This article is written by Sebastian Lopez Azumendi, lead regulatory reform specialist at the Development Bank of Latin America (CAF).

Digitalisation has gone mainstream in the public sector and is especially popular when it comes to streamlining and reducing bureaucratic procedures.

Today, none of us is surprised when governments announce new initiatives to digitise thousands of administrative procedures or the issuance of digital identities that allow citizens to electronically vote or pay taxes.

The next frontier for digital government is in the realm of data-driven decision-making, and especially regulation. In this article, I focus on independent regulatory commissions and their policymaking and oversight activities.

Independent commissions are autonomous agencies that operate at arm's length from the central administration. They are most common in the regulation of sectors such as utilities, food, drugs and capital markets.

The largest most important challenge of independent commissions is to reduce information asymmetries between them and supervised companies. In other words, the goal is to maximise agencies' capacities to develop a good understanding of service providers' costs and returns so they can set fair prices and quality standards. The ultimate beneficiaries of regulation are consumers.

Apps beat paper

Traditional mechanisms to oversee the performance of service providers include good design of concession contracts, regulation that is based on incentives and, most importantly, the internal capacities developed within independent commissions.

These tools have had a positive impact on improving regulation, yet the quality of available information has been a barrier.

Data collection and data analytics provide new ways to reduce this information asymmetry and, as a consequence, improve the quality of services to consumers.

Apps allow regulators to predict future behaviour of firms and prioritise actions

A good example of how data analytics has improved regulatory enforcement by independent regulators is the case of stock exchange commissions. Traditionally, listed companies have provided information to the public about their corporate governance through physical paper forms, which demanded huge processing efforts and provided little opportunities for critical analysis.

But now, apps allow regulators to pull data directly from listed companies' IT systems, giving huge benefits to both parties. In the field of data analysis, apps allow regulators to predict future behaviour of firms and prioritise actions. For instance, some apps now use artificial intelligence to categorise consumers´ complaints based on risk or as a strategy to prevent fraud or bankruptcy of firms. Digital solutions are also used to improve regulatory outreach, making it easier to capture consumers´ views on service quality and their engagement in policymaking.

Bridging information gaps

At the office for Digital Transformation of the State at CAF, we aim to support regulatory agencies in the region to improve regulation through digital solutions.

Concrete applications of what we do include:

  • Assessing capacities and opportunities to maximise digital tools: We assess the capacities of public officials and agencies' infrastructure to use digital solutions. This diagnosis is critical for the prioritisation of policy actions. Boards of directors of regulatory agencies will be better prepared to design digital strategies if they know their weaknesses and strengths.
  • Improving information management systems: Any intelligent use of data requires good reliable and well-structured information. We support regulatory agencies in order to make regulatory information interoperable and focused on consumers as the centre of decisions. One concrete application is the establishment of a unique ID for consumers of utilities that can be used by regulators of network sectors (water, electricity, gas) to trace consumption patterns, complaints and service providers' performance.
  • Supporting participatory policymaking: We support regulatory agencies throughout Latin America in order to improve the way they conduct consultations and monitor consumers' satisfaction with utilities. If regulatory agencies improve their information systems, then they can use natural processing techniques to process hundreds of comments to regulations, reducing the margin of error and saving money from data collection efforts.

Digital apps and solutions provide unique tools to the regulatory agencies in the region to help them overcome the main challenge of regulation: the information asymmetries that exist between regulators and companies that provide regulated services.

Two main beneficiaries emerge from this transformation. First, public servants who will experience significant reductions of their workloads and find more room for strategic management. Second, consumers who will benefit from higher levels of information regarding the quality of services they are provided, and the quality that goes with it. — Sebastian Lopez Azumendi

(Picture Credit: Unsplash)

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