on the common charger directive is looking to see whether the UK should adopt this EU initiative. It expects manufacturers to voluntarily follow the EU directive to avoid supply chain complexity, which may necessitate regulatory reform in the UK to make it easier for businesses placing products on both the UK and EU markets. This further underscores the government's intention with this bill to amend regulations to make the regulatory environment work better for businesses.

Competition

The green paper contains a significant focus on competition and the impact it can have on growth. Throughout it refers to the "competition and regulatory" regimes, considering these as two separate items. The paper identifies that competition can play a key role in driving growth.

Further to this, the Competition and Markets Authority (CMA) has publicly asserted that much of the work it does is already consistent with the government's growth objective and has launched a Growth Programme focusing on "critical drivers and blockers of growth", including the impact of upstream market power and the effect of competition on investment.

The green paper is silent on the National Security and Investment Act (NSIA) investment screening regime. This absence is particularly notable as many of the sectors picked out in the green paper for investment and growth directly overlap with those where M&A activity is likely to require mandatory NSIA notifications before completion. The NSIA captures both UK and international investors, which has long been a bugbear of these engaging in corporate transactions. Businesses would appreciate clarity on the interaction between this regime and the prime minister's intention to promote growth and investment.

Financial services

The green paper highlights the importance of the financial services industry to the UK economy. The industry is also included as one of the eight growth-driving sectors that will be prioritised as part of the industrial strategy.

Following the International Investment Summit, the FCA acknowledged its statutory objective to support growth and recognised that there is debate as to how successfully it is achieving this. Alongside this, the FCA published a literature review on the links between financial regulation and growth, and will shortly open a research competition to establish how it can support capital formation, productivity gains, and financial services exports.

In July 2024 the FCA also overhauled the listing rules for the specific purpose of boosting growth and innovation on UK stock markets. At the time, the chancellor of the exchequer commented that the new rules represented a significant first step in the reinvigoration of UK capital markets. This all demonstrates a willingness by the FCA to embrace its role in supporting and develop regulation accordingly.   

Osborne Clarke comment

The different slant on the benefits (or otherwise) of regulation between the prime minister's comments at the investment summit and the ideas contained in the industrial strategy green paper suggests that business will have to wait for the government to issue its "strategic steers" to the regulators for more guidance on their future actions. The government has indicated that a draft one will be published for the CMA shortly.

While these strategic steers typically have had limited impact on regulators' actions, they are likely to give an indication of the government's priorities when it comes to regulation.

Additionally, many details around how the RIO will operate are not yet known. While the government has indicated its intention to reform the regulatory framework in certain areas to drive innovation, this will only work in practice if the RIO has adequate funding and resource.

Further, the new Product Regulation and Metrology Bill, is receiving criticism for being "skeleton legislation," meaning that it lacks substantive detail and instead grants broad powers to ministers to introduce regulations with little transparency and no consultation requirements – a departure from existing regulatory practices. The government's stated intention for the bill is to support businesses and facilitate growth, and thus align with its industrial strategy. How it will work in practice remains to be seen. In the meantime, businesses may wish to take the opportunity to feed into the government's industrial strategy consultation.