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Navigating increasing regulatory complexity in the UK

Foreword 

It is a fact of corporate life that there is more regulation of everything, including utilities, consumer goods businesses, technology companies, auditors, even (potentially) football.

Yet for board members, it is not just the increase in regulation that is the issue: politicisation adds to the challenge. We hear politicians voicing concerns that there are too many independent regulatory bodies with too much power, whilst simultaneously asking regulators to solve difficult political problems in ways that risk undermining their core regulatory objectives.

Throw into the mix how technology interacts with all of this – including the latest developments in AI - and the business community must now contend with a period of intense regulatory perturbation.

And so, boards are having to shift anticipating and dealing with regulation higher up the agenda than ever before.

As we kick off 2024, we take a look at five key areas where regulation,  politics and technology intersect, and how boards can adapt their  approach to achieve more. 

1. Politics, regulation and the scourge of short-termism

Regulation and regulators have become increasingly politicised in recent years. The impact: regulators struggling to meet their objectives, businesses and investors having less certainty on regulatory outcomes, and diminishing public, political and business trust in regulation itself. We think this is likely to lead to more political influence in the future, and increasingly less stable regulatory regimes. 

How should businesses respond to the increasing politicisation of regulation?

2. Dealing with deals   

We see a lot of optimism bias in proposed M&A activity, where a firm’s board and executive team not only underestimate the level of resource they will have to commit to a regulatory investigation, but also misjudge the regulator’s potential concerns. This becomes particularly risky if businesses think they can gloss over difficult competition issues using the right contacts and political lobbying. 

How can businesses avoid “optimism bias” in dealing with the regulator when considering an acquisition?

3. Getting ahead of the consumer curve 

Once the Digital Markets, Competition and Consumers Bill (DMCC) becomes law, the consumer journey is going to be in the regulator’s sights in a way that many haven’t experienced before, nor will they necessarily be set up for.

The consumer element of the DMCC deserves board-level attention because of its potential impact. What should boards keep in mind?  

4. AI: a regulatory dilemma

Artificial intelligence creates many dilemmas, some of which were highlighted by the UK’s AI Safety Summit in November last year, and by the recent governance turmoil at OpenAI in the US. The key dilemma most firms face is: do we move fast to embrace AI and the opportunities we think it creates, or do we proceed more cautiously? Central to this dilemma is how best to understand and act on AI’s opportunities while monitoring and mitigating the risks - including the regulatory risks which can feel, at present, uncertain.

How can a proactive approach to AI adoption can help manage risks and head off unwanted regulatory headaches later?

5. The long and short of infrastructure success

Infrastructure-owning businesses have long had to grapple with how to plan for, and earn, a return over long periods, while managing regulatory shifts brought on by short-term political pressures and the influence of changing societal expectations. The demands of net zero, and infrastructure upgrades generally have combined to create an environment in which once-in-a-lifetime levels of investment are needed to make UK infrastructure fit for purpose. 

The resulting challenge for boards is to craft an approach that as far as possible anticipates and mitigates the short-term political and societal pressures that may be brought to bear on an executive team’s long-term plan. And to do this whilst retaining the plan’s capacity to create value.

How should boards react to short-term change whilst pursuing long-term returns?