The combination of extensive Whitehall experience and private sector secondment provides a very rich perspective with which to bring scrutiny and focus to regulation. This is something that Tracy Vegro, Executive Director, Strategy and Innovation for the Solicitors Regulation Authority, has in buckets. It has provided her with exposure to, and an appetite for, strategic thinking, which makes the willingness to innovate and evolve become second nature. She has fostered an approach of listening to and learning from others, heeding their mistakes, embracing their success and making collaboration for the wider good a positive example for delivering success in the regulation landscape.
You joined the Financial Reporting Council (FRC) in 2016 as Director of Strategy and Resources. In that time there has been considerable reform to the organisation itself. What role has technology played in this transformation?
Over recent years the FRC has undergone significant change and, following Sir John Kingman’s independent review, the FRC’s transformation into the Audit Regulation and Governments Authority (ARGA) will bring more changes which will encompass technology in the context of its application to the core regulatory functions of audit, financial reporting and corporate governance. The ARGA will have additional, stronger powers as a regulator to meet the challenges of the future and those include technology and being a regulator in the digital age.
The interesting points for any regulator to consider are: how far do you want to be ahead of those you regulate? How quickly are they moving and how fast do you need to move? You certainly can’t afford to be behind them, particularly in areas such as the adoption of artificial intelligence (AI), which could affect regulatory ethics and judgements.
As well as the technology itself and the operational changes it brings, regulators also need to think about how the technology is affecting those we regulate from an organisational, structural and cultural perspective.
Regulators also need to consider the public interest. A recent report from the Committee on Standards in Public Life looked at how regulators must address questions around the use of AI within public bodies to determine what is in the public interest. Having a firm understanding of new technology is therefore imperative – if you haven’t got a clear understanding of what the technology is doing, it is very hard to regulate.
This approach may require more joined up thinking from regulators to ensure we have similar interpretations of what constitutes a citizen’s rights and freedoms with regards to various technologies, for example facial recognition. We need to consider both the human and technical elements in all of this.
“Having a firm understanding of new technology is therefore imperative – if you haven’t got a clear understanding of what the technology is doing, it is very hard to regulate.”
The next decade will bring a rapidly changing technological and regulatory landscape for the financial sector, especially in the UK. Is there an opportunity for the sector and its regulators to work in partnership to address these?
The next decade should see more collaboration between Government and regulators as we all establish what the national appetite is for data and AI and how we utilise it. It presents an opportunity to work together, rather than having individual regulators doing things for themselves.
This sort of partnership working equates to what we might call ’convening power’. As regulators I believe that we have convening power over those sectors, organisations and individuals we regulate, which creates a platform to identify potential strategic benefits and facilitate the implementation of technology. We need to be able to share questions and ideas, and not exist in silos. We all want to be intelligent regulators and that means asking the questions, learning from where people have made mistakes and working to find possible answers together.
The scale and pace of adoption of new technology is going to be interesting and hopefully we will all be able to collaborate globally. I have worked with European regulators in the past to consider how we might have a common approach to working together on the adoption of technology and innovation, but it does always leave questions of how different approaches fit into a particular model of country or sector regulation. We need to consider whether certain capabilities or technologies could work for a group of regulators or if these differ too much from regulator to regulator. However, often we can be asking similar questions, but the approach to possible answers and new ways of doing things are different. The UK will want to continue to share innovative big ideas, some of which might be best executed across borders. Use of technology, data and AI can be an excellent example of that.
As I look to my new role at the Solicitors Regulation Authority, one of the attractions of the role was the opportunity to think about being future-oriented as a regulator in terms of the strategy for, and implementation of, new technology in the legal sector. I think this will require collaboration within the sector and other regulators and policy developers.
In your current role you have also led an international programme to consider the impact of AI and digital technology on the audit process and its regulatory requirements. How does the UK compare with other national audit regulators in their embracing and utilisation of AI?
I think it is still too early to say that any regulator has totally embraced new technology fully. Many people are at the same starting point in terms of asking questions. I think there is a difference perhaps in how some jurisdictions are imagining the next five years, with some more ambitious and looking very specifically at where they can progress and how quickly in relation to technology.
One of the areas where the FRC has been innovative at as a regulator is in its ‘Financial Reporting Lab’ division which operates as a test-bed for new ideas, products and services, similar to the FCA ‘Sandbox’. Recently the Financial Reporting Lab put out reports around AI and big data and these were made available for public review and consideration. They provided clear insights and thoughts on three or four key areas, rather than a broad-brush approach.
In the next few years, I think we are going to reach a tipping point where people begin to hone certain technologies, particularly around processing and operational functions, which may be very relevant in audit and law, for example. This will be a question of ethics particularly for the regulators, where the need to advise individuals about what to be vigilant of and checking specifically, whilst also thinking about what the gaps might be in the regulatory landscape.
This is a very important role and we need to think about whether we work as independent regulators to do this or if we come together slightly earlier to reduce the risk of making similar mistakes. Instead it would give us all the opportunity to evolve in this changing landscape in a more informed way. I think this is important and I do hope that we can continue convening ideas amongst both broad and more particular groups of regulators.
We also need to look at some of the exceptionally good work that goes on in our universities in AI and other technological developments. We are incredibly well placed to be international leaders in this field and think the regulatory community needs to be part of that. We need to set realistic and attainable goals and ensure we are on a path that can achieve those goals. We do need to think more clearly about people’s behaviour and the question of ethics in AI. We need to stop thinking of it as a technology, and rather as a way of delivering changes to work and civic life. It does need very close consideration overall.
There has been considerable scrutiny on the audit world in recent years – does technology and AI have a role to play in providing greater reassurance and scrutiny to regulators, consumers and businesses? Do these benefits outweigh the risks?
This is a key question. Technology facilitates the delivery of high quality audit, legal or financial services. The focus therefore needs to be on how the regulator’s role can be used to set standards and generate a balance so we don’t have people using multiple different technologies or following different processes that actually aren’t achieving anything.
We know that individual technological developments can happen quite quickly, but adoption at scale can take time. Therefore, we need to ensure that our reviews and approach aren’t too future-oriented so that they might not actually be in the best interests for today’s customers.
Change usually starts with some scepticism, even fear. If you look back through history, it is akin to how people felt during the industrial revolution. Innovation is happening so quickly now in almost every area of our lives and, while technology is part of our way of life, we definitely need to be aware of what is legitimate and what is a scam, so to speak. There’s a far greater requirement for triple checking and a need for rigour with any regulatory oversight.
With greater utilisation of digital technology, what does that mean for the skills required in a regulator?
All regulators need to be continuously improving the pool of people we use to obtain the skills we need. However, there is a huge cultural point here. The use of technology enables very different ways of working which can actually be good for the diversity of any organisation and we need to consider this very closely.
There can be a pinch point here for regulators in certain professions where a traditional culture in a particular sector may supersede the appetite for technological adoption or adaptation. We need to think about how and where people are accessing certain services, such as legal, and through what technological means. This could undergo a real change in terms of innovation at the customer end, but even more potential challenges for regulators to manage. This requires a regulator to be more than adequately IT-enabled. We need investment to be made from both the professional and regulatory side. As regulators, it is our duty to talk about this in more depth.
We also have to emphasise that some technology increases the levels of complexity dramatically. For example, there are obvious risks that come to the regulator and the sector it regulates. With much more sophisticated technologically-generated data, the way business is done and the way we as individuals live our lives ultimately will change. We need skilled regulators who embrace technology and are prepared to innovate to find solutions, mitigate to remove risks and adopt new approaches with agility and in a collaborative manner.
We need to consider ethics as the regulator, to understand if we are absolutely covering off all the critical issues from the consumer point of view. If there is less choice, based on price or availability, that has an impact on society and regulators need to have a view on that. Regulators must have a keen awareness of the readiness of, and any potential disadvantage to, different sectors of society.
Regulators really must be thinking more clearly about our place in society, and we possibly don’t always do this enough. Regulators exist for the public interest and need to keep this front of mind.
“Technology enables very different ways of working which can actually be good for the diversity of any organisation.”
You are moving shortly to join the Solicitors Regulation Authority. Can you share an overview of the organisation’s ambition for addressing the digital challenges and opportunities in the legal sector?
I was delighted to be selected for this role because it is new and has a wide remit, yet it builds on work I have done on strategy at the FRC. As we look at the legal sector and its regulatory needs, digital innovation is vital and Lawtech more broadly.
Lawtech is a clear term of reference now and while we have some key global players and some smaller operators. There is a huge potential economic impact to be gained through digital innovation and AI.
There are considerable opportunities in the legal sector and it feels like there is an appetite for innovation and change, which is really exciting. It provides an opportunity to do lots of strategic and creative thinking and share insights in a good way at a regulatory level, and not just be imposing rules and enforcing conformity, important though that is. We also need to consider the benefits to the economy and the consumer too. The UK’s professional services firms are the envy of many countries and we want to be demonstrating innovation and particularly showing how we can lead from the front.
There is an opportunity for big digital development, particularly where there aren’t yet any large platforms developed specifically for different sectors. There could potentially be big changes around the functionality needed by the law firms, although it is subject to debate whether that would cover all aspects of law or certain core areas. There are some really quite fundamental questions that need addressing, and it is always great to be joining something at the start of a process
Can you highlight what opportunities and challenges face the legal sector arising from advances in digital products and services?
The trends in the legal sector seem to me to be moving towards the recognition that there is going to be greater learning and more opportunity from new technology developments for those in the sector and their customers. It may even impact how people qualify in the legal profession. The use of digital applications, skills and training and the need to think in a digital mindset is going to develop over the next few years in a way that we have never seen before. One of the interesting questions to emerge from the home working brought about by social distancing because of Covid -19 might be how much more work will be done digitally in all professional services. This is something yet to be fully understood, but we are now having an opportunity to assess it.
Does digital innovation allow, or indeed require, greater transparency and more accessibility for clients to how advice is being offered and reviewed?
There are IT applications which help track client cases and that really does offer benefits to clients because it reduces the time spent in face-to-face meetings, provides updates more readily, and can supply documents electronically. As such, it provides more transparency. The speed of activity and communications will increase in certain areas too, which should benefit clients with reduced costs and greater efficiency. However, that does also present questions of scrutiny and cyber-security and it is important that regulation is as broadly across that as possible.
Is there a greater or lesser level of risk for the regulator with the introduction of new digital technologies? How can this be mitigated?
I hate to sit on the fence, but I do think both. In terms of client confidentiality and with the material that you may have access to as a regulator for reviewing something or checking, I think there could be quite a big risk: it is very valuable data.
We need to also consider the judicial process and what the regulator’s powers need to cover. This would bring new issues for the regulator, potentially requiring a much bigger policing job with potential gaps if points fall between different skills. We need to think about whether there needs to be an overall body, and if not then we must consider how the individual regulators come together and avoid gaps. It is not at all straightforward.
Indeed, any sort of new technology will be very specific to each area in terms of the actual application. While solicitors using this technology in an operational way day-to-day will be completely comfortable with it, as regulators we may not have the same appetite. From a regulatory side we will need to have teams focusing in detail on very different pieces of work.
Ultimately, I think it will mean that technology companies will need to be more collaborative and less proprietary in the systems they are developing. This is going to be a challenge, but I think certainly one that we should be looking at working more collaboratively. This is an example of the convening power I referred to earlier. Data will be essential in furthering technology innovation and absolutely does require greater collaboration across many regulators and sectors.
The whole process of adopting new technology and AI can make a big difference and we need to be ambitious I think. The mantra ‘start small, think big’ is one that would benefit regulators in this technologically developing environment. If we can get it right on a smaller scale, it gives us the chance to take bigger opportunities more quickly than if you try and do something big and it fails. Small steps can still be significant, and they pay back quicker on investment.
I believe that regulators may have to work together in terms of investment in this technology and in the process too. If we collaborate, we can make the investment which ultimately will benefit us and the sectors we regulate.
“Small steps can still be significant, and they pay back quicker on investment.”
When thinking about the future of professional services in an AI-enabled environment, should we be trepidatious, embracing, or both?
I think that we should be embracing it. It is more enabling and as a rule speeds up activity. Also, having new developments for regulators to think about isn’t a bad thing, however we all need to be mindful of the fact that continuing to trial and probe will be very important: it’s not always going to be a case of picking winners. We need to remember not to take anything purely at face value and not to assume that anything stays the same. In these ever-changing times, I believe these are good rules for life more generally.
However, I also believe that a slight natural scepticism is healthy and needs to be maintained along the way.
Tracy Vegro Biography
Tracy Vegro joined the Solicitors Regulation Authority as Executive Director for Strategy and Innovation in March 2020. Prior to that she was Executive Director of Strategy & Resources at the Financial Reporting Council (FRC), from 2016. Tracy has wide experience of Whitehall as a Senior Civil Servant. She worked mainly at the Department for Business, with stints in Cabinet Office, Communities and Local Government, the Government Equalities Unit and latterly in the then Department of Energy and Climate Change. Tracy was selected for the Civil Service High Potential Development Programme (HPDS) and is also a member of the Major Project Leadership Academy (MPLA). She has undertaken a number of secondments in the private sector with Co-operative Group, P&G and Boots Healthcare International. At the FRC Tracy was responsible for the implementation of the FRC’s business and resourcing strategy, with a special focus on culture and innovation, as well as implementing the recommendations of Sir John Kingman’s independent regulatory review of the FRC. She also lead the FRC’s EU Exit preparation projects, diversity and inclusion. During her time at the FRC Tracy was nominated for the City of London’s Leaders of Tomorrow programme in 2017.